Iran’s Ticking Time Bomb
The past few months have seen a fair share of angry citizens across the globe, from protests over election rigging in Bolivia to massive agitations in Hong Kong. In that backdrop, it doesn’t come off as a surprise when Iranians took to the streets after the government jacked up fuel prices.
The country’s Supreme Council of Economic Coordination on November 15 jacked up petrol rates by 50 per cent to $0.13, while also introducing a limit for private use at 60 litres, exceeding which the fuel will cost $0.26 per additional litre.
The decision was taken to help a cash-strapped government raise money to fund a social security programme for the poorest citizens. However, the move backfired hard as thousands of Iranians stormed the streets across the country, leading to protests which turned violent and saw arson and other property damage as well.
Security forces cracked down hard and the violence that ensued killed some 106 people, as per Amnesty International. In response, the government imposed a near-total internet shutdown, with connectivity down to around 5% of its ordinary levels. Supreme Leader Ayatollah Khamenei hit back at the demonstrators, calling those destroying property “bandits” and the entire agitation a conspiracy of the enemy, while throwing his support behind the fuel rate increase.
Why would an issue related to fiscal adjustments and domestic pricing be linked with foreign schemes? The issue is much more complicated in that: like elsewhere in the Middle East, local is very much international. Much of the economic woes of Iran can be sourced back to the sanctions imposed on the country, that too unilaterally by the US President Trump after his revocation of the nuclear deal.
The Joint Comprehensive Action Plan of 2015 was supposed to rid Iran of international sanctions in exchange for giving up its nuclear ambitions and opening up nuclear sites to inspection. For a while, it materialised too as economic growth spiked to over 16% in 2016 but with the advent of Trump in White House, the situation became bleak as promised liberalisation and investments didn’t come through since few were ready to take on the wrath of an unpredictable US President.
Even though the European Union continued to stick to its original position and didn’t detract from the deal, not much happened beyond word of mouth. The key demand of Iran getting more buyers for its oil was barely met.
Unsurprisingly then, the country’s growth rate has been on a downward trajectory since 2016 and is expected to contract by a significant 8.7% in 2019-20. On the other hand, inflation stood at a staggering 30.5% over the last year, further worsening an already bleak economic outlook.
That explains why petrol prices despite being cheap by international standards bit citizens hard while response by the government suggests an increasingly desperate government looking for a quick fix. The country’s rich history of protests, witnessing sizeable demonstrations in 2017-28 too, puts any government in a tough spot.
No room to manoeuvre
Keeping in view the recent developments, Rouhani doesn’t have too much room to manoeuvre domestically, and to take attention from the pressing economic matters, he is likely to play the political card at a more global stage.
Just earlier this month, Iran stopped an inspector from the International Atomic Energy Agency from visiting its nuclear site while also injecting uranium gas into its Fordo plant, raising concerns if the country is again moving towards weapons-grade enrichment levels.
For now, at least, the protests seem to be over thanks to the heavy crackdown by security forces with connectivity yet to be properly restored. However, the underlying economic factors are going to remain, and largely beyond its control.
The Iranian leadership, both religious and political, has been fairly composed and calculated in the wake of US unpredictability but with economic time bomb ticking, that patience is likely to run out soon enough, which might prompt it to behave more like a security state. To prevent any such mishap, as well as the abandonment of the 2015 deal, the European Union must step up for a leadership role left by an inward-looking US, and deliver on the promises it helped ink four years ago, or risk an even more belligerent Iran.