Iranian President Hassan Rouhani was officially inaugurated for a second term on Saturday with a turnout of dignitaries from around 100 countries. With Rouhani’s signature accomplishment of his first term — the nuclear deal with the West — under growing threat, he now faces a potentially tumultuous period ahead.
Rouhani won a landslide victory in May, which could have hugely significant implications. The election was important not just because it will help determine which pathway the country takes in coming years. The victor — and his allies in the Assembly of Experts — will now have a significant voice over who becomes the next Supreme Leader if Ayatollah Ali Khameini, 77, who took power in 1989, dies in office during the next presidential term.
At the centre of May’s contest were differing views over the 2015 landmark nuclear accord, and Rouhani’s wider advocacy of intensified economic and political re-engagement with western powers. Yet, as the Iranian president embarks on his second term, the nuclear deal is shrouded in controversy again.
Tehran last week asserted that the sanctions bill that the United States Congress passed last month contravenes the terms of the nuclear agreement — the so-called Joint Comprehensive Plan of Action (JCPOA) — signed between Iran and the P5+1 (US, China, Russia, Britain, France plus Germany). In retaliation, a key Iranian body has proposed a list of 16 counter measures. Parliament Speaker Ali Larijani also hinted that Iran could “limit” the International Atomic Energy Agency’s monitoring of its activities, even pointing to the possibility that Tehran could break away completely from the agreement.
While Rouhani’s support for the deal is under growing US pressure, he also faces the possibility of a domestic public backlash unless the economy — the second largest in the Middle East — ticks up. Despite the lifting of international sanctions since the nuclear agreement, many Iranians still don’t feel as big an improvement in their standards of living as they had hoped under Rouhani’s reforms.
Under the terms of the deal, Iran secured phased relief from international sanctions. This is key for the country, seat of the world’s fourth largest oil reserves, and the second biggest natural gas stockpile, because sanctions had approximately halved the country’s oil exports to just over one million barrels per day after 2012, helping cripple the economy.
To be sure, the economy grew at nearly 9 per cent in the last quarter of 2016 and growth is estimated around 5 per cent in 2017. Moreover, inflation has dropped to single digits.
Yet, key industrial sectors, including construction, are in the doldrums. And some of the positive economic dividends emanating from the lifting of sanctions have been overshadowed by the hit in oil prices, which have fallen from more than $100 (Dh367.8) a barrel to around half that price.
A further drag on the economy is Iranian military and financial support for Syria and Lebanese Shiite organisation Hezbollah. Tehran’s support for the Damascus regime, alone, is estimated at billions of dollars a year.
In the context of around 650,000 jobs created in the past year, criticism has also been levelled at Rouhani for high unemployment, which rose to 12.4 per cent last year. His more Conservative challengers in May’s election — including cleric Ebrahim Raisi and Tehran Mayor Mohammad Baqer Galibaf — promised, if elected, to create five to six million jobs in their first term, which was unrealistic.
At the heart of the debate over the economy is that some conservatives say Rouhani has bet too much on US and wider foreign investment materialising from sanctions relief. Rouhani wants to attract some $140 billion in foreign investment to modernise oil and gas, transportation, and telecoms sectors.
Last year, the Iranian Chamber of Commerce estimated the country attracted $13 billion in foreign investment. While this is a big uplift from $3 billion in 2015, it is not as much as some had hoped.
With the election of Donald Trump as US President, there are also much greater risks surrounding the future of the nuclear agreement that former US president Barack Obama said in 2015 offered the West and Tehran the best opportunity “in decades”, specifically since the revolution in 1979, to move relations forward. Yet, Trump appears deeply unhappy with the deal and last month he only very reluctantly re-certified Tehran’s continuing compliance with the agreement, and reportedly told senior White House aides that he was personally opposed to doing so again in the future.
Already the Trump team has put Tehran “on notice” after its ballistic missile tests, imposed new sanctions, and launched a review of the nuclear deal. While Washington may not, ultimately, unilaterally withdraw from the agreement, it could still undermine it by pressurising western countries not to do business in Iran, or create uncertainty around sanctions waivers. That said, this would be opposed by many other parties to the deal — Beijing, Moscow, London, Paris and Berlin.
By acting in this way, the Trump team could also complicate Rouhani’s vision for greater global engagement and closer ties with the West and — potentially — greater cooperation with key Middle Eastern states, including potentially Saudi Arabia. The reformist-minded Iranian president hopes here that more conciliatory policies will improve foreign investment, commercial links, and diplomatic ties.
Yet, Rouhani also faces opposition at home as conservatives in Tehran are digging their heels in against any fundamental changes in foreign policy principles that have been generally consistent since 1979. This includes broad-based opposition to the Middle Eastern policies of Israel and the US. The alternative pathway favoured by some conservatives — at the expense of greater interdependence with the West — includes closer economic and diplomatic ties with Russia.
Taken overall, despite Rouhani’s landslide victory, growing political risks hang over the nuclear deal. Should Trump last the full four years of his term, it seems likely he will try to find more devices to either undermine or even completely jettison the agreement, despite the international backlash that would provoke from other world powers that are party to the deal.
Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.
