Issue Watch of the Week: 21 Feb – 27 Feb 2024

Economic Dilemma amid Absence of Trust, Stability: 

Amid economic instability and rising taxes, there is a notable shift within Iran’s business community away from the national currency to gold, the U.S. dollar, or cryptocurrencies. Threats by the governor of the Central Bank of Iran to enforce rial transactions and potential judicial intervention reflect a desperate attempt to preserve the place of the currency. Amid decreasing reliance on the rial and waning confidence in it, the negative reaction to a proposal for Iran to create its own versions of international financial systems like SWIFT and FATF reflects deep domestic skepticism and concerns about the Central Bank’s credibility worldwide. Volatility in the FOREX rates adds to the business community’s uncertainty, impacting production. This situation amplifies the demand for political stability, a need accentuated by ongoing turmoil in the Middle East and Iran’s lingering disagreements with the IAEA.

Crisis of Trust in Government Averse to Dialogue: 

Iran faces a deepening crisis characterized by political and social turmoil, economic instability, and widespread poverty and inequality, leading to increasing public challenges including despair, hopelessness about the future, eroding social capital, and a profound lack of trust in both the government and media. A 2023 survey reveals an alarming 81-percent level of public distrust, with distrust towards governmental institutions and various forms of media, including foreign outlets, from 50 to 70 percent. Doctors enjoy the highest trust, followed by university professors and teachers, while politicians rank lowest. Sociologists attribute the escalating incidence of violent reactions, such as suicides, to the political system’s failure to engage in dialogue with its citizens. This cycle of violence threatens the political system’s legitimacy, underscoring the urgent need for open communication and genuine reform to prevent further descent into illegitimacy.

Administration Intransigence on Labor Wages Potential Prelude to Protests: 

The Supreme Labor Council’s recent meeting seemed to have deliberately neglected critical agenda items like worker wages and regional wage adjustments. Observers interpret this ongoing government procrastination in addressing wage adjustments amid rising inflation as a tactic previously used to enforce minimal wage increases at the last moment. In a rare development, employers have declared they are not opposed to a 30–40-percent wage increase, recognizing the importance of labor satisfaction for production outcomes amid economic hardships. Experts criticize the government’s single-handed opposition to wage increases and recommend that it consider the risks to national security and social well-being from increasing poverty, dissatisfaction, and potential protests within the labor community.

Leadership Oversight Debates Resurface ahead of Assembly of Experts Election: 

As the election for the Assembly of Experts approaches, debates have resurfaced regarding the contentious issue of oversight of the supreme leader’s performance. This debate, spurred by Jamaran, an outlet associated with the Institute for the Compilation and Publication of Ruhollah Khomeini’s Works, arises from differing interpretations of the constitutional clause related to the Assembly’s oversight responsibilities concerning the leadership’s continuity and the leader’s ability to fulfill his duties and maintain eligibility conditions. Although this variety of viewpoints among current and potential Assembly members seems unlikely to affect Ali Khamenei, it could lead to conflicts when the Assembly faces the challenging task of selecting his successor. Given the current divisions within influential centers of power, the new leader is unlikely to enjoy the unanimous support and acceptance of both the Assembly members and the wider elite, highlighting a potential future crisis in leadership succession.

Attempt to Decouple Sanctions from Nuclear Program: 

An item published on the website Iranian Think Tanks on 20 February makes a bold narrative move to decouple Western-imposed sanctions from Iran’s nuclear program. Thus far, the story has been that the Western sanctions were intended to dissuade the regime from a pursuit of nuclear weapons. The new interpretation is that the ultimate goal of the sanctions has, in fact, been to overthrow the Islamic Republic by imposing economic misery on the Iranian people and inciting them to rebellion. The evidence cited for this is Richard Nephew’s 2017 book The Art of Sanctions: A View from the Field. Nephew was the lead sanctions expert for Iran during the Obama administration, and his thesis was that economic pressure would force a change in Iran’s nuclear stance (which it did, resulting in the JCPoA). The argument by Iranian Think Tanks, not fully developed, is that economic sanctions had been an item in the U.S. toolkit in the 1990s, well before the nuclear controversy. The implication might be that Iran should not back down from its nuclear program over the threat and implementation of sanctions because the U.S. would have resorted to them anyway.

