The Economic Crisis Unsettling Iran
Marina Forti 5 September 2018

Within the past two months, Iranian editors have been cutting the number of pages and newspapers they publish — at least one daily has closed shop entirely. This is not due to government censorship or a sudden drop-off in readership: there is simply not enough newsprint to go around.


Like other imported goods, the price of the inexpensive, archival paper has risen significantly over the past year. The price spiked after US President Donald Trump announced his withdrawal from the nuclear agreement with Iran (the JCPOA, Joint Comprehensive Plan of Action), foiling one of international diplomacy’s most important achievements in recent years.

On August 7, Washington reinstated sanctions against Iran, starting with trade that involves gold, steel, automobiles, as well as all banking transactions — including the purchase of US dollars. More sanctions against oil and gas exports, navigation and ports as well as the Iranian Central Bank are scheduled to come into effect in November.


The paper crisis afflicting the written press is one symptom of Iran’s many problems. Even more important than sanctions (which do not directly affect paper) is the fall of the rial. The national currency began to lose value against the dollar and the euro last autumn after Trump hinted at his intention to withdraw from the JCPOA.


By the time that decision was publicly confirmed in May, the rial had already lost 30% of its value and has been freefalling ever since. At the beginning of the year 40,000 rial were needed to buy one US dollar, a figure that rose to 60,000 in May and peaked over the summer at 100,000. Although the currency has recovered slightly, it has lost over half its value since the beginning of 2018.

To return to newspapers, the cost of importing paper has become prohibitively expensive. According to estimates published by the
Financial Tribune (the Iranian English-language economic newspaper), the price of paper doubled in the past year. A kilo of paper that used to cost 32,000 rials in the autumn now costs 72,000 rials.

The first to suffer was the daily newspaper
Hambasteghi (reformist), which closed its doors on July 17th. Other newspapers have started to print intermittently, limiting the number of pages and eliminating supplements. Many have reduced circulation, such as Hamshari (“The Citizen”, owned by the municipality of Tehran) whose numbers fell from 290,000 to 130,000 copies a day, while Khorasan (conservative) dropped from about 120,000 to 50,000, Shargh (reformist) from 18,000 to 8,000 and so on (estimates collected by an Al Monitor correspondent).

Some newspapers have raised their newsstand prices to compensate for the higher cost of paper. Shargh is experimenting with an on-line paywall. This crisis, however, is affecting the entire publishing sector, including magazines and books — reading is becoming a luxury good.


The “government’s dollars”

The fall of the rial is itself only part of a larger problem – and here the press’s current crisis is indicative. In the newsrooms of Tehran, there is talk of economic speculation and price-gouging. “Those who have paper keep it in their warehouses,” said
Hambasteghi’s executive director. “The company from which we have always bought paper, which has also received dollars from the government, now refuses to sell to us.” The exchange system set-up last April to stop the rial’s fall imposed a fixed exchange rate of 42,000 rials to US dollar and shuttered all private currency exchange offices.


In order to guarantee the national supply of essential goods, the government provides dollars (or euros) set at the official exchange rate to authorised importers – known as “government dollars.” On July 25th, Mehdi Rahmanian, editor-in-chief of Shargh told Al Monitor that “those who have received government dollars so as to import paper used them instead to import other goods, or imported less paper that they declared, or even keep it locked up in their warehouses and are waiting to sell it at a higher price.”

Faced with the newspaper crisis, on August 4
th, the Minister for Culture, Abbas Salehi, requested government intervention and obtained the approval of emergency imports of 20,000 tons of paper, which are now included in the category of essential goods.

Paper is only one example of economic speculation. In August the Minister for Industry and Trade, Mohammad Shariatmadari, declared that import demand had tripled in the last quarter, rising to 250 billion US dollars. The minister called it an “incredible” sum — 250 billion dollars is almost three times Iran’s yearly oil revenue. Shariatmadari also said that “some opportunists” are exploiting the country’s problems to make money and that there will be stricter supervision.


Protests in the Grand Bazaar

Also in August, the judiciary announced 67 arrests for financial crimes, including for rigging the exchange rate mechanism, hoarding goods and abuse of government-subsidised exchange rates.


At nearly the same time, the commanders of the Basij militia (the Revolutionary Guard’s public security branch) announced the discovery of warehouses filled with cars, rice, and construction materials, all being hoarded and waiting to be sold at higher prices.


A recent scandal involving mobile phones and a protest in Tehran’s bazar  provides a clear example of the turn of events.

Protests started on June 24
th with the closing of two large shopping centres specialising in smartphones and computers – among them the Charsou, a sparkling six-story mall also known for its multiplex cinemas. On that day the “semi-official” exchange rate for the dollar had risen to over 90,000 rial. Shopkeepers said that at that exchange rate those importing mobile phones and computers would go broke; they also accused the government of pushing honest shopkeepers into bankruptcy. A cortege of protesters walked towards parliament and the protest continued on June 25th when the traders at the nearby Grand Bazaar closed all their shops in solidarity.

The Minister for Telecommunications, Mohammad Javad Azari Jahromi, responded by publishing a list of intermediaries who obtained hard currency at the official exchange rate in order to import mobile phones and computers, with their full names and the quantities imported. The list showed that even though the government allocated 220 million euros intermediaries only imported 72 million euros’ worth of smartphones.


Furthermore, in many cases the mobile phones imported at the subsidised exchange rate were sold at astronomical prices, corresponding to the “market’s” exchange rate. Iranians were provided with evidence that prices were rising because of the speculation of many.


