Image Credit: Nino Jose Heredia/Gulf News

During last month’s elections in Iran, antagonism between two camps reached new heights. The moderates (also known as pragmatists), reformists, and moderate conservatives formed a coalition against their rivals, the Principlists, which consisted of conservatives and hard-line conservatives. The outcome of the elections appeared to many as a total surprise due to the relative success of the former group despite the massive disqualification of their candidates by the ultra-conservative Guardian Council that vets the candidates.

The developments that ensued served as an illustration that the friction between the two political forces during the elections was indeed the beginning of the emergence of intense factional infighting within Iranian politics.

In a televised message to the Iranians that marked the Iranian New Year, Nowruz, President Hassan Rouhani, borrowing from the acronym ‘Joint Comprehensive Plan of Action’ (JCPOA), referred to the outcome of the February 26 elections as “JCPOA 2”, meaning, a victory on the scale of the nuclear agreement.

Without naming names, Ayatollah Khamenei, Iran’s Supreme Leader, sharply attacked Rouhani’s policies and vision in a speech he also delivered for the occasion of Nowruz on March 20. “An agreement was made on the nuclear issue and we called it Barjam (the JCPOA). However, [the Americans say] ... there should be Barjam 2, 3, 4 and other Barjams as well so that we can live comfortably. This is a logic that they are trying to promote among the outstanding personalities of society and among public opinion in society through outstanding personalities,” he remarked.

“What is the meaning of this? It means that the Islamic Republic should forget about those fundamental issues that it is committed to, based on the edict of Islam and its own outstanding guidelines,” he added.

Iran’s leader also criticised the viewpoint that suggests that “we should cooperate, hold meetings and negotiate with America, ... [and that] we should resolve these differences ... [even] if in the process of resolving these differences, the people of Iran have to abandon, for example, their principles and their red lines”.

Khamenei has banned any talks or negotiations with the Americans. He is deeply concerned that “negotiating with [the Americans]” would open “the path for their penetration in economic, cultural [and] political areas” and ultimately erode the system of velayat-e faqih (guardianship of the jurisprudence), which at this point he leads.

Realising the urgency of saving Iran’s economy, Iran’s leader designated this Iranian year as the year of the ‘Resistance Economy: Action and Implementation’. A resistance economy, as suggested by Iran’s leader, is essentially centred on self-sufficiency. This contrasts with the Rouhani administration’s approach, which views the solution to Iran’s crippled economy as requiring “cooperation and effort inside the country, and constructive engagement with the world”, as stated by him in his Nowruz message.

Why Ayatollah Khamenei’s approach will likely fail.

In the 1950s, the idea of “import substitution industrialisation” emerged in Latin America. This trade and economic policy advocated for the promotion of domestic production while reducing dependence on foreign imports, similar in concept to Khamenei’s modern resistance economy thesis. Import substitution industrialisation worked in the short term. Jobs were created and the project fostered economic development.

Extensive research

However, cracks first appeared in the 1970s and the programme was officially dead by the 1980s. This reversal in fortune was produced mainly because domestic producers had no incentive from foreign competitors to reduce costs or improve the quality of their products. As such, inefficiency became prevalent in Latin American economies. In Patrice Franko’s words, the economist who has conducted extensive research on the history of Latin American economic development, the project was “both unsustainable over time and produced high economic and social costs”.

Today, economic interdependence is an inevitable reality. Developing and even developed nations seek to utilise their comparative advantage in their foreign trades with other nations. They focus on what they can produce better and cheaper. The idea of economic independence has long proven costly, but more importantly unattainable. The United States, for example, the largest global economy, is perhaps the most dependent economy in the world. A friend once jokingly said: “I will give you a million dollars if you can find a ‘Made in the USA’ item in Walmart.”

In his Nowruz speech, Ayatollah said: “We need certain things that should be imported from abroad. We have to buy them and there is nothing wrong with this. However, we should pay attention that our purchases should not weaken our power to engage in domestic production. Imagine that we want to import and buy aeroplanes. It is said to me — executive officials themselves say this to me — that if we invest such and such a percentage of the price that we pay to buy aeroplanes in our domestic airplane industries, we will reap more benefits and the domestic production will be boosted as well ... Therefore, when buying products, we should act in a way that domestic production will not be weakened.”

This view prioritises the protection of domestic production, even at the level of engaging in highly sophisticated aircraft industry, while totally ignoring the law of comparative advantage.

Khamenei may argue that a resistance economy will not disconnect Iran from the global community. But let us not forget that the ulterior motive behind promoting the resistance economy idea is to resist pressure exerted by the enemy, namely the US, in the event it decides to immobilise Iran’s economy by imposing sanctions.

Despite the conclusion of the nuclear deal and the suspension of sanctions by the US, four reasons demonstrate that the re-imposition of US sanctions are likely.

First, the next US president, be it Hillary Clinton or any of the Republican candidates, will be pro-Israeli and will appear tough on Iran.

Second, Iran will continue testing its ballistic missiles, which Americans — although debatable — view as a violation of the UN Security Council Resolution 2231.

Third, according to Iranian media, Iran’s ballistic missiles had text written on them in Hebrew stating that “Israel must be wiped off the face of the earth”. This approach was tested during the tenure of Iran’s former president Mahmoud Ahmadinejad. It provided Israel with the best means to mobilise Europeans and of course Americans to confront Iran. That approach was undoubtedly partly responsible for the formation of tough sanctions on Iran in that period.

Fourth, in the absence of talks between Iran and the United States, Iran would not have any chance of exploiting the division within the US establishment on Iran, as it did in the process of nuclear negotiations. This strategy by Iran could forestall the re-imposition of sanctions, or at least thwart their full-blown resurrection.

Simply put, the current trend is a recipe for the reintroduction of sanctions. Some observers even argue that the hardliners in Iran welcome a re-escalation of hostilities between the US and Iran, and even a return to the pre-JCPOA era. The radical influential cleric Mohammad Taghi Mesbah Yazdi recently said: “Our officials say we have to serve Americans as their servant ... They prescribe the people that sanctions would block progress.” Senior cleric Ahmad Khatami, another hardliner, said during March 25 Friday prayer in Tehran that the JCPOA “has been so sweet to [the moderates] that they are looking for JCPOA 2 and 3”.

Skyrocketing inflation

The question now is if the US dramatically escalates sanctions — including imposing an embargo on buying Iranian crude oil and dealing with their banking system and engaging in trade with them — how can the resistance economy confront the pressure resulting from those sanctions? How can skyrocketing inflation, as was the case during former president Mahmoud Ahmadinejad’s tenure, be staved off? What will stop the rial, Iran’s currency, from nosediving again, as happened during the Ahmadinejad years in office? And what would be the country’s source of foreign currency?

Furthermore, were Khamenei to commence constant, public attacks on the moderates, a deep rift between the conservatives, who have the upper hand in the power structure, and the Rouhani administration, would be revealed. The outcome? Fewer local and foreign investors would make meaningful, long-term investments in such a shaky political climate. If investments are not realised — what Rouhani and his economy team greatly hoped for in the post-JCPOA era — while the government can hardly cover its current expenditures, how can Iran’s biggest single economic problem, i.e. mounting unemployment, particularly widespread among the youth, be solved?

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.