Can the Islamic Republic Survive Economic Collapse?

Under the weight of the “maximum pressure” campaign of the United States, the Islamic Republic is inching toward economic collapse. But does economic collapse necessarily also entail collapse of the political order in Iran? If the regime in Tehran is able to survive despite economic collapse, how long will it be able to do so? In Iraq in the 1990s, Zimbabwe from 2001-15, and present-day Venezuela, economic collapse and hyperinflation did not result in political collapse, but is Iran comparable to these cases?

Iran’s National Petroleum Products Distribution Company on November 14 introduced gasoline rationing and price hikes of at least 50%. Sporadic protests broke out the following day across Iran: in the northeastern city of Mashhad, in the oil rich Khuzestan province, and in Kerman in the southeast, where a protester was reportedly killed in clashes with the security services. The protests have spread further and, as of November 18, 12 protesters have reportedly been killed and 2,000 arrested.

The protests took place in spite of Iranian President Hassan Rouhani’s assurances to the public that the government’s increased revenue is earmarked for supporting low income groups, and the money will “return to the households.” Mohammad Bagher Nobakht, the director of the Plan and Budget Organization, on November 15 reiterated Rouhani’s promise of allocating the funds to increase the basic income of Iranians who are underprivileged. The same day, Mahmoud Vaezi, Rouhani’s chief of staff, emphasized that the gasoline rationing and price correction policy was taken unanimously by “all the pillars of the regime,” and the government was just “executing the plan.”

The government’s gasoline initiative follows Rouhani’s November 12 warning that the country is not in “normal circumstances,” itself a break with the standard Islamic Republic assurances to the public that the regime is capable of sustaining even the harshest economic sanctions and a testament to the grim economic outlook for Iran.

Visiting Kerman province November 12, Rouhani said: “We all know too well that we are not in normal and easy circumstances. The conditions are very complicated.” Emphasizing the hardships his Cabinet is going through, Rouhani said: “Even since the beginning of the revolution until today, we have never faced so many difficulties in moving an oil tanker from our ports and harbors to the world.” Turning to the state of Iran’s finances, Rouhani explained the annual budget of the country is around $39 billion, $14 billion of which is secured through taxes and other government revenue. The remaining $25 billion has traditionally been covered by the revenue from exports, which are now severely limited because of U.S. sanctions against Iran’s oil and gas sector.

The exact amount of Iran’s oil exports is not known, but in mid-October, exports had reportedly fallen to less than 400,000 barrels per day from 2.5 million barrels per day after the signing of the Iran nuclear deal and lifting of sanctions in 2016. Other sources claim oil exports have fallen to less than 200,000 barrels per day. Iran is also suspected of selling its oil bellow the world market price and is nowhere near covering the $25 billion gap to balance its budget. Largely due to the rapid decline in Iran’s oil exports, in its October forecast the International Monetary Fund expects Iran’s economy to shrink by 9.5% this year. The IMF report further shows skyrocketing inflation rates in Iran of 35.7%. In late October, the Statistical Center for Iran issued a more pessimistic assessment with an overall inflation rate of 42%.

Faced with a trend that is unsustainable, Rouhani, apart from urging the public to pay rather than evade taxes to keep the regime afloat, also said he has not abandoned the path of negotiations with the United States as a means of obtaining sanctions relief. But if the United States is not willing to cease its “maximum pressure” campaign or Tehran finds Washington’s conditions unacceptable, can the regime in Tehran survive despite economic collapse, and if so, for how long? This question is vital, since Tehran must brace itself for the possibility of five more years of President Donald J. Trump in office.

The Islamic Republic may find some consolation in the ability of the regimes in Iraq from the early 1990s to 2003, Zimbabwe from 2001 to 2015, and Venezuela at least since 2016 to survive hyperinflation and economic collapse.

