Iran is facing an ongoing economic crisis since the US withdrew from the nuclear deal in May 2018 and imposed comprehensive sanctions as part of the "maximum pressure" campaign targeting all key sectors of the Iranian economy. During the first five months of the current Iranian year (April-August 2020), the crisis was exacerbated by other influences, most notably the spread of the coronavirus which led to heavy losses at the economic level, making this the worst period in terms of economic performance over the past four decades of the Revolution’s lifetime.
Given the experience of the Iranian social and political behaviour during the past decades, it could be asserted that the current Iranian economic crisis will have repercussions and implications at the social mobility level and the activities of official political trends and their relations. This would bring about change in the political trends in the coming period, both internally and externally. The crisis situation has led to a successive wave of collapses, namely a decline in the important indicators and a rise in poverty rates to record levels. This heralds undesirable repercussions at the social and political level, and opens the way to several scenarios, some of which have been proven to occur in recent years, under similar circumstances.
This paper is the outcome of a research project carried out by the Emirates Policy Center (EPC) aimed at assessing the current state of the Iranian economy, two years after the "US maximum pressure" campaign, and a half year after the coronavirus pandemic, extrapolating the political and social repercussions of the economic crisis, and, ultimately, exploring the implications of all this for the strategic options and trends of the Iranian regime in the domestic and foreign policies on the verge of the political transition in the US in November 2020 and Iran in June 2021, and the regional shifts.
Economic collapse through indicators
The Iranian economy improved remarkably after the signing of the nuclear agreement between Iran and the P5+1 countries in 2015, represented by an increase in the rate of economic growth to a record 12 percent, an appreciation in the value of the national currency by between 5 percent and 10 percent against the dollar, and a decrease in the inflation rate to nearly 8.9 percent in 2016, in addition to the improvement of other influential economic indicators.
This trend reversed after the US withdrew from the nuclear deal and declared the "maximum pressure campaign" on Iran. Today, all economic indicators show that during the first half of the current year, the Iranian economy has reached what can be described as the point of no return. As Masoud Nili, the former Economic Adviser to the Iranian President, put it, returning to the 2018 levels would take at least a decade of accumulated economic growth.
1. Oil: reaching the zero point
At their peak after the nuclear deal, Iran's oil sales reached nearly 2.84 million barrels per day (mbd) at the end of 2016. Iran's oil production reached more than 4.9 mbd, one of its highest levels in four decades. While oil revenues declined by nearly 41 billion dollars in 2019, according to sources in the Organization of the Petroleum Exporting Countries (OPEC), the crisis in this regard exacerbated in the first half of 2020 as evidenced by several indicators, namely:
In total, figures released by official centres show that Iran's national production contracted by 1.6 percent in the spring of 2020 due to a decrease in oil production and exports.
2. The volume of foreign trade
3. Growth, inflation and liquidity
Figures released by official authorities indicate the continued negative performance of the basic economic indicators, as follows:
4. Deficit in the general budget
The Head of the Planning and Budget Organisation (PBO) indicated in August 2020 that the government managed to achieve 6 percent of its forecasts in terms of oil revenues and 75 percent of the tax projections during the first four months of the year. However, the expectations regarding the deficit in the general budget were as follows:
Field repercussions of the collapse of economic indicators
The negative economic indicators at the level of daily life were reflected in a steady rise in prices, a decline in the purchasing power of citizens, an increase in the percentage of Iranians below the poverty line, in addition to the high rate of unemployment in society:
The reasons that created the economic crisis
Various reasons served to exacerbate the stifling economic crisis presently being experienced by Iran, some of which are internal while others are the result of international pressures afflicting the political regime in Iran:
1. US sanctions: the US-imposed sanctions on Iran are at the forefront of the reasons that led to the collapse of the Iranian economy. The latter went through a similar experience between 2008 and 2011, but improved significantly after the nuclear deal was concluded with the 5+1 group of countries, to go through a period of prosperity that was reflected by record levels of economic growth and low levels of inflation. Iranian oil sales boomed after the nuclear deal, reaching nearly 2.9 mbd, and the volume of foreign trade jumped to nearly 100 billion dollars.
