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Source: NY Times

Mar 7, 2023

Years of Western sanctions are partly to blame for the crisis. But economists say poor management by the country’s authoritarian clerical rulers also plays a big part.

By Vivian Yee

As their currency plunged to new lows recently, Iranians did what they had grown all too used to: They crowded exchange shops, hoping to convert their increasingly worthless rials into dollars.

At the grocery store, prices had climbed so high that many people had only enough to buy vegetables. And as the Persian New Year approached, some had little left for holiday meals, shopping and travel.

The rial has lost some 30 percent of its value against the dollar since the beginning of the year, the latest setback for an economy whose outlook has steadily dimmed since 2018, when President Donald J. Trump walked away from an agreement to limit Iran’s nuclear activities in exchange for lifting sanctions. Instead, he imposed even harsher sanctions.

The currency’s recent decline has added to a sense of despair and to Iranians’ grievances against the government. The prospects for economic relief and political change now appear slim: The nuclear deal looks unlikely to be revived, and a violent crackdown by the authorities has largely crushed the mass protests against clerical rule that erupted in September.

For an increasingly vocal number of Iranians, the long lines outside the currency exchanges were the latest evidence that the authoritarian leadership was steering the country off the rails.

Frustration with the theocratic rulers, whether over economic policies or social restrictions, also drove the recent protests, which posed one of the greatest challenges to the Islamic Republic since it was established in 1979.

“As someone who has been studying her whole life, I am full of rage that I can’t have a normal life or afford the minimum that I want,” said Sima, 33, a pharmacologist from the capital, Tehran, whose savings have plummeted in value with the currency. She hopes to emigrate to Canada, but if she makes it, her money will be worth far less than before.

“I have no future in this country,” she said.

Iran, its residents often say, should be rich, with some of the world’s largest oil reserves and a well-educated population. Instead, with inflation routinely topping 50 percent annually, some Iranians can no longer afford meat.

Others pare down middle-class comforts they once took for granted: No more eating out. No more travel or new clothes. No more offering visitors the sour plums and green almonds that are traditional nibbles for guests, or no more hosting at all. Marriages are delayed, babies put off.

Economic frustration over a sudden spike in gasoline prices set off major protests in 2019. But last year’s demonstrations, which began after the death in police custody of 22-year-old Mahsa Amini, who was accused of violating the strict religious dress code for women, first took aim at the mandatory head scarf law and the systemic sexism protesters said it symbolized.

The movement quickly expanded, however, to encompass a broad range of grievances with the ruling establishment, including a lack of political and social freedoms, corruption and economic mismanagement.

Shopping at the Grand Bazaar. Data shows that Iran’s economy grew and poverty rates fell steadily until 2011, when the West first imposed heavy sanctions.Credit...Arash Khamooshi for The New York Times

Economists say the current crisis can be traced to years of Western sanctions on Iran’s oil industry and financial sector over an Iranian nuclear program that the U.S. and its allies suspect is aimed at producing weapons.

“There is no way for this government, without increasing oil revenues, to find money to help people find jobs or even give them mere income,” said Djavad Salehi-Isfahani, an Iranian-born economist at Virginia Tech. “They’ve gotten themselves into a very bad situation.”

Data shows that Iran’s economy grew and poverty rates fell steadily until 2011, when the West first imposed heavy sanctions. The rial exchange rate is now about 500,000 to the dollar, compared with 32,000 when the original nuclear deal was signed in 2015. Poverty has spread, especially in rural areas.

But the government’s handling of a series of recent crises did little to dispel the widely held belief that mismanagement and corruption are also to blame.

In the last several months, victims of an earthquake in northern Iran denounced a too-little-too-late emergency response, according to social media posts. The authorities responded to protests with water cannons.

Mohamed Ali Kadivar, a Boston College sociologist who studies Iranian protest movements, said that “because of the dominance of the hard liners, the people who take government jobs are loyal, they’re not people with expertise,” which makes the system “incapable of problem-solving.”

Government interventions to stop the currency’s slide over the last week have had minor success. The government has given cash to low-income and some middle-income Iranians and urged the private sector to create jobs. But economists say Iran has failed to use levers it has to hold back poverty.

Much of the economy is controlled by well-connected government loyalists or the powerful Iranian Revolutionary Guard Corps, creating advantages for insiders that, along with the political uncertainty, hinder investment.

Iran’s leaders blame Western sanctions for the economic problems and foreign meddling for the recent unrest.

Iran, its residents often say, should be a rich country, with some of the world’s largest oil reserves and a well-educated population.Credit...Arash Khamooshi for The New York Times

Some analysts say one way for Iran to gain badly needed cash and investment would be to negotiate a new nuclear deal that would ease sanctions, as President Biden has tried to do. But some of the ruling establishment’s fiercest critics argue that such an agreement would only grant Iran’s leaders revenue and power.

Any hint that negotiations are stalling or picking up can send the rial fluctuating, and the growing belief that sanctions are here to stay was probably a factor in the rial’s decline, analysts said. New restrictions on dollars flowing into neighboring Iraq made the U.S. currency even scarcer in Iran, a major trading partner, according to analysts.

In one supermarket in Amol, a city in northern Iran, the price of shampoo went up by nearly 60 percent in a week, while the price of meat increased tenfold, said Leili, 39, a teacher. To save, she said, she and her husband walked instead of taking taxis, stopped eating meat and dairy and bought more canned goods to use less cooking gas.

The idea of having a child, as she once imagined, no longer seemed realistic.

“This political system is the reason that we work for most of the day, and at the end of the day, we still have nothing. We’re entirely incapable of affording the basics,” said Leili, who, like other Iranians whom The Times interviewed, gave only her first name to avoid government reprisal.

Batoul, a 77-year-old pensioner in a poor area of south Tehran whose rent alone rose this year to more than twice her monthly pension, began asking for a grocery store’s castoff fruit, hoping to find a few edible pieces among the rot.To be sure, total economic collapse remains a ways away. Iran’s economic output other than oil has managed to grow slightly in recent years. On recent visits to several cities, restaurants and hotels still had some guests, and bazaars and sweet shops had customers.

But with the dizzying swings in the currency’s value, the uncertainty and the lack of opportunities for young people, despair is little surprise, said Mr. Salehi-Isfahani, the economist.

The government has done little to blunt the pain other than to avoid raising gas prices, one of its few means of raising revenue. Such a move could lead to protests, as it did in 2019. This year’s budget did not increase welfare payments to match inflation, according to analysts, or increase subsidies for food staples and gasoline.

The budget did, however, allocate more money to the Revolutionary Guards force and other defense sectors.

“It’s just more money for the defense industry and cuts for the people,” said Henry Rome, a senior fellow at the Washington Institute for Near East Policy who studies Iran, “and I think that kind of speaks for itself.”

Leily Nikounazar contributed reporting.

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