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World Mena

Explainer

Iran economy: Why are people protesting?

Arrests, disappearances follow widespread protests across Iran



A wave of spontaneous protests over a spike in gas prices swept into Tehran with college students and others chanting against the government just hours after hard-liners held their own rally in support of the Islamic Republic's clerical establishment.
Image Credit: AP

Sanctions-hit Iran has been wracked by protests in recent days. Angry Iranians torched banks and petrol stations and blocked roads. Protesters clashed with security forces.

About 100 leaders of the protesters had been detained in "various parts of the country" by Iran's powerful Revolutionary Guards, the BBC reported, quoting the Iranian judiciary. Amnesty International, meanwhile, said at least 106 people had been killed so far in a government crackdown.

Officials confirmed 12 deaths, according to the BBC report. Germany's DW News stated the real death toll could be much higher. Tehran, in response, has shut down Internet services across the country.

Here's what we know about the economic triggers for the anti-government protests in Iran:

Why are people protesting in Iran?

Iranian protesters are angry about the high cost of basic goods, among other gripes. The price of eggs, for example, has gone up 40% in the last six months, according to one report.

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The government also announced budget cuts for social welfare even as more resources are being allocated to religious and revolutionary institutions.

Protesters say it’s time for the government to focus on domestic issues — and forget about its costly interventions overseas.

Trigger for protests
The protests erupted recently after the government announced a 50% increase in petrol prices.

The price of a litre rose to 15,000 rials ($0.12 at the unofficial market exchange rate). Drivers were told they would be allowed to purchase only 60 litres each month before the price rose to 30,000 rials.

President Hassan Rouhani said the government was acting in the public interest, and that the money raised would be distributed to the country's poorest citizens.

Protesters accuse the government of corruption and costly interventions in the affairs of other countries.

When did the recent protests start?

Protests began on November 15.

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What are the protesters' demands?

Protesters say the prices are too high and the government corrupt.

The uprisings were triggered by a 50% hike in petrol prices. Protesters are demanding a price roll-back. After Tehran, other cities and towns across the country followed.

The protests turned political, with protesters demanding high-ranking officials to step down.

Iranian protesters gather around a burning car during a demonstration against an increase in gasoline prices in the capital Tehran, on November 16, 2019. One person was killed and others injured in protests across Iran, hours after a surprise decision to increase petrol prices by 50 percent for the first 60 litres and 300 percent for anything above that each month, and impose rationing. Authorities said the move was aimed at helping needy citizens, and expected to generate 300 trillion rials ($2.55 billion) per annum. / AFP / -
Image Credit: AFP
2017–18 Iranian protests
The 2017–2018 Iranian protests refer to a series of public protests occurring in various cities throughout Iran beginning on 28 December 2017 and continuing into 2018.

Date: From December 28, 2017
Death(s): 26 protesters (reported); up to 5 died in custody; 1 law enforcement officer
Arrested: ≈ 7,000+
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What are the key economic indicators in Iran?

Following the reimposition of sanctions in May 2019, Iran's oil exports have collapsed, the value of the rial has plummeted, and inflation went up.

  • 12.4% unemployment
  • 40% youth unemployment rate

What about inflation?

Inflation, the increase in prices and fall of purchasing power of money, has grown significantly this year in Iran.

The value of Iran's currency has hit record lows in recent months. Six months of exemptions from US sanctions for countries still buying oil from Iran ended on May 1, 2019.
Image Credit: AFP

Inflation rate in the country averaged 14.43 percent from 1957 until 2019, reaching an all-time high of 59.02 percent in May of 1995.

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In 2018, Iran's inflation rate rose sharply to 30.49 % and was projected to rise another six percentage points before slowly starting to decline.

The inflation rate in the 12-month period ending in July 2019 has reached 40.4 percent.

Iran inflation rate
Image Credit: Statistical Centre of Iran / tradingeconomics.com

In the month of October 2019, the annual inflation rate in Iran dropped to 28.3 percent, from 35.0 percent in September, according to a report by Trading Economics, citing data from the Statistical Centre of Iran.

What are the leading exports of Iran?

Iran's non-oil exports in the year to March 2018 reached $47 billion, almost $5bn more than the year before the nuclear agreement.

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Its "signature" non-oil export products include:

  • Carpets
  • Pistachio
  • Safron
  • Farm produce
  • Caviar

The US is Iran's biggest market for these products. Sanctions cut exports of Iranian carpets to the US — its biggest — by 30%.

