On June 15, 2011, Akbar Ganji published an article,"The Worst Scenario for Iran: A Different Look," on BBC Persian, examining the economy of Iran and the effects of the international sanctions on it. NIAC's Ali Tayebi and Sahar Fahimi have translated this article from Ganji's original pen, Persian, to English.
“The Worst Scenario for Iran: A Different Look”
Two factors could open a small breathing space and create opportunities for the opposition within the upcoming year; first- the dispute between Mahmoud Ahmadinejad’s team and the other conservatives; second- the creation of targeted subsidies and its consequences.
In mid-April, the dispute between the conservatives and Mahmoud Ahmadinejad began to escalate, and, in the past few weeks, the majority of political news has been dominated by this topic. In these circumstances, less attention was paid to the economic conditions; a circumstance that is due to structural issues, creation of targeted subsidies, and economic sanctions. This article discusses the second matter and its political outcomes.
The Quest for Nuclear Immensity
Manners and methods of Ayatollah Ali Khamenei, the supreme leader of the Islamic Republic, has and continues to display that he is not willing to back down from his stance. His strategy in every situation is offensive. For example, in the case of the United Nations, he advises that instead of awaiting the feedback and criticism of Western governments and civil societies of human rights violations in Iran (the passive approach), Iran should be on the offense, because Western governments are the largest actors in human rights violations of people and governments (the active approach). Or, in the case of women, instead of the West condemning and questioning us for ‘restricting’ our women, we will condemn and question the Western world, for objectifying their women.
In the past 23 years, the supreme leader’s “quest for nuclear immensity” has been activelty persued. He has been firmly against retreating on this matter, and has always commanded the active persuit of this project. He instructed Mohammad Khatami, at the end of his presidential term, to abolish the uranium enrichment suspention agreement with European nations and begin production. Thus, he is not open to compromise and agreement on this matter.
What has been the reaction of Western governmnets? They have passed a few sanctions on Iran through the United Nations. Aside from the international boycotts, the United States and the European Union have independently put more sanctions on Iran. These sanctions have been followed by political ones, the latest of which was an American sanction on June 19,2011, against the Iranian Revolutionary Guard Corps, Basij paramilitary, Iran’s national police and its chief, Esmael Ahmadi Moghadam due to major human rights violations.
Although the supreme leader’s regime has and continues to behave in an indifferent manner to the sanctions and claim that they have not had much of an affect on Iran’s economy, Ayatollah Khamenei recently publicly spoke of the enemy’s conspiracy to “cripple the economy.”
During his meeting with the members of the parliament on May 29,2011, Khamenei stated that the enemy’s clearest conspiracy agaisnt the Islamic Republic is through the economy. “Due to this, this year is the year for ‘economic jihad,’” he said, “Bringing the country to its knees through the economy, pushing back the nation in its economic field, so that it will lead to the paralyzation of the economy, leading to the public’s despair – this is one of their main focuses.”
The Economic Situation of the Nation
“A brief look at various indicators will effectively show the country’s economic difficulty in the state of ‘stagflation’”
The volume of liquidity: In mid 2005 the volume of liquidity was in the range of seventy thousand billion toomans, which (with the precise implementation of the constitution) should have been reduced to thirty-five thousand billion tomans, however, it has now reached over two hundred fifty thousand billion tomans. Thus, not only has the government failed to fulfill its lawful duty of fifty percent liquidity reduction, but it has grown three hundred percent.
Economic Growth: This republic has witnessed the descent of economic growth in Iran. With the exception of 1982, 1983, 1985, the economic growth of the years at war was negative and the overall average of economic growth of that time was -3.2 percent. The average growth rate during Rafsanjani’s presidential term was 5.5 percent. The rate during Khatami’s presidential term reached 9.4 percent. And the average growth rate after his term to early 2009, in one narrative, was 4 percent, and in another, it was 1.5 percent.
The World Bank and the International Monetary fund have predicted that Iran’s growth rate will be one percent in 2010, zero percent in 2011, and will grow to three percent in 2012.
Inflation: The inflation mean between 2000 and 2004 was 14.1 percent, which increased to 15.8 percent between 2005 and 2009. In 2010 inflation decreased ti 13 percent, due to a severe economic recession.
The Central Bank of Iran has recently announced an increase of inflation to 14.2 percent by mid-May 2011, later however, the Statistical Center of Iran announced the increase to be 16.7 percent. Thus the rate of inflation, which, before the creation of targeted subsidies, was eight percent, is now ascending, and some economic experts believe there will be an increase in its rate.
