People walk around the old main bazaar of Tehran, in Iran, Tuesday, April 10, 2018. Iran moved on Tuesday to enforce a single exchange rate to the dollar, banning all unregulated trading after the country's currency, the rial, hit an all-time low. (AP Photo/Vahid Salemi) Image Credit: AP

The spring equinox on March 20 marked the Persian New Year of 1397. A heated debate is ongoing within Iran about the outlook of this year. Some observers in Iran believe that this year may bring a turning point in the trajectory of politics in Iran. In year 1396, unexpected and unprecedented developments took the country by storm. Although street protests have periodically occurred in Iran since the inception of the Islamic Republic in 1979, last year’s covered the largest geographical area. These public demonstrations, which began on December 28, 2017, spread to more than 80 cities, and continued into 2018.

What is the outlook for this year (1397)? Three closely related areas have the potential to shape Iranian society as the country heads into the new year: foreign policy, the economy, and the domestic social and political state. Of these, foreign policy will likely dominate as a result of recent developments in the United States. The official policy of the current US administration towards Iran is driven by relying on “elements inside of Iran” to bring about “peaceful transition of that government.”

The recent appointments of two super-hawks on Iran by Donald Trump demonstrate what can transpire in the framework of this policy in the coming months. Mike Pompeo, the new secretary of state, and John Bolton, the new national security adviser whose appointment has formed “the most hawkish national security teams of any White House in recent history” according to the New York Times, are both relentless advocates of regime change in Iran.

 High-ranking military and non-military officials in Iran collectively believe that Iran’s missile power has acted as the primary deterrent that has obstructed the Americans and Israelis from attacking Iran.

Trump strongly believes that sanctions are an effective means to destabilise the Iranian government and, eventually, bring the system down. Last year, he tweeted, “Iran was on its last legs and ready to collapse until the US came along and gave it a lifeline in the form of the Iran deal.” The combination of this viewpoint, the pursuance of regime change in Iran, and the new appointments could affect Iran’s economy and intensify Iranian society’s disenchantment with the political system.

Last time that Trump extended the sanctions waivers was in January, 2018. But he said that he would not do so again unless Iran accepts his conditions. The next sanctions waivers fall due on May 12.

Trump’s conditions for resigning the waivers are impossible to meet. For example, he wants an indefinite extension of limits on Iran’s uranium enrichment and other nuclear activities, which have expiration dates under “sunset clauses” in the nuclear deal. According to the International Monetary Fund (IMF), Iran tolerated $185 billion (Dh679 billion) in losses as a result of the international sanctions to gain what the country called its right to uranium enrichment at an industrial level. Iran will under no circumstances accept conditions that will result in a merely decorative nuclear programme.

Another condition for extending the waivers is Iran accepting restrictions on the development of its missile programme.

This condition is even more unlikely to be met. High-ranking military and non-military officials in Iran collectively believe that Iran’s missile power has acted as the primary deterrent that has obstructed the Americans and Israelis from attacking Iran. Considering the above landscape, it is highly likely that Trump remains loyal to his words, does not issue new waivers, and, thus, the American sanctions resume on or around May 12.

What will the economy look like in 1397?

A question that needs answering is whether the Europeans would follow the US or disregard it by continuing to do business with Iran. French corporations such as Renault (automobile manufacturer) and Total (oil conglomeration) as well as Airbus, a European multinational corporation, have signed multi-billion dollar agreements with Iran. If the American sanctions resume, any entity that deals with Iran would be subject to penalties and risk being barred from doing business with the US. Therefore, logic compels that when push comes to shove, the Europeans would likely side with the US over Iran.

In such an eventuality, the situation that emerged in Iran in 2011 will return. When the American sanctions were imposed — particularly those on Iran’s banking and energy sector — the rial, Iran’s national currency lost 80 per cent of its value in less than a year.

Is the situation different today? Vahid Shaghaghi, an Iranian economist, says, “One of the biggest problems of Iran’s economy is that … almost every single consumer good is somehow linked to (the rate of) the dollar.”

The possibility of withdrawing the US from the nuclear deal and the consequent anxieties over Iran’s economic future put rial on a downward spiral at the beginning of this Iranian new year. On April 8, the price of the dollar rose 14 per cent to 61,000 rials in 24 hours. That marked the weakest rate on record for the rial. The government moved to halt the spiralling currency descent by outlawing the trading of dollars in the open market and setting a unified official exchange rate of 42,000 to the dollar.

Will this policy work if the sanctions return? Doubtful, according to many Iranian economists. The reason is that while the government says that this exchange rate will fulfil “all the country’s needs,” it grossly ignores two major areas of demand for US dollar (as well as other foreign currencies) that it does not recognise as legitimate and is not willing to serve. That will push the exchange rate higher than what the government has set. First, demand for the dollar is high among those who are hedging to protect their assets as a result of the steep devaluation of the rial. According to Gulam Hussain Shafei, the Head of Iran’s Chamber of Commerce, Iranians are keeping between $20 to $25 billion in foreign currencies (mainly the dollar) in their homes.

Second, there is a significant demand for foreign currency by those who want to pull their capital out of Iran. According to Mohammad Reza PourEbrahimi, the Head of the Economic Commission of the Iranian parliament, $30 billion of capital flew out of the country in just the last few months of the last Iranian year. To put this into perspective, Iran’s oil revenue in 2017 was $40 billion and the year before that $28 billion.

There is a consensus among Iranian observers that economic factors played the most significant role in the recent protests.

Masoud Nili, the Iranian president’s economic adviser, contends that “[the recent protests] were a warning that larger protests could be underway, and that next time, maybe, we would run out of time [to fix the root causes of the riots].”

Mehdi Mottahar-Nia, an Iranian international relations’ expert, maintains that “in 1397, Iran should make a grand decision. Does it want to resolve the current (foreign policy) problems through diplomacy or confrontation with the world surrounding it? In 1397, we are nearing the point of making this big decision.”

Abbas Salimi Namin, a conservative political activist who occasionally conveys messages from the deep state, recently said, “The viewpoint of the nezam (establishment) regarding the protests has changed. Nezam has come to the conclusion to institutionalise the right to protest (instead of suppressing the protests).” This indicates that the system also expects more protests this year. Abbas Abdi, an Iranian social analyst, explains the protests as follows:

“1396 was a special year in the history of Iran’s politics. Iranian society left one stage and entered another. A qualitative development occurred in Iran. [It became apparent that] the government and the political structure are unable to control people by using the means and institutions that they previously used. Not through the education system, not by using military forces and the police, not by utilising ideological mechanisms, and above all, not through the [state-owned] media. … An incompatibility has emerged between people and the power structure, and unless this incompatibility is resolved, society will not stabilise and become calm.” In any case, the trajectory of the developments in Iran will become clearer in May.

Shahir ShahidSaless is a political analyst and freelance journalist writing primarily about Iranian domestic and foreign affairs. He is also the co-author of Iran and the United States: An Insider’s View on the Failed Past and the Road to Peace.