About 2 tons of farmed caviar were produced in Iran last year. For the first time in 25 years, about 10kg of Iranian-farmed caviar worth 600 million rials ($13,000) were exported to the United States in the last fiscal year (March 2016-17), according to Iran's agriculture minister
Image Credit: Gulf News

Who are the top trading partners of Iran?

  • China
  • South Korea
  • Turkey
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Iran's oil output from 2011 to Mach 2019
Image Credit: Opec / BBC

What was the nuclear agreement between Iran and P5+1?

In June 2015, Iran signed a multilateral nuclear agreement with “P5+1” (the US, UK, France, China, Russia and Germany).

At that time, Iran had agreed to a long-term deal on its nuclear programme with the world powers, which then ended years of tension over Iran's alleged efforts to develop a nuclear weapon.

Iran insisted that its nuclear programme was entirely peaceful. The international community did not believe that.

Under the accord, Iran agreed to limit its sensitive nuclear activities and allow in international inspectors in return for the lifting of crippling economic sanctions.

How did Iran's economy perform after sactions were lifted?

The sanctions that had crippled Iran’s economy in the past were lifted.

In 2016, a year after the nuclear deal was implemented, Iran's economy bounced back and GDP grew 12.3%, according to the Central Bank of Iran.

12.3%

Iran's GDP growth in 2016, a year after sanctions were lifted. It was one of the highest national GDP growth rates in the world

Much of that growth, however, was attributed to the oil and gas industry. Other sectors did not see a significant recovery that many Iranians had hoped would happen.

Growth slipped to 3.7% in 2017, triggering discontent that led to the biggest anti-government protests in Iran for almost a decade that December.

Carpets for sale in Tehran's Grand Bazaar.
Image Credit: AFP

How did the rial, perform after sactions were lifted?

The rial stabilised. In 2012, the rial lost almost two-thirds of its value against the dollar because of sanctions and domestic mismanagement of the currency market.

The sanctions limited Iran's oil revenues and its access to the global banking system.

Saffron has long been the world's most costly spice by weight. Iran is responsible for around 90–93% of global production, and much of their produce is exported. The spice is derived from the flower of Crocus sativus, commonly known as the "saffron crocus". The vivid crimson stigma and styles, called threads, are collected and dried to be used mainly as a seasoning and colouring agent in food.
Image Credit:

Following the 2015 nuclear deal, Iranian President Hassan Rouhani promised the nation that: "you will not see the exchange rate go up every hour".

Rouhani delivered on that promise. He kept the Iranian currency stable for almost four years. But in late 2017, when President Trump refused to certify the nuclear deal to Congress, the rial started to fall again.

Since September 2017, the rial has lost almost half of its value against the dollar.

Many Iranians had been buying foreign currency to hedge against a crash: some $30 billion of capital reportedly left Iran in the first quarter of 2018.

In April 2019, the fixed official rate of 42,000 rials to the dollar is used for a limited range of transactions, so most Iranians rely on currency traders. Currency traders were offering 143,000 rials to the US dollar at the end of April 2019.
Image Credit: AFP

The Iranian government has launched a crackdown on the foreign exchange market, banning exchange offices from selling hard currency and introducing limits (at $12,000) on cash possession — in a bid to rescue the rial.

What do experts say about Iran's economy?

Ali Fathollah-Nejad, an associate at Harvard Kennedy School’s Iran Project and associate fellow at the Mena Program of the German Council on Foreign relations, said that the protests are motivated both by economy and politics, adding it both a genuine outcry for economic reforms as well as politically motivated.

“Rouhani’s economic policies have been a failure. Although we have experienced GDP growth versus GDP growth has not been inclusive.”

Economists have found that despite this growth, both poverty and income inequality have risen during the past few years. Rouhani’s promises of revitalizing trade with the outside world trickling down to the normal Iranians have not materialized, said Fatollah-Nejad.

People protest against increased gas price, on a highway in Tehran, Iran November 16, 2019. Nazanin Tabatabaee/WANA (West Asia News Agency) via REUTERS ATTENTION EDITORS - THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY
Image Credit: via REUTERS

"Very early on, we’ve seen a lot of frustration from the lower to middle strata or society vis a vis those failed economic policies. So there was a simmering discontent below the surface that is now emerging," said Fathollah-Nejad.

Where are the demonstration taking place?

Reports from BBC and other major channels state that the 2019 demonstrations are taking place across Iran, especially in the major cities. Protesters say the prices are too high and the government corrupt.

What is the government’s response to the protests?

The Iranian government implemented a near-total shutdown of internet services. The government said the demonstrations are uncalled for and Iran's vice president said the protests would "do more harm than good".

