Former Iranian President Khatami Slams Government Over Surging Inflation

Four Tehran City Council members have voiced concerns in a letter to the council head regarding the opacity and relevance of the transactions. The contracts have reportedly channeled two billion euros of Tehran's budget towards relatively unknown Chinese entities.

The issue came to light through the efforts of media activist Yashar Soltani, who disclosed on his website that the Chinese construction company involved, established in 2010, was ill-equipped for the public transportation projects it was hired for.

The revelation prompted a heated debate in a Sunday council session, leading to a division among the members—seven of whom walked out in protest as Tehran Mayor Alireza Zakani defended the contracts.

Zakani claimed that all transactions were conducted “transparently” and had been fully briefed to critical regulatory bodies like the ministry of industry and the central bank.

The contentious contracts include a 400 million euro agreement for "smart equipment and traffic control cameras" from a Chinese firm, raising alarms about potential security risks due to giving foreign companies access to “sensitive data”.

Furthermore, the letter to the council's head criticized the planned purchase of 150,000 electric motorcycles and 27,500 new taxis, worth 225 million euros each, from the automaker GAC Aion, selected from numerous possible suppliers without a conventional tendering process.

The deals highlight concerns about the municipality's dependence on Chinese firms, driven by the necessity to utilize foreign currency resources available in China, a strategy deeply influenced by the overarching impact of international sanctions on Iran.

In a recent interview with Entekhab, housing expert Beitollah Sattarian highlighted the economic barriers that have made housing an "ultra-luxury and unattainable commodity" for most Iranians, except for a privileged class that thrives on a rentier and corrupt economy.

Against this backdrop, Iran's Central Bank reported an annual inflation rate of 52.3 percent last year—the highest rate in eight decades—which has exacerbated the housing crisis.

Sattarian criticized the country's macroeconomic policies for nurturing a "super-capitalist rentier economy" within a closed state framework, pushing a large segment of the population toward poverty.

The newspaper Etemad echoed the sentiments, noting that the poverty rate has increased by 10 percent over the past two years, adding approximately eight million people to the nation's poor.

"The new year, like the past fifty years, is a year of expensive housing ... When housing prices increase, all connected parameters, including rent, will increase. We may have much more than a 40 percent increase in prices and rents," noted Sattarian.

During his election campaign, President Ebrahim Raisi had promised to build one million homes annually but so far, the shortfall only continues to worsen. 

After intensifying criticisms of the government's failure to fulfill the promise, First Vice President Mohammad Mokhber said: "There is a difference between building housing and constructing it by the government. The government should build part of it; we can give land to the people so they can build it themselves."

Sattarian predicts that housing prices will continue to rise sharply this year, possibly exceeding a 40 percent increase, as all connected parameters, including rent, escalate. The prediction is supported by official reports indicating a 52 percent increase in house rents in the capital over the past year.

Rents have surged by an average of 130 percent across Tehran and other cities, making housing costs a predominant economic concern among Iranians.

While the country’s GDP increased by 4.7% last year due to a 19% increase in oil production, GDP growth is projected to decline to 3.3% in 2024 and 3.1% in 2025, according to the IMF.

Iran's oil production increased by 0.5 million barrels per day (mb/d) to 3.1 mb/d last year, but it is projected to increase by only 0.1 mb/d in both the current year and 2025.

The IMF has evaluated Iran's economic performance based on official statistics and its own estimates, which include data from Iranian government sources that are not always considered reliable.

Notably, both the International Energy Agency and OPEC had projected Iran’s oil production growth for 2023 at 305,000 barrels per day, 40% less than the IMF’s estimates.

The IMF also estimated gas production growth for Iran in 2023 to exceed 6%, whereas the National Iranian Gas Company (NIGC) has reported a growth rate of approximately 1%.

The IMF also estimated a 9% increase in Iranian gas production for 2022, while BP and NIGC reported growth rates of about 1% and 1.7%, respectively, for the same year.

Before US sanctions, Iran’s crude oil output exceeded 3.8 mb/d in 2017. However, it declined to below 2 mb/d in 2020.

Iran has seen a rebound in oil production since Joe Biden assumed office at the White House, which has positively influenced its oil exports – reaching about 3.2 mb/d in March 2023, according to OPEC.

Kpler’s statistics also show that Iran’s oil exports have increased from 350,000 b/d in 2020 to about 1.5 mb/d in the first quarter of 2024.