In Iraq, the Baath regime survived in spite of constant sanctions following the Iraqi invasion of Kuwait in 1991 and through the oil for food program, which it managed to manipulate and pervert, until the regime’s overthrow with the 2003 U.S. invasion. In a 1993 analysis of the ability of the Baath regime to adjust to the international sanctions regime, Patrick Clawson pointed to the efficacy of the Iraqi government’s methods to prolong its survival: rationing, guaranteeing access at low, fixed prices to specified quantities of food, plus a free market for all other goods; using up food stocks; increasing local food output; maintaining imports, both with and without U.N. permission; and budgeting with discipline and restricting government expenditure to control inflation. Iraq’s funds deposited in secret bank accounts abroad, gold reserves, automobiles and other goods looted in Kuwait, and other exports provided the Iraqi government with other sources of revenue. As for the risk of middle-class rebellion against the Baath regime, what had once constituted the Iraqi middle class was so demoralized by the decline in its living standard and busy securing its own survival that it possessed neither the will nor ability to pose a serious challenge to Saddam Hussein. Those who, encouraged by defeat and retreat of the Iraqi military from Kuwait, rebelled against the Baath regime, were massacred by the Iraqi military and security forces. The regime survived economic collapse, and only the later U.S. land invasion and occupation of Iraq managed to overthrow it.

In Zimbabwe, the regime of President Robert Mugabe survived the hyperinflation that began in 2001 and ended with demonetization in June 2015. Liberator-turned-tyrant, Mugabe combined the use of electoral gerrymandering, confiscation of the land of white Zimbabwean farmers and redistribution to regime supporters, employment of terror, and distribution of scarce food resources to remain in power. Mugabe himself was removed from office by a coup in November 2017, 16 years after the onset of Zimbabwe’s economic collapse.

The regime of Nicolas Maduro in Venezuela appears just as resilient, at least for now, and survives in spite of graver than usual financial instability since 2016 and U.S. sanctions and hyperinflation since 2018. Turning chronic and disastrous food shortages into an opportunity, the Maduro regime is using its monopoly over scarce food resources to buy political support. The promise of government-subsidized food keeps the starving public in check.

In all three cases, through merciless suppression of the domestic opposition, collective punishment, and allocation of scarce food resources to their support base, the regimes for a time secured their survival.

A wide range of socioeconomic, cultural, and political factors complicate comparisons of Iran with Iraq, Zimbabwe, and Venezuela, but as economic conditions get harsher, the Islamic Republic could employ similar methods as those three regimes against its own populace to remain in power in spite of economic collapse.

Gasoline rationing and price hikes only mark the beginning of the Islamic Republic’s response to the U.S. sanctions regime, and it is surprising, indeed incomprehensible, that it took the regime so long to adapt itself to economic warfare. Ever since the U.S. withdrawal from the Iran nuclear deal and reimposition of sanctions, regime officials have tried to convince the world and the Iranian public of the inefficacy of the sanctions, which makes it all the more difficult to explain the gasoline price adjustment.

If the Islamic Republic uses Iran-Iraq War-era methods, next in line is the introduction of ration cards for basic foodstuffs and household necessities and extensive use of government-controlled charities to deepen the dependency of low income groups, and even the professional middle class, on the regime. All initiatives must be predominantly financed by Iran’s dwindling gold reserves, which allegedly have shrunk to a mere 95 tons (around $6 billion). In the future, government campaigns will likely target what the Iranian government in the 1980s called “black market profiteers” and likely will include confiscation of “ill gotten wealth” of “corrupt officials.” These initiatives are not likely to contribute significantly to government finances and will, on the contrary, accelerate capital flight from Iran, but may satisfy the impoverished public’s calls for justice.

Just how long these methods help the regime maintain its grip on power is not known, but with no U.S. land invasion and occupation of Iran in sight in the foreseeable future, the Islamic Republic may at least survive the collapse of the economy until the November 2020 presidential election in the United States. It remains to be seen how the result of that election will impact the sanctions regime, and if and how the Islamic Republic will manage to secure its survival.

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