By Ahmad Rafat
The volatile foreign exchange market is the leading indicator of the economic crisis in Iran — even for those who live abroad and are not part of the everyday struggle in the country. For many people, the exchange rate and the price of gold are the most important news of the day.
The exchange rate had stayed at 14,000 rials to the dollar for the last few years, but in recent days it has increased to 22,000 rials to a dollar and 25,000 rials to a euro. Even during the peak of the coronavirus outbreak in March, the rial had fallen slightly to 16,000 to the dollar. Meanwhile, in recent days, gold prices have soared 20 percent from a year ago.
The governor of the Islamic Republic of Iran Central Bank, Abdolnaser Hemmati, has linked the devaluation of the currency to the International Atomic Energy Agency’s (IAEA) resolution on Iran.
Following its meeting on June 19 in Vienna, the IAEA Board of Governors released a report titled “NPT Safeguards Agreement with the Islamic Republic of Iran,” which criticized Iran for failing to cooperate with the agency.
“The Agency notes with serious concern that, for over four months, Iran has denied access to the Agency, under Article 4b (i) and Article 5c of the Additional Protocol, to two locations and, for almost a year, has not engaged in substantive discussions to clarify Agency questions related to possible undeclared nuclear material and nuclear-related activities in Iran,” the report said. “This is adversely affecting the Agency’s ability to clarify and resolve the questions and provide credible assurance of the absence of undeclared nuclear material and activities at these locations in Iran.”
“The Director-General calls on Iran immediately to cooperate fully with the Agency, including by providing prompt access to the locations specified by the Agency under its obligations under the Safeguards Agreement and the Additional Protocol,” the report added. “The Director-General will continue to report to the Board of Governors as appropriate.”
Britain, France, and Germany drafted the introduction to the IAEA resolution. Those countries were the three members of the P5+1 that signed the 2015 Joint Comprehensive Plan of Action (JCPOA), better known as the Iran nuclear deal. The IAEA Board of Governors passed the resolution with 25 yes votes and seven abstentions. Russia and China cast the only no votes.
The ratification of the resolution raises the prospect of the U.S. and the Europeans triggering the re-imposition of UN sanctions (snapback) on Iran. Under the JCPOA, Iran agreed to limit its nuclear program in return for the lifting of sanctions. A UN weapons embargo on Iran will expire in October, but the U.S. wants to extend it.
Mr. Hemmati recently reminded everyone that the rial had dropped against all foreign currencies, including the dollar, some 3,500 times in the past 40 years. The devaluation of the rial has not been incidental or a deliberate emergency measure, but rather a continuing trend in the past four decades.
Meanwhile, inflation has steadily moved into double digits. According to the latest data, inflation reached 34.8 percent in March. Some economists believe that the figure has risen further to 40 percent in the past two months. The price of some goods increased by 45 percent in May and June, indicating a massive increase in the inflation rate.
Some food products, including poultry, rice, eggs, and milk, have gone up by 20 percent in the past two weeks alone. Housing rental prices have increased up to 35 percent in cities like Tehran, Mashhad (capital of the northeastern province of Khorasan Razavi), and Shiraz (capital of the south-central province of Fars).
Although ineffective policies and the gross mismanagement of the past 40 years are the leading causes of the country’s economic crisis, U.S. sanctions have further exacerbated the situation.
Speaking at an open session of the Majlis (Iranian Parliament) last month, Mohammad Bagher Nobakht, the head of Iran’s Planning and Budget Organization, said the country’s oil and gas revenue had dropped 90 percent in the past year.
Although Iran’s economy is oil-based, the country’s manufacturing and production industries have been severely affected, a recent report by the Islamic Republic of Iran Customs Administration (IRICA) has said.
Iran exported $6.24 billion worth of non-oil products in spring, showing a 44 percent drop from a year earlier. The IRICA has now included gasoline and natural gas in the list of non-oil exports. Iran also imported $7.6 billion worth of goods this spring, showing a massive drop compared to the same period last year.
Iran’s principal trading partners are Iraq, Turkey, the United Arab Emirates (UAE), Japan, South Korea, and India. Although Iraq has yet to publish its report on trade relationships with Iran, newspapers in Tehran and Baghdad have reported a 40 to 50 percent reduction in the volume of trade between the two countries.
Turkish Statistical Institute (TukStat) recently released its data on the economic relationships between Iran and Turkey for the first five months of 2020. According to the report, Turkey imported $365 million worth of goods from Iran between January and the end of May, a massive drop compared to $3.5 billion in the same period last year.
Turkey stopped buying Iranian oil in the middle of 2019. It also stopped receiving Iranian oil after the explosion of an oil pipeline towards the end of March. It exported $590 million worth of goods to Iran in the first five months of this year, showing a significant decrease compared to $1.2 billion last year.
According to a report by the General Administration of the Customs People’s Republic of China, the country imported $2.7 billion worth of goods from Iran in the first five months of 2020, showing a drop of 63 percent compared to the same period last year. Iranian oil exports to China showed an 84 percent decrease during the same period.
India bought less than $100 million worth of Iranian oil in the first four months of 2020, despite being one of Iran’s key economic partners. It had bought close to $2.85 billion of Iranian oil in the same period last year.
The economic relationship between Iran and Japan has followed the same trend. The trade volume between the two countries stood at $1.76 billion in the first five months of 2019 but fell sharply to $37 million for the same period in 2020.
In the first five months of this year, South Korea’s export to Iran was a quarter of the volume for the same period last year. South Korea imported less than $5 million worth of goods during the same period, showing a massive drop compared to $134 million last year.
The current economic crisis could trigger another wave of nationwide civil unrest in Iran, similar to the one seen in November 2019. Amnesty International reported in December 2019 that at least 304 people had died during the unrest.
Reuters gave a much higher figure.
“About 1,500 people were killed during less than two weeks of unrest that started on Nov. 15. The toll, provided to Reuters by three Iranian interior ministry officials, included at least 17 teenagers and about 400 women and some members of the security forces and police,” Reuters said.
Many senior officials in Iran are worried that chronic unemployment, hyperinflation, and the economic crisis could spark more unrest. There have been reports of protests in various parts of the country in recent weeks.
In the southern province of Khuzestan, workers at the Haft Tapeh Sugarcane Factory Argo-Industry Co have been on strike for the past three weeks. Also, workers at the Khuzestan Regional Electric Company, the Zagros Railways (Khuzestan) and the Isfahan Tile Company (central province) have been protesting for months, demanding better work conditions, benefits, and their unpaid wages. Teachers and pensioners will soon join them.
Iranian Oil Minister Bijan Namdar Zanganeh, Interior Minister Abdolreza Rahmani Fazli, and Minister of Intelligence Mahmoud Alavi will attend a closed-door session of the Majlis next week to discuss the current crisis in the country and form plans to deal with possible future unrest.
This article was translated and adapted from Persian by Fardine Hamidi.