Iran's Raisi Likely To Reshuffle Economic Team Amid Financial Crisis

Multiple pundits and politicians are questioning a one-sided foreign policy in favor of China and Russia and calling for balance and a resumption of the suspended nuclear talks with the West. They have also unleashed tough criticism against foreign minister Hossein Amir-Abdollahian, saying that he is not capable of steering the country’s foreign relations.

The attacks began after he attended a regional summit in Jordan, where he met the European Union foreign policy chief Josep Borrell, expressing Tehran’s readiness to resume nuclear talks. No tangible results emerged from the trip.

Expediency Council member Mohammad Sadr, has harshly criticized Iran's dependency on Russia and China in an interview with the centrist Entekhab News, charging that the two countries are not Iran's strategic allies, but they solely follow their own interests. He further criticized the foreign minister and the President Ebrahim Raisi for failing to give a proper response to China putting its signature on a statement with the Gulf Cooperation Council states that questioned Iran's ownership of three Persian Gulf islands.

In the reality of the Islamic Republic, everyone knows that these decisions are made in the office of Supreme Leader Ali Khamenei, not at the foreign ministry or by the president.

Earlier last week, others including academic and foreign relations expert Pirouz Mojtahedzadeh also attacked Iran's ideological foreign policy and the performance of the Foreign Ministry, while former diplomat Ahmad Azizi called on Khamenei's office to take over the responsibilities of the Foreign Ministry.

Sadr also criticized Iran's policy regarding relations with Saudi Arabia, adding that Riyadh is waiting for US Republicans to win the presidency, before revealing its real intentions toward Iran. Sadr called for a realistic foreign policy that would prioritize the country's national interests. Iran, he said, should maintain relations with all countries except Israel, and seek to revive the 2015 nuclear deal, or JCPOA.

An expert on international relations Mehdi Motaharnia told Fararu website in Tehran that if Iran continues its current foreign policy of aligning with China and Russia and considering itself an enemy of the United States and Europe, it will have no third option soon vis-à-vis the EU-US-Israeli alliance and the new alliance between Arab countries and Israel. He warned that China and Russia have also let Tehran down.

Fararu observed that the biggest political upheaval of the country in the past 43 years has paralyzed the government and asked Motaharnia if there was a third way out for Iran.

Motaharnia responded that Iran's tilt towards the Russia and China has left nothing of its initial non-alignment policy. As a result, whatever is against the West finds legitimacy. This inevitably brings about an identity crisis for the political system.

He added that Tehran not only needs to redefine its relations with the West, but it also needs to reform its internal governance. Motaharnia said that this will determine international community's approach to Iran in coming months.

Meanwhile, as some of Iran's hardliners such as the editor of Kayhan newspaper have harshly attacked Amir Abdollahian's attempts to resume talks with the West, former diplomat Fereidouin Majles has said in an interview with moderate Roiuyda24 website that the approach of some of Raisi's supporters will lead to Iran's further isolation. Majlesi said ironically that while everybody wants to determine the fate of the JCPOA in his own way, let us shut down the Foreign Ministry and let the Tehran Municipality to regulate Iran's relations with the rest of the world. Majlesi charged that the Foreign Ministry's critics have no concern about Iran's interests.

Iran’s currency dropped to a new historic low on Sunday, breaking the 410,000 rial resistance point against the US dollar, prompting some parliament members to blame the presidential administration of Ebrahim Riaisi for the economic blow. 

Parliament’s Sunday session was held behind closed doors when lawmakers, particularly members of the economic committee, briefed the parliament about the falling rial as well as the high rate of inflation. The explanations by the head of the Central Bank of Iran (CBI), Ali Salehabadi, and Ehsan Khandouzi, the minister of economic and financial affairs, were also delivered before the reporters were allowed to enter. 

Mehdi Toghiani, the spokesman of the economic committee, said that one of the main reasons behind the rial’s unprecedented fall is the government’s insistence on ineffective policies, and especially the "mandatory determination of the exchange rate" and "increasing the money supply."