After Washington withdrew from the nuclear deal in May 2018 and imposed strict economic sanctions on Iran, the economic path reversed. Iran lost nearly 13 percent of the volume of its economy in 2018 and 2019 (nearly 5.4 percent in 2018 and nearly 7.6 percent in 2019), according to the International Monetary Fund (IMF). According to the IMF as well, inflation rates rose to 34.2 percent in 2018, then to 41.1 in 2019, and oil sales declined to nearly 200,000 bpd in December 2019. While foreign trade shrank by nearly 22 percent in 2018 and 2019, stabilising at 78 billion dollars according to the Islamic Republic of Iran Customs Administration (IRICA) sources, the unemployment rate rose to 16.3 percent in 2019 from nearly 12.4 percent in 2017. This amounts to the elimination of nearly 1.1 million job opportunities within two years under the pressure of sanctions and the continued impact of sanctions on oil. A large portion of the total 60,000 billion tomans of contraction in oil revenues could be attributed to the sanctions that have led to the reduction of revenues and oil production to record levels.
2. The FATF decision: one other reason is the FATF decision to blacklist Iran in March 2020. While Iran moved towards normalising its economy under the US sanctions by associating with Chinese and Russian banks as well as other small banks that ignore the US sanctions (an example of this are the continued services provided by the Chinese Bank of Kunlun to the Iranians, and Iran's attempts to join the Russian Mir banking network to circumvent the Worldwide Interbank Financial Telecommunication (SWIFT) network, the decision of the FATF organisation complicated matters, and led to important decisions, including the decision by the Chinese Bank of Kunlun to halt providing banking services to the Iranians, the disruption of the project to join the Russian Mir network, and the cessation by intermediary banks in Belarus, Germany, Kazakhstan, Iraq, and Turkey to cooperate with Iran.
The damage caused by the FATF decision to Iran cannot be estimated with any precision. However, it is clear according to experts that it would serve to raise the cost of transferring the dollar into the Iranian economy to levels above 15 cents for each dollar. This means that the cost of transferring currency to and from the Iranian economy amounts to between 11.7 billion dollars and 15.6 billion dollars of the Iranian foreign trade (according to the rate of foreign trade last year). Assuming that half of this figure is a result of the FATF decision, this means a contraction by nearly 1.8 percent of the annual national product, according to 2019 figures.
3. Economic corruption: the Assistant Commander of the Islamic Revolutionary Guards Corps (IRGC) for Political Affairs announced that the volume of embezzlement witnessed in Iran over a decade amounted to 80 thousand billion tomans, in an attempt to downplay its importance by comparing it to the size of the general budget during that decade. However, according to the average dollar price in Iran, the figure amounts to nearly 44 billion dollars, which in turn amounts to an annual embezzlement rate of 4.4 billion dollars (nearly 1 percent of the annual national product, according to 2019 figures).
The lack of transparency in the Iranian privatisation and banking systems, allocating the subsidised currency to those close to the government (sources point to the distribution of 35 billion dollars at the subsidised rate based on the nepotisn system, including nearly 4 billion dollars in the first five months of the current year) and the tough trade laws led to the alienation of capital from the Iranian economy. The CBI confirmed that nearly 27 billion dollars of the currency of the Iranian exports during the past three years have not returned to the Iranian economy. This means that 22 percent of the volume of exports during those years has not returned to the economy. According to official sources, including the IPRC, capital has increasingly fled the Iranian economy during the last four years. While the volume of capital fleeing Iran is estimated at nearly 150 billion dollars within a decade (at an annual rate of 15 billion dollars, or nearly 3.4 percent of the volume of the national product), in the past three years, nearly 87 billion dollars fled the country (according to parliamentary sources, nearly 30 billion dollars fled the country in 2017, while nearly 30 billion dollars exited in 2018, and last year, 27 billion dollars left the country, according to the Iranian Ministry of Economy). This amounts to an increasing confidence crisis between the people and the economic system that is supported by the ruling regime. While the sanctions may have served to increase the frequency of capital flight, a close look into the flight indicates that it is not intrinsically related to the sanctions. At the peak point of Iran’s openness to the world in 2017, the amount of funds that fled the country was estimated at nearly 19 billion dollars. This means that this part of the causes of the economic crisis will continue for years after the cessation of the other causes such as the sanctions and the spread of the coronavirus.
