Opponents of Iranian President Hassan Rouhani hold a protest outside the Iranian embassy in west London, Britain, January 2, 2018.
(photo credit: REUTERS/SIMON DAWSON)
The current Iran protests confirm that the 2015 nuclear deal did not fix Iran’s embattled economy as Tehran had hoped and as Israel had feared, ex-senior Mossad official Sima Shine wrote in an analysis on Wednesday.
Shine, now a senior researcher at the Institute for National Security Studies in Tel Aviv, told The Jerusalem Post that while her analysis reviewed a wide range of economic issues confronting the Islamic Republic, the nuclear deal economic relief performing below Iranian expectations had certainly contributed to the protests.
Two years after nuclear sanctions were removed thanks to Iran’s deal with the West, “the hopes of President [Hassan] Rouhani and the concerns heard in Israel that the deal would lead to a wave of foreign investments which would skyrocket the Iranian economy to new highs have not transpired,” she wrote.
Her analysis states that Iran’s economy “has indeed made some achievements, such as lowering inflation and with an increase in its growth rate.”
She said that some of this growth can be expected to continue for at least the next two years, and highlighted Iran’s increased oil imports, from less than a million barrels per day in 2014 to recent numbers of around 2.5 million barrels daily.
Still, she writes that “commercial and foreign investment growth is far below the targets” Tehran had set and that, outside the energy sector, Iran’s minimal growth looks good only compared to its abysmal economic performance when full nuclear sanctions were in place.
Further, the unemployment rate has not gone down and even rose in 2016 to 12.4%, she said.
She explained several reasons why the Iranian economy has not received foreign investment as fast as Tehran hoped or Israel feared.
One of the largest is the US nonnuclear sanctions, which were never lifted. Another major factor is uncertainty about US policy regarding even those sanctions that have been lifted. Though the sanctions were lifted by the Obama administration, there has been indefinite uncertainty about whether the Trump administration might reinstate them.
As an example, Iran has reengaged with 238 international banks after banking sanctions were lifted, but banks uncertainty about possible future sanctions have kept Iran far below the 633 banks it was engaging with back in 2006.
Systemic corruption and inefficient interventions in the economy by various government power-centers are also problems for Iran’s economy that have limited the post-nuclear deal recovery.
One example of government- motivated inefficiency is granting high risk loans to government-connected causes that rarely pay back what is owed.
Shine said that these factors make it hard for foreign investors to risk putting their fund into Iran.
Even worse for Iran, the low level of foreign investment means that Tehran’s ability “to prevent a sudden further deterioration in its macro-economic” situation is limited.
The former Mossad agent and Strategic Affairs Ministry deputy director-general said that this crunch will compel the Islamic regime “to make complex decisions some of which will be very unpopular and have domestic political consequences.”
She noted that in its most recent budget, the Iranian government cut subsidies for 20 million people, including bread subsidies.
These cuts were made necessary both by the economic problems and by the regime’s increase of the Iranian Revolutionary Guard Corps budget by 30% to pay for its activities in Syria, Iraq and Yemen.
With the failed promise of a quick recovery post the lifting of nuclear sanctions and cuts to subsidies, “It is no surprise... that the current protests in Iran have included slogans against investing resources in arenas outside of Iran,” she said.
Shine added that the economic problems will get much worse if US President Donald Trump does ultimately decide to snap-back nuclear sanctions on Tehran, as even some of the foreign deals that Iran has signed could become frozen.
Nizan Feldman, a research fellow at INSS, co-authored the analysis with Shine.