Understanding Demands

Will Economic Measures Succeed in Ending #IranianProtests?

17 January 2018


Unlike preliminary analyses, which focused on the political dimensions of the Iranian protests, the economy – according to many observers – has been the main motive behind the popular protests. People voiced social frustration from the deteriorating economic situation and lack of social equality. In addition, a wide segment of the Iranian people lost hope that President Hassan Rouhani will fulfill his promises of an improved economic status, after signing the nuclear deal with the P5+1. Recent developments pushed the Iranian government to announce a series of economic reforms to contain protests and meet their minimum demands.

Implications of the Nuclear Agreement

The Iranian nuclear agreement in 2015 raised people’s expectations as the Iranians thought their economy will revive instantly and that the rates of unemployment, inflation and poverty will decrease. They also thought foreign investments will increase rapidly. However, the Iranian economy still suffers from structural imbalances as only a limited category has benefitted from economic reforms.

Within this context, a report issued in October 2017 by the World Bank said the Iranian economy recorded noticeable improvement in 2016, as the total annual growth was estimated at 13.4 percent. This is unlike the case in 2015 when it decreased by 1.3 percent. This increase is mainly attributed to a 25 percent growth in the industrial sector and increase of oil and gas production by 62 percent after sanctions were eased.

Despite this, unemployment rates increased by 12.6 percent in the spring of 2017 and investment shrank by 3.7 percent in 2016. Analysts argue that the measures taken by the Iranian Central Bank and the Money and Credit Council failed at stimulating investment and growth in non-oil sectors. The budget deficit in 2016 reached around 2.2 percent of the Gross Domestic Product (GDP). Debt to GDP ratio decreased to around 35 percent. Finally, despite the increase in oil exports, non-oil exports decreased by 9 percent in 2016. The latter also witnessed negative growth at the beginning of 2017 fiscal year.

Protests’ Economic Motives

The most prominent economic motives behind the protests, which erupted in Iran, are the following:

1. Deteriorating living conditions: Banners raised at protests had slogans condemning unemployment, poverty and increased prices. Although the World Bank estimates indicate that unemployment reached 12.6 percent in 2017, Iran’s Interior Minister Abdolreza Rahmani Fazli said on October 2017 that unemployment reached 60 percent in some cities. The International Labor Organization estimated unemployment among youths between 15 and 24 years old at 26.7 percent.


          











Despite Rouhani’s pledges to reduce inflation rates, the World Bank estimates reveal that inflation increased to 11.5 percent in 2017 after it was estimated at 9 percent in 2016. Protests focused on the increase of some food commodities’ prices. The continuous increase of food commodities’ prices led to decreased consumption of some products such as yoghurt, red meat and bread by 30 to 50 percent during the past ten years. This is according to the Iranian Central Bank’s estimates at the beginning of December in 2017.

Within this context, poverty rates increased again at the beginning of 2015, after they decreased from 13.1 percent in 2009 to 8.1 percent in 2013. In December 2017, Parviz Fattah, the CEO of the Imam Khomeini Relief Foundation, said that unlike the official estimates indicating that 10 million Iranians live below the poverty lines, other estimates indicate that they could actually be 20 million people. According to the state’s definition and numbers, Fattah declared that there are 40 million who need monthly aid worth 45,000 Toman. This is due to the decrease of social aid and gradual decrease of energy products’ subsidies. Iran had excluded around 7 million people from the cash transfer program.

2. Increased inequality: The religious institution and the Revolutionary Guards control the management of public property. For example, the religious institution set unrealistic conditions for foreign investment, such as using the Persian language in negotiations and contracts. They also set strict conditions on lease contracts. As a result, the religious institution’s financial allocations were increased in the new state budget, which President Rouhani submitted in December 2017. The submitted budget draft proposed to triple the departure tax from USD 21 to USD 61.80 on travelers’ first trip. This tax would increase to USD 92.70 on the second trip and to USD 123.60 on next trips.

The United Nations Development Program’s 2016 report on the Human Development Index showed that Iran’s HDI value is 0.774. It was, thus, ranked 69 among 188 countries. Its Inequality-adjusted Human Development Index (IHDI) increased and reached 0.518. Thus, the developmental loss is estimated at 33.1 percent. Income inequality is estimated at 46.6 percent, education inequality is estimated at 37.3 percent and life expectancy is estimated at 10.6 percent.

3. Faltering banking sector: Iranian efforts to reintegrate the banking sector failed. Although sanctions were eased, Iranian banks were not connected to the SWIFT program and this obstructed foreign investment and business plans. The collapse of several loan institutions harmed millions of investors and businessmen. Some political analysts think these protests do not only include poor people, but also include middle-class categories whose businesses were harmed.

4. Cost of regional conflicts: Protestors’ banners condemned the regime for prioritizing expenditure on conflicts in the region. The Iranian regime provides financial and military aid to Syria, Lebanon and Yemen, while the Iranians suffer from the government’s cut of social expenses. This made citizens raise banners reading: “Leave Syria,” “Leave Palestine and think about us,” “Neither Gaza nor Lebanon, I will sacrifice my soul for Iran.”

Repercussions of Iranian Protests 

Protests in Iran have several economic repercussions. The most significant ones are the following:

1. Increased oil prices: There were fears that protestors might sabotage oil facilities. This in addition to worries that oil workers might go on a strike, similar to what happened in 1979. At the time, oil exports reached zero level. Brent crude oil increased to USD 68.17 on January 4, 2018, its highest price since May 2015.

2. Gold and dollar gain: The increased protests had psychologically affected some people and made them go for buying gold and dollar. As a result, gold and dollar prices increased. The dollar increased by 6 percent in the wake of protests while gold increased by 9 percent, which is the highest value in 4 years.

3. Stock market decline: Iran’s stock market witnessed growth for several months, but the increased protests led to sharp decline at a percentage of 3.5 percent. The stock market lost 3300 points during four sessions.

4. Increased distrust and uncertainty: Protesting governmental policies will eventually increase uncertainty in the economy’s stability and in the legislative environment and governmental measures, which will be taken in response to these protests. Investors’ trust will, thus, decrease. Not to mention that Iran’s economy already suffers from mistrust due to Trump’s opposition of the nuclear deal with Iran.

In conclusion, the Iranian government will probably deal with the after protests phase according to one of these paths. The first one is to settle with resolving the situation via security measures and suppressing protests, while organizing pro-regime protests without taking any decisive measures to reform the structural defects in the economy. The other one is adopting short-term measures to contain citizens’ anger. The government may also propose solutions to the livelihood crises, particularly the increased prices.

The parliamentary committee tasked with reviewing the budget may reject increasing the prices of major commodities and of electricity, water and gas. It may also amend the budget. These measures, however, are not enough for protestors who are demanding an end to monopoly and inequality and who are calling for not exhausting economic resources in favor of religious institutions and the Revolutionary Guards.

At the beginning of December, when President Rouhani was talking about the state budget for the new year, he said the government will provide USD 3 billion to support the banking sector. He also said there will be a new social security program to support poor families. He also promised that 840,000 people would enter the job market next year. These promises, however, did not please those harmed and were rather followed by wide popular protests.