4. The coronavirus outbreak: the spread of the coronavirus has exacerbated the economic crisis in Iran since March 2020. During the spring of the current year, the size of the Iranian economy shrank by 3.5 percent, while figures indicate that the size of the economy may shrink by between 7.5 and 11 percent due to the spread of the virus in the country, which is equivalent to the total weight of the impact of sanctions on the Iranian economy during 2018 and 2019. Of course, it is not possible to attribute all the decline in the economy during the current Iranian year to the spread of the coronavirus, considering that the other aforementioned reasons continued to tighten the screws on the Iranian economy. However, the share of the virus that, according to the Ministry of Economy, affected 32 percent of the corners of the Iranian economy, had a fundamental role in the crisis. While the IMF indicated an estimated contraction in the Iranian economy of less than one percentage point, it revised its estimates after the spread of the coronavirus to confirm a potential contraction of 6 percent, while the IPRC asserted that the size of the contraction will be at 7.4 percent under the best-case scenario.
The sum of the four mentioned reasons has had a noticeable impact on the collapse of Iran’s economic indicators during the past months, and the consolidation of the phenomenon of "successive collapse" that has recently been witnessed by the economic sector. While some of those reasons have been exerting their influence on the Iranian economy for years, Iran's placement on the FATF's blacklist, along with the spread of the coronavirus, have left their imprint on the Iranian economy during the year and deepened its crisis in terms of opening new fronts that were not within the perspective of the sanctions. This shows that hope for a radical improvement in the economic situation could only be expected in the event of a radical change in the majority of those phenomena, which cannot be seen in the months ahead. In light of this, it is possible to talk about the repercussions of the accumulating economic crisis at the level of social mobility and at the level of the official policy, suggesting some possibilities in the near and medium terms.
The repercussions of the crisis at the social and political levels
The economic crisis that escalated after the US withdrawal from the nuclear agreement and the return of sanctions at the political level was manifested in the protests that swept the Iranian cities in December 2017 and August 2018, then November 2018 and January 2020. It also manifested itself in sit-ins and labour strikes, the most important of which were the general strikes that swept Iranian cities in 2018. They were reflected in the low level of participation in the parliamentary elections in February 2020, amounting to 42 percent in Iran and 26 percent in the capital Tehran, compared to the previous parliamentary elections when it was at 62 percent in Iran and 50 percent in Tehran.
The aggravation of the economic crisis in the current Iranian year is assumed to have repercussions at the social and political levels. It would leave a noticeable impact on Iran's regional policy, as follows:
1. Social repercussions
The most important impact of the economic crisis will be in terms of strikes and protests. While police stations indicated that the calls for protests during the first four months of the current Iranian year were three times the calls in the same period last year, estimates of independent centres refer to 200 medium and large labour protests during the first five months of the current year, at a rate of 40 labour protests per month. Among the most important protests during the current Iranian year, it is possible to refer to the protests of workers of the Haft Tabah company in Ahwaz, the Hepco company in Arak, the Electricity Meter Manufacturing Company (SKI) in Qazvin, and the Kerman copper mine, in addition to the protests of teachers and retirees of the education system in various Iranian cities, protests of retirees belonging to the SSO, retirees of the oil sector in ten major Iranian cities, protests of civilian bus drivers in Tehran, Urmia, Ardabil and Ahwaz, and protests of street vendors in the capital Tehran and nurses in Tehran and other cities such as Mashhad, Rasht, Ahwaz, Isfahan, Shiraz and Kerman.