The parliament stacked with hardliners rarely criticizes the like-minded government, but as the crisis has rattled the public amid antigovernment protests, lawmakers tried to deflect blame from the legislature. Economists have long been warning of an impending meltdown, as the regime has failed to resolve its nuclear dispute with the United States, which maintains crippling sanctions on Iran.

Another lawmaker, Rouhollah Izadkhah slammed the 50-percent devaluation of the rial during the current administration, noting that the high demand for foreign currencies should not lead to higher prices for essential goods.

“The national currency of war-torn Syria is eight times higher than Iran’s because it has managed the unofficial (free) market,” he argued.

“The currency market is very turbulent and chaotic, and there is no clear prospect in the horizon, and it is not clear when the exchange rate will be recovered,” said another MP, Kamal Hosseinpour. 

"What kind of sustainable economy the minister is talking about," he quipped, criticizing the ministry’s actions – or lack of action – in the currency market. “You cannot blame the enemy for all the problems of the country. What is the plan of the economic team of the government?” he said, urging President Ebrahim Raisi to intervene and introduce measures to control the prices. 

Iran has been rocked by nationwide antigovernment protests since mid-September after a 22-year-old woman, Mahsa (Zhina) Amini, was killed in police custody. She was arrested for violating the country’s forced hijab rules. But since then, protests have turned against the ruling regime, with many Iranians demanding a secular and democratic form of government.

Opponents of the Islamic Republic have also urged people to withdraw their deposits from government banks to put further pressure on the government, which has been printing more money in recent years. The money supply has grown at an unprecedented pace since September.

The news might sound shocking for a country that has the second largest natural gas reserves in the world, but it has been long clear that production is falling with lack of investments and Western technology. This means many factories and steel as well as petrochemical plants stopping production, which will deal a severe blow to an economy in crisis.

Equally shocking was news this week, published by Tejarat (Commerce) newspaper in Tehran, that some Iranian oil experts believe the government is selling oil at just $37 per barrel amid US sanctions. This is only $7 more than the production cost for Iran, which might explain why the government is facing a serious financial crisis.

As the year comes to a close, the Iranian currency, rial, has been shattering low records against major currencies. On Thursday, the rial fell to 400,000 against the US dollar and the fall continued Saturday in a sign that the Islamic Republic, grappling with antigovernment protests, is unable to support its currency.

As international oil industry watchers believe Iran is selling around 700,000 barrels of oil per day, it is puzzling as to why it is in deep financial trouble, even unable to import sufficient medicines in the past few months.

The estimate that Iran is shipping crude for just $37 a barrel is piece of new information that might explain the puzzle. Previously, it was believed that Iran was giving 10-20 percent discounts to China, its major oil customer, which would still price its exports at around $65 per barrel at current prices. But $37 had never been mentioned by an informed source.

It means that Tehran might be making less than $6 million per day, or around $16 billion annually – less than half the previous estimates. That is $200 per capita in oil income, only higher than Nigeria and Venezuela in OPEC.

Despite these facts, the government has been issuing rosy news about its oil shipments, without saying anything about actual revenues, which it says is a national security secret.

Its budget and economy dependent on oil exports, the Islamic Republic has been claiming that sanctions imposed by the United States since 2018 have been defeated and it does not need to make concessions in nuclear talks with the West, which have stalled since September.

But the danger of an overall popular revolt lies in the economic misery facing a large majority of Iranians who do not have savings in foreign currencies or gold. The middle and working classes have already become impoverished by unabating high inflation since 2018.

While the general annual inflation rate is estimated to be around 50 percent, many food items have doubled in price, and so have rents.

Instead of accepting a Western offer, deemed generous, on the nuclear issue, Tehran has started supplying weapons to Russia, which has angered the US and its NATO allies.