Eshaq Jahangiri, First Vice President of Iran, says all economic indications in Iran are good. “Yes, there is an increase in the prices of some products. And the government is working on fixing the causes of high prices.”

“Some of events that took place in recent days are said to have been because of economy. But there are other reasons. The people behind what is taking place think they will be able to harm the government. But when social movements start on the streets, those who ignited them are not always able to control them."

How much oil was Iran exporting, after sanctions were lifted?

Opec data show that at the start of 2018, Iran's crude oil production reached 3.8 million barrels per day (bpd). The country was exporting about 2.3 million bpd.

Most of Iran’s oil output was bought by eight countries or territories that were granted six-month waivers by the US when sanctions on the Iranian energy sector took effect — China, India, Japan, South Korea, Taiwan, Turkey, Greece and Italy.

When sanctions were lifted following a deal with Western governments, Iran's economy zoomed past 12 per cent in 2016. It clocked up a decent 4.5% in 2017, before going into the negative territory in 2018 and this 2019.
Image Credit: IMF, Central Bank of Iran, BBC

Under the 2015 accord with world powers, Iran agreed to do the following:

  • Limit its sensitive nuclear activities
  • Allow in international inspectors in return for the lifting of crippling economic sanctions.

How did Iran’s economic growth affect other sectors?

Much of its post-sanctions growth was attributed to the oil and gas industry. However, the outcome Iran had hoped for — a revitalised economy and a modernised energy sector — hadn’t materialised.

Other sectors did not see a significant recovery that many Iranians had hoped would happen.

Growth fell back to 3.7% in 2017, fueling economic discontent that led to the biggest anti-government protests in Iran for almost a decade that December.

Why did Iran’s economy failed to jumpstart after 2015?

There were number of reasons: the impact of American limits on access to financial markets, the short timeframe for addressing long-standing structural economic issues, low oil prices.

Then there was a totally unexpected turn: Three years after the 2015 deal was signed (in May 2018) US President Donald Trump announced the US withdrawal from the deal and subsequently re-imposed a wide range of economic sanctions on the country.

The US and its allies felt a need to push back against Iranian intervention around the region, especially in Lebanon, Palestine, Iraq, Syria and Yemen — fomenting regional conflicts.

The US move was fatal: It ended Iran’s economic revitalization plans. It also crushed government efforts to revive its energy sector, regain its political standing, and rejoin the global economy.

What do protesters say about these interventions?

Iranian protesters feel these interventions are costly, and a waster of resources. They have called upon the government to drop these interventions and mind the welfare of the Iranian people.

What effect did the reinstatement of sanctions have Iran’s economy?

The reinstatement of US sanctions — particularly those imposed on the energy, shipping and financial sectors — caused foreign investment to dry up and hit oil exports.

As a result, Iran's GDP contracted by 3.9% in 2018, based on IMF estimates.

The IMF said in late April that it expected the Iranian economy to shrink by 6% in 2019. However, that projection preceded the expiration of the sanctions waivers.

The sanctions bar US companies from trading with Iran; it also covers foreign firms or countries that are dealing with Iran.

How did US waivers work?

The US had granted 180-day waivers to eight countries, including China and Indian, allowing them to buy crude from Iran despite sanctions put in place by the US in November 2018.

Those buyers had until May 2 to end their purchases of Iranian oil.

The waivers allow some countries to continue buying Iranian oil despite US sanctions. It expired on May 1, 2019, after which the US said it would not issue any exceptions to Iranian oil importers.

Is there a precedent to current Iran sanctions? What happened then?

From 2011-12, Iran was hit hard by sanctions aimed at curbing its nuclear program.

The result: oil output and exports suffered massive losses, when production dropped by 17%, and exports sank by 60%. This eroded Iran’s market share.

When the sanctions were eased in 2016, Iran was not able to completely regain its lost market share or compete meaningfully, though it was able to sign up India, South Korea, China, Greece and Italy as some of its customers.

In 2016, most sanctions were already lifted. Iran then bumped up its oil output by 23 percent, according Opec data. By 2018, Tehran reached — even exceeded its pre-sanctions production of 3.7 million barrels per day (bpd).

The reimposition of sanctions in May 2018 derailed its plans to boost output further.

Is there a precedent to on-going protests? What happened then?

There had been prolonged periods of unrest in Tehran and other Iranian cities, first in 2003 and then again in 2009 and 2011.

In 1978-1979, popular uprising lead by young people resulted in the toppling of the monarchy on February 11, 1979, and led to the establishment of an Islamic republic.

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