The summer of 2020 was marked by the protests of nearly 15 thousand workers in nearly 29 oil and petrochemical companies, including the South Pars project in Asaluyeh, the Kankan, Lamerd and Parsian refineries in Bushehr, the Qeshm refinery in Hormozgan, the Isfahan refinery, the Abadan refinery, the Juffair oil project in Ahwaz, and the oil power plant in Tabriz, within one of the largest waves of the post-Revolution protests in the oil sector. The reasons are attributable to the drop in oil prices and the decline in production and export levels, resulting in the failure by the Iranian oil system to pay the workers' salaries.
A closer look into the protests indicates that the absolute majority of those protests were made by the worker groups, while the farmer and ethnic groups were absent. While farmers' meetings took place in some Iranian cities to protest the scarcity of water and the transfers of water, the size of those protests has decreased significantly compared to 2018, in light of the high rates of rainfall and the end of the water scarcity crisis, leading to the predominance of the labour nature over the public protests of the current Iranian year.
Signs of a possible expansion of social unrest (in light of the crisis caused by the outbreak of the coronavirus, along with the other crises) can be seen at several stops. These include President Rouhani's remarks at the inauguration of the new session of Parliament, the IPRC warnings, and the police and IRGC preparations to combat the protests, according to a statement by the riot police chief in May 2020. The political regime will clearly continue to seek to dismantle the hotbeds of the protests and prevent them from turning into all-out coordinated protests similar to those of truck drivers in 2018, along with the regime's move to suppress protesters and arrest their leaders. Within this framework, this can explain Parliament’s attempt in the summer of the current year to enact a law that imposes restrictions on the activity of social media networks, blocking the applications of Instagram and WhatsApp, along with Telegram, Twitter and Facebook, as mechanisms for coordinating overall protests.
2. Political repercussions in the Iranian interior
Perhaps the most important development expected at the domestic level is the decline in the participation rate in the upcoming presidential elections. This was referred to by field studies, including a study by the opinion poll branch of the official Iranian Students’ News Agency (ISNA), which indicated that the participation rate in the upcoming presidential and municipal council elections may drop to nearly 40 percent, i.e. its lowest level ever. The nature of the elections in the Iranian system indicates that the primary beneficiary of the low rate of participation in the elections will be the conservative trend that seeks to extend its hegemony over the executive authority and municipal councils, after having controlled the legislative authority in elections that recorded the lowest levels of participation among the legislative elections over the past four decades.
Studies indicate that by raising the rate of poverty in Iranian society, the ongoing economic crisis will eliminate the middle class as a bastion of reformist votes, so that the outcome in the short term would be in the interest of conservatives who benefit from the reluctance of this class to vote. On the other hand, in the medium term, this will lead to a decline in reform movements, and an increase in the likely rise of radical protest movements.
The economic crisis serves to perpetuate differences between the government and Parliament. Among the features of those differences are Parliament’s rejection of the government’s plan to sell oil on the stock market and the government’s corresponding rejection of parliamentary programmes to provide subsidies to the lower classes of society. It is assumed that differences between the two sides will continue over dealing with the growing economic crisis in light of the approaching presidential elections, in which the conservatives seek to be successful by emphasising the government’s failure to deal with the economic crisis.
In the long term, the economic crisis will weaken the position of the IRGC and reduce the size of its economy. However, in the short term it will do the opposite. In light of the continued US sanctions and the possibility of their internationalisation, the bankruptcy of many Iranian economic companies, and the withdrawal of many foreign companies from the Iranian economy, the coming period will witness a continuation of the IRGC project to extend its hegemony over the Iranian economy through the acquisition of the major projects in the oil sector (including contracts worth 1.5 billion euros, mostly with companies affiliated with the IRGC to develop oil and gas fields), the automotive industry, the transport sector, and the retail sector.