With no prospect of resolution, the Islamic Republic is walking a tightrope, as daily sporadic protests continue, with signs of some young people becoming more radical and prone to resort to arms.

Heshmatollah Falahatpisheh, an outspoken critic of the government in foreign policy, nuclear talks and energy, says predictions by Iranian officials that Europe would plunge in cold and darkness this winter and they would run back to nuclear negotiations with Iran have turned out to be "illusions."

Some Iranian officials including Mohammad Marandi, who accompanies Iranian nuclear negotiators, have been saying since last summer that "a hard winter in Europe" will force European powers to come back to the negotiating table. Marandi had predicted: "The winter is coming, and the EU will have to face a paralyzing energy crisis."

The hardliner editor of the ultraconservative Kayhan daily had also said in the summer that after "only two months" the United States and Europe will beg Iran to resume the negotiations and will surrender to Iran's terms.

The flawed argument was being used to justify Tehran’s hard position after 18 months of multilateral talks to revive the 2015 nuclear deal with the West, which would lift crippling sanctions imposed on Iran.

Hardline officials were making these claims while Europe needed natural gas, something Iran does not produce enough of to export and has no way of shipping it to Europe. On the contrary, Iran is suffering from a natural gas shortage this winter like every year. It shut down several cement factories this week only to save gas for homes.

Falahatpisheh, the former head of parliament's foreign policy and national security committee also criticized Iranian officials in an interview with the moderate conservative Khabar Online website, saying that "They are selling Iran's oil at a discounted price and still take pride in it."

The former lawmaker said that Iranian officials and hardliner commentators have been taken by surprise as their misplaced predictions in foreign policy did not come true.

Falahatpisheh also noted that while Iran counts on Russia as a "strategic ally," Russia has been selling oil at a discounted price, and Iran has no solution for its oil other than offering even more discounts than Russia. He added that Iranian officials take pride in selling oil despite US sanctions and call it a "victory", while what they are doing is wasting Iran's wealth to the tune of millions of dollars a day.

Tejarat (Commerce) Daily in Tehran quoted some oil market experts as saying that Iran has been lately selling its oil at the price of $37 per barrel while the market price for oil is around $79.25 per barrel. According to estimates, the production of every barrel of oil costs Iran nearly 30 dollars due to its aging equipment after years of token investments.

On the other hand, Iran's neighbor, Saudi Arabia invested some $82 billion in infrastructure in the past ten years to preserve its supremacy in the oil market.

Falahatpisheh in his interview argued that "Iran needs a new spirit in its foreign policy. In today's world only the countries are successful that have managed to reduce tensions with other countries." He suggested that Iran's first measure should be to settle differences with other countries and take serious steps toward détente. He said: "I believe the US and EU's current policies will not last forever. These policies are mainly meant to reduce Iran's bargaining power. However, the West will return to negotiations when and if they see that Iran has resolved its internal crisis and everyone, including all Iranian officials, are behaving in a way to serve the country's national interests."

Ali-Akbar Alvandian, secretary of cement producers’ association told the website that natural gas flows to many factories have been reduced and the alternative fuel, mazut, which is a dirty variety of diesel is also hard to procure.

Iran, which has the world’s second largest natural gas reserves is unable to meet domestic demand, especially in cold and hot months when energy consumption rises to its highest levels.

Power generation stations also receive less gas and resort to burning the highly polluting mazut, which has blanketed Iranian cities in a thick layer of pollution in recent weeks. As a result, the government has restricted mazut shipments to cement and other factories.

Lack of natural gas also hurts Iran’s petrochemical industry, which is a significant source of export earnings.

Iran needs around $40 billion of investment and Western technology to boost its gas production, which has been gradually falling. At the same time due to extremely low prices for consumers, gas and electricity usage increases by around 6 percent annually.

Without resolving its disputes with Western powers, Iran would not be able to provide the investment and acquire the technology needed for revitalizing its natural gas production.