Ujjwal K Chowdhury
Media academic and columnist
At the end of my trip to Tehran in the last week of November, the foreign exchange rates in the market dropped below the support level of 120,000 rials to a dollar — between 112,000 and 118,000 rials — as foreign currency rates continued to decline in the open market. Governor of the Central Bank of Iran Abdolnasser Hemmati said, “Market indices suggest that the forex market seems to be moderating first time after the November 4 renewed US sanctions. The country should step into an economic boom.”
The Trump administration had, on November 4, unveiled its new sanctions on Iran, with targets including 50 banks, the national airline, and 200 members of the shipping industry. However, the sanctions fell short of the US' aim of cutting off Iranian oil exports entirely. Eight countries were granted temporary waivers: China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey.
Impact of sanctions
Boom may be an over-estimation, but the spirit encapsulates the spirit of defiance among the Iranian people today and its resilience to create the domestic market strong enough to sustain the 82 million citizenry with 100 per cent literacy, school education being compulsory and provided free by the government.
The unemployment rate which was around nine per cent at the start of 2018, has dropped to 11 per cent today, after renewed stringent sanctions targeting to choke oil and natural gas sales of Iran. The common Iranian is both a bystander and a victim in US’ drive to immobilise the Iranian economy through sanctions. His concerns are twofold: how to find medicines needed for a severe heart condition and how to transfer his money in and out of Iran. While Iran produces 98 per cent of the medicines it needs (all generic), the high-end two per cent are to be imported hit by sanctions. No international commercial bank will touch money linked to sanctioned Iran.
Tehran has excellent modern hospitals and public healthcare is free along with generic medicines, but that leaves many severe ailments unattended.
Compounding the situation is a decision by Swift to avoid Iranian products under US pressure. The good news is that the Bank of Kunlun of China has resumed ties and it would apply to merchants and Iranian expats and students in China, but not to tourists and visitors.
The US national security adviser, John Bolton, had said that the pressure is designed to make the people squeak, and revolt against the Islamic State regime in Iran, the signs of which are still not seen in the horizon, though.
The economic crisis is playing out across Tehran, with its housing market gripped by stagflation, with home deals falling as prices rise as per a media report. Annual inflation, says The Guardian is about 37 per cent. But even the affected people are with their government against US-Saudi Axis. They expect support from the East: India, China and Russia. Most people I talked to see no evidence that the sanctions will trigger an uprising.
The IMF projects the Iranian economy to shrink by 1.5 per cent this year and by three per cent next. In May, the IMF had projected four per cent additional growth. But what it does not say is that the current GDP growth rate of Iran is a healthy eight per cent, even after the sanctions, and the World Economic Forum places Iran globally at the 63rd position in economic terms. With the tenth position in minerals across the world, producing 1.2 per cent of automobiles and one per cent of steel of the world, apart from 1.8 per cent of cement, Iran is well placed on some measures. Independent observers do not see it imploding politically just because the US-Saudi axis wishes so.
The sanctions were designed to curb Iran’s “outlaw behaviour” because Trump said the Joint Comprehensive Plan of Action “cannot prevent an Iranian bomb” which was signed in 2015 wherein Iran agreed to the terms on the nuclear issue that the permanent UN Security Council members, Germany and the EU dictated. But the International Atomic Energy Agency has verified that Tehran has complied with its terms. European co-signatories agree.
The US administration sees ordinary Iranians as an instrument for regime change, but there are no signs of that on ground. Alongside, “ghost shipments” and barter with countries such as China, Russia and India will probably keep Iran going, and while Iranians will face hardship, some are more likely to flee, if at all, than rise against a repressive regime.
Many western observers say there is no point maintaining a treaty when the other party is not living up to it. The United Commercial Bank of India has started operations in Iran and so have many bilateral banks between Iran and Venezuela, and with Japan and China. Europe has attempted to counter the weaponisation of the dollar via a Special Purpose Vehicle, but has yet to find a country willing to host it. Yet, as the French Finance Minister identified earlier this year, this is not only about Iran but about European economic sovereignty.
Unveiling the sanctions, the US Secretary of State, Mike Pompeo, had said they were aimed at forcing Tehran to stop its “destabilising activities” in the Middle East, referring to events in Yemen, Lebanon, Syria and Iraq. But Iran had greeted the re-imposition of sanctions with air defence drills and an acknowledgement from President Hassan Rouhani that the country faces a “war situation”, raising tensions in the Middle East. The sanctions bring to an end all the economic benefits the US granted Tehran under the nuclear deal, though Iran for now continues to abide by the accord, under which it limited uranium enrichment. But Iranian officials have in recent months made a point to say this could resume at any time, and at a greater speed than before.
Sympathy for Iran
Since Iran had accepted in 2015 strict limits on its nuclear programme in return for an end to sanctions, and had unplugged two-thirds of its centrifuges, shipped out 98 per cent of its enriched uranium and filled its plutonium production reactor with concrete, there is a sympathy towards Iran across Asia (except the Saudis, the UAE and Israel) and also in some European nations.
The International Court of Justice has ordered US to lift restrictive measures linked to humanitarian trade, food, medicine and civil aviation.
The situation is a lull before the storm. However, it is unlikely that Iran will implode, as much as it is impossible for Iran to resist the full adverse impact of economic sanctions. Iran is expected to experience an intense phase of looking inwards and developing domestic economy, trading globally on barter, using extra-institutional and innovative ways of trading in oil and natural gas with major friendly nations, and political and social reforms within the nation. Renewed interest in the Reformist Movement of former President Khataumi internally, and hyper-active negotiations with China, India, Russia, Turkey, etc externally are signs of the time. After all, one cannot just wish away a country that produces 38 lakh barrels of crude oil per day, the second highest in the world, using less than half of it internally!