3. Foreign political repercussions
In the short term, the Iranian regime is likely to continue to withstand the US sanctions pending the conclusion of the results of the US presidential elections. Iran's foreign policy is also unlikely to witness a remarkable development in the coming months. However, in the event of continued pressures as a result of the sanctions and the repercussions of coronavirus, it is very likely that Iran would not be able to maintain its resilience policy, moving instead towards a choice between integrating into the Chinese economy to overcome the crisis and opening up to a comprehensive dialogue with the West.
At the regional level, developments in the first half of the current year show a decrease in Iranian supplies to pro-Iranian militias in the countries of the region. While the Secretary-General of the Hezbollah organisation Hassan Nasrallah recalled the impact of the sanctions on the decline in Iranian support for his organisation, field sources from Iraqi militia leaders confirmed to international news agencies that Iranian aid has decreased since the beginning of the current Gregorian year due to the sanctions, emphasising that the last four months have witnessed a high frequency of subsidy cuts due to the outbreak of the coronavirus, the exacerbation of the Iranian economic crisis, and the closure of the borders between Iraq and Iran.
The decline in Iranian support for the militias will obviously change the behaviour of those militias, or some of them, in terms of strategies and affiliation. Those militias (especially in Iraq, Syria, and Palestine) would look for an alternative source of support to be able to pay the salaries of their affiliates. While reports indicate signs of such behaviour among the pro-Iranian militias in Syria (some of whom have a desire to approach Russia to obtain sources of financial support), the same reason is assumed to lead to the approval by some of the pro-Iran Iraqi militias of the integration plan with the official Iraqi army in order to obtain such support. In Yemen as well, it is possible to conceive such a change in the behaviour of the pro-Iranian militias. The decline in Iranian financial support in recent months has led to a decline in the pace of the operations of those military militias, and a decrease in the number of their affiliates, with the likelihood that those militias or important parts thereof would be involved in a peace process that can take place either in or without coordination with Iran.
Economic situation scenarios
In light of the trends of the economic indicators, the following four scenarios could be discussed:
First scenario: optimistic scenario: it assumes that the Iranian government will manage to overcome the economic crisis in the second half of the current Iranian year, using therein the available internal resources, including the resources of the National Development Fund of Iran (NDFI) that, as shown by experience, is turned to by the Iranian regime when in distress, raising taxes, and using the potential of the Iranian stock market and the banking sector to obtain alternative resources that can be used to overcome the stifling crisis. The government seeks to implement this scenario in cooperation with the Iranian Parliament. However, the scenario does not take into account that a large part of the crisis in Iran is due to the impossibility of obtaining raw materials to move the economy, industry and petrochemicals, as important sources of income for the country. It also does not take into account the depletion of the NDFI resources and the inflationary effects of using banking resources to bridge the budget deficit.
Second scenario: opening up the Iranian economy: it is a more likely scenario in the second half of the current Iranian year. It assumes opening up to the global economy in general, and the Western economy in particular, through opening serious dialogue channels with the US, either under a Democratic government or under Trump's second term. It is clear that there is a desire on the part of the two countries' governments that drives them to open the door to dialogue, using various international mediations. The visit of the Swiss Foreign Minister to Tehran and the Russian offer could be considered a precursor to those mediations. If serious, such a dialogue would alleviate the psychological burden of the US sanctions to a large extent. Besides, any agreement, albeit an initial and small one, between Iran and the US would reflect positively and clearly on the Iranian economy. However, even if it is desired by the Iranian government, as well as the US, this scenario faces important obstacles, mainly the opposition by the Iranian Supreme Leader to any dialogue with the US, at least in the presence of President Trump.