Overdue Bank Loans: Statistics show that by 2004 the nation’s total outstanding bank claims were in the range of three thousand billion tomans, within the next three years this volume increased to fourty thousand billion tomans, and now it has reached fifty thousand billion tomans. Thus, the overdue bank loans of the nation are one fifth of its liquidity. Notably six thousand billion tomans of this loans are in the posession of fourty-three people. Another two thousand billion tomans are in the hands of fourty-one people, and eighty-four others are in the possession of eight thousand billion tomans of the overdue bank loans.
Bounced Checks: One of the consequences of recession is the increase in the number of bounced checks. The Central Bank reported that in March of this year, two million and seven hundred thousand checks (amounting to thirty six thousand billion toomans) have been exchanged; three hundred thirty five thousand checks (amounting to one thousand three hundred fifty five billion toomans) of which have bounced. The rate of bounced checks in 2005 ranged around 5.1 percent, in March of 2011 this number increased to 12.4 percent. Until 2006, the bounced check trading volume ratio, ranged between five to six percent; this number has exceeded ten percent between 2007 and today. In 2005, the number of bounced checks was three million, five hundred and fourty thousand checks; in the past year it has reached nearly five million and nine hundred thousand. Meanwhile, the value of bounced checks also show a noticable increase; the value of bounced checks in 2005 surpassed eight thousand, eight hundred and seven billion tomans, and in the past year this number has reached twenty seven thousand, eight hundred billion tomans.
Imported Goods: From 2005 to 2010, for every 442 billion dollars of oil income, 352 billion dollars worth of goods were imported to the country. For example: in 2009, the total revenue of exported oil was close to 8.64 billion dollars, while 66 billion dollars worth of goods were imported.
Non-Oil Exports: Iran’s non-oil exports have increased from 10.5 billion dollars in 2005 to 20 billion dollars in 2010.
Unemployment: Unemployment rates of 12.3 percent in 2004, have increased to 15 percent in 2010. The Central Bank of Iran has reported that within the past three years, 730 jobs in the farming industry have been lost. Meaning, the number of agricultural workers have decreased from five million and one hundred thousand people in 2005, to four million and three hundred-seventy thousand people in the spring of last year.
Gini Coefficient: The ratio of the richest ten percent’s expenditure, to the poorest ten percent’s expenditure has increased from 14.6 in 2004, to 15.2 in 2007. And the ratio of the richest twenty percent’s expenditure versus the poorest twenty percent’s expenditure increased from 8.41 in 2004 to 8.74 in 2007. On the other hand, the population below the ‘absolute poverty line’ have increased from two percent in 2004 to seven percent in 2007; and the population below the poverty line has increased from fifteen percent in 2004 to twenty one percent in 2007.
Economic Sanctions: Influential Role
Analysts, rightfully so, point at unjust economic policies; however, the influential role of economic sanctions should not be ignored. Sanctions are also in many ways influential in creating the current situation.
Iran’s global exchange, makes up over fifty percent of its GDP. Bank sanctions are focused on currency and international activities. Thus, openning credit is obstructed and replaced by cash payments. Cash payments increase prices. The change from the dollar to the euro currency basket, was one of the solutions of Iran’s government to solve this problem. The activation of currency exchange in exchange of money, is another way to go around banking sanctions. Another strategy is the telegraphic transfer exchange, which South Korea has reportedly resorted to. This country imports ten percent of its oil from Iran. In exchange, two thousand Korean companies cooperate with Iran. This is yet another way to circle around banking sanctions.
India imports eleven billion dollars of oil from Iran, because of banking sanctions however, they are not willing to pay a rupee for its imports. On December 27,2010, Indian Central Bank banned business transactions with Iran though the Asian Union, which is an intermediate between Iran and India.
India owes about two billion dollars to iran for the oil it has imported. In mid 2011, the German government allowed India to pay its debt to Iran through the Tejari Bank of Iran and Europe, located in Hamburg; however, this bank was later added to the list of 100 Iranian corporations sanctioned by the European Union. Anotehr way to escape from the core of banking sanctions is mutually beneficial barter. The worst attempt at this will be sanctioning Iran’s Central Bank. A method that has previously been used agaisnt Iraq and South Africa.
