Iran's Supreme Leader Ayatollah Ali Khamenei speaks in Tehran.
(photo credit: REUTERS)
With Iran and the world powers meeting on Monday in Geneva for a new round of negotiations to end the Islamic Republic’s illicit nuclear weapons program, the question arises: How vulnerable is Iran’s economy to new forms of economic pressure?
It is an analytical uphill battle to understand Iran’s economy, largely because the country’s Supreme Leader Ali Khamenei stresses a “resistance economy” plan to insulate Iran against sanctions.
Khamenei’s revolutionary Islamic ideology infuses Iran’s economy with unpredictable factors.
Nonetheless, former US president Harry Truman’s joke about economics resonates with an Iranian market in great flux. “Give me a one-handed economist,” said Truman. “All my economists say, ‘on the one hand...on the other.’ ” The one-handed economist would concur that a dynamic, 2010-2013 US-EU economic sanctions campaign targeting Iran’s financial and energy sectors compelled Iran’s rulers to negotiate over its nuclear program.
The major threat to Iran’s current economic recovery due to sanctions relief – provided by the US, UK, France, China, Russia, and Germany (P5 plus 1) – is Saudi Arabia’s clever push to drastically drop oil prices. Iran’s energy sector-driven economy is experiencing major body blows.
Writing in Sunday’s New York Post, foreign policy expert Lt.-Col. Ralph Peters noted that “Tehran had learned to live with Western sanctions. But oil has been its lifeline. And to balance the books, oil has to sell between $135 and $140 dollars per barrel.
Good luck with that, Supreme Leader!” He added: ”With the barrel price at barely 40 percent of Iran’s requirement, the economy’s going to hemorrhage. Iran’s leaders will be under far greater pressure to compromise on the nuclear weapons – unless we keep easing sanctions for nothing in return. This is the last chance for negotiations to bring results.”
The irony of Saudi Arabia, which views Iran as an immediate existential threat, but still sees Israel – at least on paper – as an enemy state, was not lost on Peters: “Common enemies generate unexpected, if unadmitted, alliances.”
Aside from Iran’s treasured energy economy, there are growing fissures in its food staples sector.
According to a Tehran-based reporter writing for The Guardian on Wednesday, the difficulties to purchase a decent loaf of bread is taxing ordinary Iranians. Bread prices mushroomed by 30% on December 1.
“What they [the government] can’t afford, they take out of our pockets,” lamented one Iranian woman at a bakery,according to The Guardian.
“A few others followed suit,” noted the dispatch.
Even the bakers’ trade union has complained bitterly about the lack of wage hikes for its members.
Compounding the bread-price increases, the regime-controlled Fars News agency reported on Wednesday that Iran’s regime is eliminating $11 cash supplements to some Iranians.
The weaknesses of Iran’s economy, however, are benefiting from what many critics see as an overly generous sanctions relief package. Senator Mark Kirk (R., Ill.) said last month the new extension of the interim agreement (JPOA) between the Western powers and Tehran “means that the administration will continue to block sanctions and allow the terrorism-sponsoring Iranian regime to make $700 million a month – roughly $23 million per day – even as Iran advances its nuclear bomb-making program.”
In addition to economic safety valves in the form of sanctions reliefs, European companies and business trade groups are courting Iran’s businesses.
This effect of changing the investment climate has contributed to Iran’s economic growth and a moderate recovery. Iran’s inflation rate as of August was reduced to 14.7%.
The key takeaway for the P5 plus 1, based on the new economic data, is to internalize the plummeting oil price as a lever of pressure to secure massive concessions from Iran.
Iran’s restless population seeks economic stability.
There is growing impatience among Iranians with the ruling mullahs.
The world powers can exacerbate the divisions within Iranian markets to force Iran to roll back the main infrastructure of its nuclear weapons program. It is matter of using the one-handed economic proscriptions that continue to batter Iran’s economy.The writer reports on European affairs for
The Jerusalem Post and is a fellow at the Foundation for Defense of Democracies.