Third scenario: Iran’s resort to China: the scenario assumes that the Iranian economy would turn to the Chinese ally in order to overcome the ordeal of sanctions. It is possible to talk about the plan to integrate with the Chinese economy within the framework of a plan that would last for 25 years, which is being discussed in Iranian circles these days. According to this scenario, Iran is moving towards implementing the strategic cooperation agreement with China that gives China the priority right to obtain economic contracts and Iranian oil in exchange for enough liquidity that Iran would get to support its economic structure and overcome the ordeal of US sanctions. Despite the large-scale impact and talk about this agreement, its implementation faces several obstacles, including: regional opposition to such integration, fierce internal opposition to the rapprochement with China, and European-US opposition, making the Iranians think twice before implementing it, along with international obstacles such as the placement of Iran on the International FATF blacklist, which prevents Chinese companies and banks from cooperating with Iran in the near term. This would make this scenario difficult to materialise, in the coming few months at least.
Fourth scenario: the continuation of the Iranian economic crisis: this scenario assumes the continuation of the economic crisis presently being experienced by the Iranian regime in the coming months in light of the continued sanctions, the placement of Iran on the FATF blacklist, and the impact of the coronavirus. This would lead to the continued contraction of the economy, high inflation and unemployment rates, budget deficit, loss of hundreds of thousands of jobs, delay in paying salaries, and high poverty rate, which would herald social unrest. The Iranian government seeks to support as many social groups as possible, under monetary and non-monetary support programmes. However, those programmes are insufficient to end the economic crisis and extricate the Iranian society from the poverty that leads to unrest, bringing about an economy that suffers from an inherent structural crisis that would reproduce itself for several years.
Social condition scenarios
The economic conditions resulting from the US sanctions in the past three years have led to the emergence of several phenomena in terms of social mobility, the most important of which are the protests experienced by the Iranian society in 2018 and 2019, along with other phenomena of varying degrees of importance. The exacerbation of the crisis in the current Iranian year is assumed to open up the Iranian society to the following two scenarios:
First scenario: escalation of the social mobility in general: this scenario assumes an escalation in the context of street protests similar to the December 2017 and November 2018 protests. It assumes that the economic pressures resulting from the combination of causes would lead to a street uprising in various cities. The government programmes to support the poor classes cannot prevent this due to the government’s weak financial structure, and the opposition by the conservative majority to such programmes. This is supported by the workers' strikes that are witnessed in the Iranian street which, based on experience from recent years, had preceded the protests. The protests are also supported by the awareness by the official authorities of the issue, and the emphasis by those authorities on the need to find ways to address them. While it may occur, this scenario faces several obstacles, including the following:
Second scenario: escalation of workers’ protests only: the scenario assumes a marked increase in the frequency of protests, so that they would likely be limited to the workers’ level which has been witnessing, since the start of the year, protests against working conditions, low wages, and worker layoffs. According to this scenario, the economic conditions during the coming months would likely lead to the increase and expansion of such protests, to include different sectors and more cities. However, the government seeks to prevent them from spreading in the street and turning them into popular protests through programmes to support the impoverished classes, as well as controlling social media networks and preventing labour movements from being on the street. It also seeks to stifle those protests and prevent them from being characterised by an integrated orientation, by confronting the leaders of those protests (to make the protests leaderless) and preventing the emergence of trade unions (so that the protests would be unorganised). Consequently, the scenario assumes that the current year will witness more labour movements and labour protests.