Iran’s oil industry requires macro-investments, however, the path for foreign gas and oil investors in Iran has been completely blocked. In 2006, fourty-four billion dollars worth of foreign investments were made in the Middle East, less that two percent of which was Iran’s share. If there are no investments in Iran’s oil industry, the production of oil will significantly decrease, which will lead to problems in exporting.
In 2005, the total amount of foreign investments in Iran was nine hundred and eighteen million dollars. This amount increased to 6.1 billion dollars in 2006, and three billion in 2009.
To better understand our oil industry, a comparison with Iraq, who shares five oil fields with Iran, is necessary. In the past few years Iraq has signed immense contracts with dozens of major international oil companies. According to Iraq’s seven year oil development plan, the production of this country’s oil has to increase from its current two million and eight hundred thousand barrels, to about eleven million barrels per day. Iran, however, has been unable to sign contracts with any major international oil companies since 2006.
Behrooz Aalishiri, chief of Iran’s Investment, Economic and Technical Assistance Organization, in an interview with Irena news on June 6, 2011, announced that in order to reach the five year goals of the fifth development plan (until mid-2016), especially for the development of oil and gas projects, one thousand billion dollars are necessary, four-hundred billion dollars of which need to be secured by foreign investors.
On the other hand, exporting advanced industrial equipment, material and dual-application technologies (military and non-military) are on a sanctioned list as well. Steel, which has a vast non-military use, has been sanctioned by the west because of its dual application. In the past few months, many of Iran’s crafts have been reaching a worrisome condition and are on the verge of bankruptcy. Sanctions have and are clearly showing their effects on Iran’s industry. Unemployment, inflation, and the decrease in value of national currency, are all consequences of the nation’s industrial sanctions.
In this situation China has a major role in Iran’s economy. A main part of Iran’s oil income has to come from China. Iran’s market is filled with made in China products, and this has caused many domestic producers to go out of business.
The worst possible situation
Ayatollah Khamenei will never accept to retreat in Iran nuclear project. His policy in the Middle East and North Africa to support the extremist activities and calling the ongoing changes across the region “Islamic Revolution” soured the anti-Iran atmosphere, and put Persian Gulf countries in an confrontational position with Iran.
In this situation, what option remains for the Western countries other than increasing political and economic sanctions?
Let us assume that the western countries succeed in sanctioning all Iranian banks. Let us assume that this sanction also includes Iran’s fuel, and Iran is put in a situation similar to Iraq during Saddam Hussein’s era. In this case, the unemployment rate in Iran will increase by millions, poverty will be expanded all over the country and the middle class will merge into the lower class. Tens of thousands of children and the elderly will lose their lives.
Would this situation lead to protests or cause a revolution? Thousands of different issues could lead to the collapse of the totalitarian religious regime, however, no one can predict that increasing unemployment and poverty will cause protests or spark a revolution. Consider Iraq, the toughest economic sanctions in ten years destroyed the Iraqi society, but did not hurt Saddam’s regime and at the end he stepped down only by military attack and invasion.
In the same situation, as long as the regime has power and intention to systemically crackdown any protests and critique, it will continue to survive. Decline in any of these two factors is a prerequisite for regime change.
A regime that can and yearns to remain in power by a broad crackdown, will sustain until these factors have changed.
Economy and Collapse
Still, some people believe that economy is a determining factor. They imagine that the economic infrastructure forms political, philosophical, moral, and ideological superstructures. Karl Marx in preface of his book, Contribution to the Critique of Political Economy, says: “It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.”
There are four levels in Marx’s theory: 1) Production forces, 2) production relations, 3) laws and political institutions, 4) consciousness forms. The blue-collar class becomes poorer every day until they reach class-consciousness, and finally, they tear down the Bourgeoisie by a brutal revolution. In Marx’s theory, the economic situation of the blue-collar class must become increasingly worse in order to have a revolutionary evolution and collapse.
Antonio Gramsci tried to correct this model. According to him, superstructures play an important role in creating public awareness. Hegemony and organized satisfaction, as a process that obedience will come without being solicited, are some of the issues that Marx calls superstructure.
Regimes with ideological superstructure are not the only ones who create satisfaction; opposition groups can also use the same formula to create values in superstructures in order to mobilize people against the existing situation.
In a reclining economy, securing their own well being and enduring the tough times become the crucial issues for people. Poor people work day and night to earn enough money to survive. For them, democracy, freedom, and human rights are considered luxury and unnecessary goods.