Iran Open for Business in Military Hardware: 

With the sun having set on a UN arms embargo on Iran in October 2020, the country is eager for revenue from sales of military hardware to interested customers, primarily Russia. Other recipients of Iranian armaments are said to be Ethiopia, Tajikistan, Bolivia, Venezuela, Iraq, and more than 30 other unnamed countries. In 2022 Iran claims to have sold $1 billion in arms, comprising the four categories of drones, missiles, air defense, and speedboats. At the same time, the U.S. and Iran are engaged in a cat-and-mouse game over whether Iran has sold ballistic missiles to Russia for use in Ukraine; the U.S. suspects it, but Iran will neither confirm nor deny.

Iran’s Strategic Imperative amidst South Caucasus Developments: 

Recent diplomacy between enemies Armenia and Azerbaijan, coupled with Yerevan’s shift from a Russia-led security pact towards an arms agreement with Paris, signal developments that Iranian observers interpret as Western efforts to diminish Russia’s sway in the Caucasus. These observers advocate for Iran to forge a strategic alliance with Yerevan and maintain a proactive stance in the region. The anticipated visit of Ukrainian President Volodymyr Zelenskyy to Armenia is seen through a similar lens—a move by the West to create a diversion from challenges elsewhere. Calls for a tighter Tehran-Moscow partnership akin to their cooperation in Syria run into worries over Russia’s delayed military responses.

Transit as Power: Leveraging Routes to Boost Iran’s Geopolitical Clout: 

The 16-million-ton volume of foreign transit through Iran marks a 35-percent increase over the previous year. Conservative observers, nonetheless, see a need for a comprehensive strategic plan, cautioning that unwarranted optimism about Iran’s transit position may overlook the competitive planning required to outpace other nations. The growing discourse advocates for Iran to expand economic diplomacy beyond transit, fostering broader political and economic relations to raise transit revenues and elevate geopolitical influence. This could mitigate economic isolation and make the nation resilient against sanctions.

Economic Disputes amid Sanctions, Export Challenges: 

Excluding oil, Iran’s trade balance stands at a negative $14 billion, with non-oil exports witnessing an 11-percent decline in comparison with the previous year. Remarkably, $30 billion in oil exports have offset the deficit, securing a positive trade balance. Experts from the private export sector lay criticism at the door of government practices, specifically targeting the currency policies of the Central Bank of Iran (CBI), the impractical mechanisms for repatriating export revenues, and the lack of a unified export strategy in the face of sanctions. At the same time, an ongoing dispute within the administration sees the minister of economy openly criticizing the CBI’s currency policies for contributing to the $14 billion trade deficit. These conflicts highlight the challenges of Iran’s trade sector, further compounded by international sanctions that have exploited and exacerbated the Iranian economy’s inherent weaknesses.

Homebuilding Outsourced to China: 

Observers accuse the Ra’isi administration of neglecting the problem of housing despite repeated pledges. Administration ally and Tehran mayor Alireza Zakani has attempted to redress this in the capital, but his solution has been to bring in Chinese companies to build housing at a cost of $25 billion—something Iranian builders could have done just as easily for the far smaller figure of $1.5 billion. This is turning into an oil-for-housing barter program given Iran’s inability to transfer funds from its oil sales. And that raises fears of potential graft and misappropriation. Majidreza Hariri, the chairman of the Iran-China Joint Chamber of Commerce and a cheerleader for China, dismisses criticism of the Chinese practice of refusing to hire local labor as the product of “sick minds.”


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