The conservative media played up the protests at the Bazaar, traditionally a pillar of the Islamic Republic. They may even have fomented the protests, according to local journalists who reported statements by shopkeepers who closed after an order to do so from a nearby mosque. The extremist opposition has asked the government to resign.

Scandal follows scandal and the opposition to the Rouhani government is trying to ride the wave, accusing the government of incompetence and launching campaigns against the elite’s “privileges”
. The most recent example is the campaign launched on social media with the hashtag #whereisyourkid, aimed at the offspring of political managers who rose to top jobs without having have the necessary competences. It is an opposition that uses “anti-caste” tones.

The Supreme Leader, Ayatollah Ali Khamenei, the state’s highest authority, has excluded the government’s resignation but stated that all those who are corrupt or profiteering must be prosecuted “with the greatest severity”.
At the end of August the first defendant accused in the mobile phone scandal appeared in court and state television covered the trial at length — the government wants to prove that it takes the fight against corruption seriously.

Leaving aside political exploitation, the point is that imminent sanctions and the differential between the fixed and the “market” exchange rate has sparked speculation on black market exchanges. Interest groups with solid links to the power system and privileged access to import licences have exploited this situation, as observed by the economist and analyst Bijan Khajepour.


At the end of July the government published the names of almost 1,500 individuals and institutions or businesses that had obtained currency thanks to the subsidised exchange rate. According to Khajepour the list is “an impressive case study on how interest networks with access to power have abused the system.”

At the end of July, President Rouhani changed strategy, sacking the governor of the state bank, Valiollah Seif, and many of those responsible for economic policies. It has been said that the Central Bank’s new CEO will prioritise the management of foreign currency so as to guarantee the importing of essential goods. The government also reopened a free exchange market. A few days later the head of the Central Bank’s exchange offices was arrested and charged with various malpractices.

Penniless middle classes

Sanctions have sparked speculation and abuses, but have still not caused any shortages of goods, at least for the moment. One exception concerns medicines: last week the government allocated 3.5 billion dollars for importing essential drugs that are in short supply. Shops are regularly resupplied, and the government has repeatedly said that the Central Bank is able to guarantee supplies.


Prices for those supplies, however, have skyrocketed, for imported goods or those manufactured locally. In particular, the most common food – eggs, rice, meat and vegetables – have become prohibitively expensive, rising by between 20% and 60%. Property prices in Tehran have risen by 40% in the last twelve months (property, like gold, is a safe haven asset), and even rents have increased. The lower and middle classes are now finding it hard to do their daily shopping, while working classes have become poor. It is on them that sanctions have their first effect.


This is the most pressing issue. The devaluation of the rial has affected local industries, destroyed jobs, pushed up the cost of raw materials and the price of spare parts. Even companies not directly affected by sanctions have closed.


Workers without salaries and farmers with no water

In August the former Iranian Labour Minister, Ai Rabei, said that about one million Iranians will lose their jobs due to the economic pressure caused by U.S. sanctions. The profee association of spare part manufacturers has calculated that very soon 450,000 workers will be made redundant. The automobile industry is one of those already affected by sanctions and in the past two months, many foreign manufacturers (the French Peugeot and Citroen, the Korean Hyundai, the Japanese-owned Mazda) have left Iran in order to avoid “secondary sanctions” (which the United States inflicts on third countries doing business with Iran). Four factories that assemble cars under foreign licence closed in July and the former labour minister’s prediction seem very accurate.


Hence mistrust increases and protests are multiplying. The strike at the bazaar attracted the foreign press’ attention, but for months now workers’ protests have become frequent in Iran. Municipal employees, teachers, miners, pensioners and industrial workers have all protested. Last winter the employees of a semi-public steelworks in the Awazh area went on strike followed by those working for an agro-industrial group.


The common denominator remains salaries unpaid for months and un-kept promises. In May a truck drivers’ strike involved about 160 cities in 31 provinces, blocking the entire country. They protested because their costs are rising while transport prices remain unchanged; they also asked for health care and pensions (the strike ended when the Labour Minister started negotiations).


On May 10th teachers went on strike in about thirty cities. One must take note that the truck drivers’ protests, like the one in the bazaar, was highlighted by the conservative opposition. Even if workers had stated that their only claims were economic, unlike the teachers who were repressed and accused of causing unrest (their trade union is traditionally close to the reformists). New protests were reported in August. One protester was killed in Karaj, north-east of Tehran, in circumstances the police has promised to clarify.


Other protests have been caused by a lack of water due to the drought that has been gripping Iran for a number of years, but also caused by a bad management of water resources. In February, farmers in the province of Isfahan invaded Friday prayers in the provincial capital to protest against water being rerouted to urban areas. There were mostly women and children shouting, “It is not America that is our enemy, our enemy is here.”


Something similar happened during the summer in Khuzestan, the oil province neighbouring with Iraq, and also in Kazeroon, a small town in the south of the country where the police admitted to having killed a farmer when shooting to disperse protesters.

The fact is that uncertainty concerning the future is destabilising. Protests continue; sporadic and fragmented, but recurrent. No one in the markets and the streets is afraid of cursing those who govern. One hears slogans against the exploiters and the corrupt, against the government and the regime itself. Even in the bazaar people shouted, “Enough with Syria, look after us.” It would, however, be wrong to come to the conclusion that the Islamic Republic’s political system is about to fall.


One could instead envisage that in a situation involving widespread shortages and discontent, “anti-caste” exploitation and external pressure, the need to maintain order and the regime’s continuity would prevail and there is only one institution capable of doing that; the Revolutionary Guards. The Guards’ commander, General Mohammad Ali Jafari, implied this when he recently said that nowadays, “domestic challenges are more worrying than external ones.”


Translated by Francesca Simmons




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