Key Takeaways
- Iran’s currency, the rial, has plunged to new lows, losing about 40% of its value since the 12-day war in June, and hitting a record low of 1.45mn to the US dollar on the open market.
- The country is struggling with the economic aftershocks of the war, including a stubbornly high inflation rate of 42.2% in December, and shrinking oil revenues under US sanctions.
- Protests have erupted in Tehran, with shopkeepers and merchants demanding the stabilization of foreign currency rates, and chanting slogans such as "Iranians will die but won’t accept humiliation".
- The economic crisis has contributed to a broader legitimacy crisis for Iran’s leaders, with growing segments of society demanding sweeping political, economic, and social reforms.
- The government has responded by expanding limited social and cultural freedoms, and broadening food voucher programs for lower-income households, but these measures are seen as insufficient to address the crisis.
Introduction to the Crisis
The economic situation in Iran has taken a turn for the worse, with the country’s currency, the rial, plummeting to new lows. The rial has lost about 40% of its value since the 12-day war in June, hitting a record low of 1.45mn to the US dollar on the open market. This has sparked protests from shopkeepers and merchants, who are demanding the stabilization of foreign currency rates. The economic consequences of the conflict have become increasingly visible, with prices of basic goods such as milk, yoghurt, and meat rising sharply. The price of gold coins, a key means by which Iranians seek to protect their household savings from inflation, has hit a record high of 1.7bn rials per coin.
The Human Impact of the Crisis
The economic crisis is having a devastating impact on the lives of ordinary Iranians. Shopkeepers are struggling to make ends meet, with many forced to shut their stores in protest. Merchants in the capital’s historic Grand Bazaar have joined the strike, demanding action from the government to address the crisis. The prices of basic goods are rising daily, making it difficult for people to afford even the most essential items. A 55-year-old housewife, Saghar, said she had stopped buying Iranian Lighvan cheese, a traditional staple, after its price jumped from 6mn rials to 8mn rials per pack within weeks. The economic spiral has contributed to a broader legitimacy crisis for Iran’s leaders, with growing segments of society demanding sweeping political, economic, and social reforms.
Government Response to the Crisis
The government has responded to the crisis by expanding limited social and cultural freedoms, and broadening food voucher programs for lower-income households. However, these measures are seen as insufficient to address the crisis. The government has also proposed an overall spending increase of just 2%, which, if approved by parliament, would amount to a rare real-term decline in expenditure. The budget proposes an increase in state employees’ salaries of only 20%, below inflation, but parliament speaker Mohammad Bagher Ghalibaf has vowed to push for higher wages despite the president’s warnings about a looming cash shortfall. President Masoud Pezeshkian has acknowledged that falling oil revenues have made it extremely difficult to raise public-sector salaries in line with inflation.
The Role of Sanctions and Corruption
The economic crisis in Iran is also being driven by systemic corruption, structural flaws in the banking sector, and shrinking revenues caused by US sanctions. The sanctions have had a devastating impact on the country’s economy, with oil revenues shrinking significantly. The government has been accused of mismanaging the economy, with many blaming the crisis on the corruption and incompetence of the leadership. A reformist analyst, Saeed Laylaz, said that personnel changes, such as dismissing the central bank governor, would not resolve the crisis. He argued that the roots of the crisis lay in systemic corruption, structural flaws in the banking sector, and shrinking revenues caused by US sanctions.
The Future of the Crisis
For many Iranians, expectations of persistently high inflation have left them wondering when the crisis will end. The prices of chicken, dairy products, and beans have all risen sharply alongside recent shortages of cooking oil. A pensioner, Sheyda, said that shopkeepers were pricing goods in dollars, even milk, with prices rising almost daily. The economic crisis has contributed to a broader legitimacy crisis for Iran’s leaders, with growing segments of society demanding sweeping political, economic, and social reforms. The government will need to take drastic action to address the crisis, including reforming the economy, addressing corruption, and finding a way to overcome the sanctions. However, with the current situation, it is unclear when the crisis will end, and what the future holds for Iran.