Scenarios of the internal political situation
The social unrest resulting from the faltering performance of formal institutions has had several consequences at the official political level. These include the decline in popular participation in the parliamentary elections to record levels, the street’s reluctance to vote for the reformist movement’s candidates and the moderate current, and the success of the conservatives. Therefore, the economy’s problematic condition is assumed to have its impact on Iran's domestic politics according to the following scenarios:
First scenario: the overthrow of the civilian rule and the rise of a militarist government: the scenario assumes that the failure by the Rouhani government to address the economic crisis will lead to an increase in popular protests and the government’s loss of control. This would lead to the overthrow of the civilian rule and the rise of a militarist government, or a government supported by the military. While it seems excessively pessimistic, this scenario has its own premises. The December 2017 protests witnessed a lot of political debate in Iran about the possibility of the direct IRGC intervention in running the country. Conservative figures have also called for the overthrow of Rouhani's government, which makes the scenario desirable among groups of the conservative current. Nevertheless, it remains an unlikely scenario, as there is no reason for the IRGC commanders to undertake this adventure in light of the lack of need for the IRGC to bear the responsibility of the executive authority directly under these circumstances that would make its leaders directly vulnerable to criticism and popular protests. Nor is it an acceptable option for Khamenei who has openly called for Rouhani's government to be allowed to continue operating until its last day.
Second scenario: the rise of a government of the reformist movement, or a government of moderate personalities: the scenario builds on Iran's experience in 1997 when the economic conditions and social discontent led to the rise of a reformist government headed by Mohammad Khatami. According to analysts, that government managed to restore the popularity of the Iranian regime. In light of the strong similarities between the economic crises in the times of both Rouhani and Rafsanjani (in terms of inflation, negative growth, high prices, and high poverty rates) and in light of the similarity between the two periods in terms of social mobility and the increase in the pace of protests for economic reasons, the scenario remains plausible. Considering the Iranian regime's need for calm with the world in order to ensure its sustainability, the option of a reformist government, or something similar, remains an option, especially if global pressure is directed towards demanding the implementation of such a scenario. However, there are differences between the two cases which largely rule out this scenario, including the following:
Third scenario: changing the political regime from a presidential to a parliamentary system: the scenario assumes that the Iranian regime would move towards changing the political regime from a presidential system to a parliamentary one. This is supported by the disagreement between the government and Parliament over economic support programmes and the decline in the government’s popularity which help in changing the pattern of government as a way out for the conservative trend from the duplication of legitimacy that governs the relationship between the House of Leadership [in reference to the Supreme Leader’s headquarters] establishment and the Presidency of the Republic establishment, which derives its legitimacy from the voices of the street. This scenario is supported by a significant number of the figures of the conservative trend, and there is also talk of its implementation among a number of parliamentarians. While the scenario remains on the table, especially in light of Khamenei's tacit blessing, it faces obstacles, including the following:
Fourth scenario: the success of the conservatives in the presidential elections: this scenario assumes the success of the conservatives in the upcoming presidential elections, in light of popular dissatisfaction with Rouhani's government, low participation in the upcoming presidential elections (similar to the parliamentary elections), and the exclusion of independent and reformist candidates. It is the scenario preferable for the main conservative figures and supported by basic demonstrations, including the assurances of research centres of the possibility of a low participation rate, the impact thereof on the conservatives’ victory, and the Guardian Council’s assertion not to recommend figures that were previously rejected, with the result of the rise of one of the IRGC figures, or a figure close to this establishment, to power, which would complete the IRGC project of extending hegemony over the ruling institutions ahead of the sovereign transition.
Scenarios of the foreign policy and the regional situation
The Trump administration had announced that the goal of the US "maximum pressure" campaign that caused the economic crisis currently afflicting Iran is to push Tehran to reconsider its regional and international policies. The Iranian foreign policy response to those US attempts could be conceived according to the following scenarios:
First scenario: the elimination of the Iranian regional expansion programme: the scenario assumes that the economic crisis will eliminate the Iranian regional expansion programme, considering that the level of Iran's support for the militias loyal to it has declined due to the economic crisis that reduced Iranian revenues, constricted Iran’s capability to provide material support and military equipment to those militias, causing a major split in the loyalty of those militias to Iran and their search for new loyalties to provide them with financial resources. This would make a clear impact on changing Iran’s strategy and significantly undermine the influence of those militias among their followers and in the societies hosting them. Initial indications refer to the likely materialisation of such a scenario in Iraq, Syria and Yemen, making it perhaps the vanguard of the impact of sanctions on changing Iran's regional behaviour and the decline of its influence. However, the scenario does not take into account that a large part of Iran’s influence over the host societies and the militias loyal to it stems from ideological principles and common sectarian loyalties (considering that those militias view Iran as a Shiite haven for them). This means that economic pressures do not necessarily lead to a complete decline in Iran’s regional influence.