If we look at regime change experiences, poverty and unemployment do not play an important role; to the contrary, a nation enters a period of fast economic growth and the public’s monetary situation slightly improves, ‘revolution of expectations’ happens. A dictatorship cannot address raising expectations in a fast growing economy. Revolutions happen because of raising expectations in a proper economic growth or in a situation that after a long period of growth a country experiences a short period of setback.
Alexis de Tocqueville, the main theorist of this approach, writes about the French Revolution and mentions that surprisingly this revolution happened when the country was not in economic recession or brutal repression. More importantly, those parts of France that had better quality of life were the centers of emerging revolutionary movements.
According to him, ‘a change happened thirty or forty years prior to the revolution’. Economic growth escalated, no one satisfied with his share, and everyone was looking to improve his/her situation.
In his belief, a decline in the regime’s power and intent on protest crackdowns is a prerequisite in order for a revolution to take place.
After studying the American, French, Russian, and English revolutions, Crane Brinton came to the same conclusion as de Tocqueville. He argues that revolutions “were clearly not born in economically retrograde societies; on the contrary, they took place in economically progressive societies, in spite of short term cyclic variations.”
Many French and Russian protests followed long famine and hunger episodes, but none of them lead to a revolution. James Davies also support this fact, he mentions: “Enduring poverty is far from a revolution motivator, it lead to concern for one’s self and family at best, and resignation or mute despair at worst.”
Iran’s 1979 revolution also confirms this theory. Between 1960 and 1978, Iran had a very proper economic growth rate (5-17 percent). Average economic growth rate in this 17 year period was 10.5 percent. In the year that the revolution happened, Iran experienced 17 percent economic growth rate.
There is another supportive indicator of this theory; the GDP per capita (the approximate value of the total goods and services produced per person in a nation) is an indicator that provides an accurate picture of the welfare of a country’s citizens.
From 1959 to 1976, Iran GDP per capita increased from 2 million Rial to 7.2 million Rial. It means in 17 year, Iran experienced 360 percent increase in its GDP per capita, which shows that Iranians’ welfare substantially improved in this era. The 1979 Revolution happened in this context, and the fact is after 32 years Iran has just reached the same GDP per capita that it had in 1976.
Totalitarian Regime, the Main Problem
The main problem of our society is the existence of a totalitarian regime and the transition to a democratic regime committed to freedom and human rights. If we accept this fact, based on what has been discussed before, an economic crisis will marginalize the process of transition to democracy by wiping out the middle class, as the main player in this process. Humans primarily seek their essential needs such as food, clothes, and shelter, and only in next steps do they chase their ideals. Even if someone is looking for the regime change, he or she should know that poverty does not lead to a revolution and collapse of the regime. Therefore, we should worry about the existing situation becoming increasingly worse.
The worst-case scenario for Iran would be if the crippling sanctions pass. A period of repression and brutal crackdown will follow, if an economy that is already trapped in the hands of domestic insipience and structural problems is faced with disabling sanctions.
In the past three decades, Iran’s society has experienced moral deterioration, especially in terms of trust; and in this situation, we will observe the collapse of its social capital from inside and outside.
Economic sanctions alone, cannot lead to a regime change. If the main goal and idea for some of the supportive political groups is overthrowing the Islamic Republic and a regime change in Iran, the failure of sanctions will lead to welcoming military action.
Similar to Libya, justification for war can be provided, but Iran is not a small country like Libya. Furthermore, nonstop bombing Libya by Western countries has not forced Gaddafi to step down yet. Based on UN reports, both sides of the war, Gaddafi and the oppositions, have committed war crimes. However, the western world has supported one side. If Iran is faced with the same situation, Iran and Iranians will be destroyed. We want democracy and human rights for Iran and Iranians, not ruins for a nation and citizens who are awaiting death.
There is no reason for Iran’s religious dictatorship to withdraw and accept the request for democratization of its political structure and society. If people do not gain strength through multiple diverse organizations, if social mobilization does not happen, if unfair/unethical/immoral laws and regulations are not disputed and publically disobeyed, if balance of power is not forced this way and the officials do not start dialogue with the opposition, if a compromise is not reached and open elections (meaning elections that will transfer the power from the officials to the people) are not held, if the oppressors are not forgiven (forgiven but not forgotten); a peaceful transition to a democratic regime, committed to freedom and human rights, will swiftly become a mirage. Perhaps the words of the mystics who “offer heavens as an excuse” are true, but democracy is given to a “price”, not an “excuse”.