Budget deficit

The IMF says the Iranian government needs $121/barrel oil price to avoid a budget deficit.

Currently, the Brent benchmark is sold at below $90, while the IMF predicted the average Brent price at $78.61 in 2024 and $73.68 in 2025.

Iran also offers a discount of at least $13 per barrel for Chinese refineries, a factor that the IMF did not account for in its calculation of the "breakeven oil price" for the Iranian government.

The report also says Iranian government and state enterprises’ debts would increase by $4 billion (based on NIMA exchange rate, or $1:410,000 rials) in 2024 to above $118 billion, equaling 25.5% of GDP.

NIMA is designed for exporters to sell foreign currencies at a lower rate and for importers to purchase what they need at the same low rate to finance their purchases from other countries. The official rate at NIMA is approximately 40% lower than in the foreign currency free market.

Since early 2023, the Iranian currency, the rial, has depreciated by approximately 33% in open markets, largely due to ongoing significant government budget deficits.

Recently, the Iranian Central Bank (CBI) reported that the government and state entities' debts to the banking system increased by 56% year-on-year in 2023, reaching approximately 13,100 trillion rials, equivalent to $32 billion based on NIMA rates and $21.5 billion based on open market rates. Additionally, the Iranian government's foreign debts stand at $5.8 billion, according to the CBI.

On the other hand, the National Development Fund (NDF) of Iran claims the government owes about $100 billion from this entity.

It appears that Iranian government debt is at least $11 billion higher than the IMF's estimates for 2023.

With that, Iran's financial stability remains precarious as it needs higher oil prices to prevent deficits while it grapples with mounting government debt, and contends with currency depreciation.

Inflation

The IMF estimated Iran’s inflation for 2023 at 41.5%, consistent with Iran’s Statistical Center’s official reports.

However, the Central Bank of Iran (CBI) recently released a report calculating the "payment of debt and dowry" based on a 52.3% inflation rate in 2023. This suggests that Iran's actual inflation rate is significantly higher than the official statistics indicate.

Many field research studies conducted by local media indicate that the actual inflation in the country is much higher than the official data reported by the Statistics Center or submitted to the IMF and other international entities by the Iranian government.

During a speech at the National Day of the Persian Gulf ceremony, Alireza Tangsiri asserted, "The time when they could seize our oil tankers has passed," indicating that Iran would retaliate against such actions. "Our enemies know that if they take an oil tanker from us, we will retaliate. They took our oil tanker, and in response, we seized one of theirs, forcing them to release it," he added.

The Iranian Navy seized an oil tanker in the Sea of Oman in January. The regime said the act was a retaliation against the previous seizure of a large cargo of Iranian crude oil by the US government in 2023, involving the same vessel now recaptured by Iran.

According to the Iranian Navy, the operation was conducted under a court order with the approval of the Ports and Shipping Organization, framed as a response to "oil theft" by the United States.

The vessel, previously known as Suez Rajan, was seized by the US last April while carrying 977,000 barrels of sanctioned Iranian crude oil.

To secure its release, the owner paid a fine of $2.46 million after lengthy legal proceedings. The previously seized Iranian crude oil was sold off by the US for $83.4 million after deductions for substantial logistical costs.

The judiciary said a clemency request was approved by both the judiciary chief and the Supreme Leader.

Zanjani, known for his vast wealth and deep ties within the regime, was originally tasked with circumventing international sanctions to export Iranian oil during Mahmoud Ahmadinejad's presidency.

Despite his efforts, he failed to repay approximately $3 billion, leading to his arrest in 2013 after Hassan Rouhani took office. The intricacies of his operations suggest that he had significant insider support, yet his accomplices within the government remain unidentified.

After more than a decade in prison, the Iranian judiciary claims Zanjani's cooperation with authorities and the successful identification and repatriation of his foreign assets were key factors in his sentence being commuted.

His assets abroad, initially withheld, were estimated to be worth between $4 to $5 billion. Following their sale, about $2 billion was deposited into Iran's central bank.

Zanjani, who once claimed a net worth of $13.5 billion, had built an empire spanning numerous industries including hospitality, aviation, and real estate. His business activities involved an elaborate network of black-market dealers and money launderers across the UAE, Turkey, and Malaysia, enabling him to transfer $17 billion from oil sales back to Iran by 2013.

This high-profile case has been closely linked to various economic scandals and has seen Zanjani face international sanctions, including those from the European Union in December 2012 and the United States in April 2013.