Second scenario: finding alternative ways of financial support (self-support): this scenario assumes that Iran's level of support for the militias would decline due to economic pressures. However, it assumes that Iran and the militias loyal to it would work to find alternative methods of financial support, which can be described as a shift towards self-support. Initial examples of those attempts could be seen in the case of Iraqi militias that have sought to control the border crossings to obtain financial resources, or in the case of the Shiite militias that got involved in the contraband trade to obtain financial self-support. While this scenario, which is considered by the Iranian authorities as the preferable scenario for preserving the power of those militias and the cohesion of their lines, can work to a remarkable extent to prevent the collapse of the Iranian influence over those militias and the communities that support them, it cannot prevent the decline of influence in some of those organisations, especially Sunni organisations such as Hamas, as well as some Shiite organisations.
First scenario: the Iranian side opens up to the new US administration: this is the preferable scenario for the US administration and its allies. According to this scenario, the economic pressures resulting from the sanctions and other influences would lead to the openness of the Iranian side to the US administration and Tehran’s engagement in a dialogue with Washington on regional and international issues. This would be followed by an openness from the US to Iran. There are indications of the likely materialisation of this scenario, most notably the international mediation activity that seeks to bring the Iranian position closer to the US position, mainly the Russian mediation these days. However, this scenario faces the obstacle of opposition by the IRGC as the establishment that possesses wide powers in foreign policy.
Second scenario: Iran's orientation towards China: this is the preferable scenario for some conservative actors within the Iranian regime. It assumes that the pressures resulting from the sanctions and other influences would push Iran towards an alliance with China by engaging in strategic cooperation agreements not only at the economic level, but also at the political and military levels. This is the scenario in which Iran shows great interest at the official level, making it the desirable scenario, although it remains presumptive and ostensible, considering that the Chinese positions show no emphasis on it. The Iranian drive towards China is not matched by similar enthusiasm by the Chinese side. This is to be expected given the interdependence between China and the US. Furthermore, the placement of Iran on the FATF blacklist, along with the possibility of internationalising the sanctions, rule out the Chinese private sector's involvement in the assumed cooperation agreements with Iran, for fear of being exposed to US sanctions. Consequently, the chances of for this scenario to materialise remain weak, especially if we take into account the possibility of internal, regional and international opposition to the agreement, which will make China hesitant about joining it.
Third scenario: the continuing collapse of the Iranian economy: this scenario assumes that the collapse would continue under the weight of the aforementioned influences, and that the internationalisation of the sanctions would serve to perpetuate the crisis, so that the result would be a regionally weak and internally coherent (yet dilapidated) country. What makes this scenario likely at the international level is that it responds to the interests of several international actors, including Russia, which would benefit from the decline of Iran's regional influence (especially on the Syrian issue), China, which benefits from the weak Iranian position to dictate its economic conditions to it in exchange for supporting Iran’s international position, and the US which would be enabled by Iran's weakness to implement the US programme to curb Iran's regional influence. Regional actors would also benefit from a weak Iran that is unable to destabilise regional security and practice an expansion policy. However, Iran would remain internally coherent at the very basic level, which would prevent chaos and collapse. The previous period has proven that Iran is open to cooperation with its Arab neighbours in the event of increased sanctions, while it increases the level of trade cooperation with the world at the expense of its Arab neighbours in the event of the end of sanctions. This means that the Arab countries would benefit from the state of sanctions that open Iran's doors to them and increase the volume of the Iranian capital resorting to them.
EPC | 14 Jul 2021
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