Iran International
Iran faces a stark choice to address a cost of living crisis: preserve subsidized exchange rates that have failed to protect purchasing power and fueled corruption or remove it and risk triggering another wave of uncontrolled inflation.
Former Central Bank of Iran governor Mohammad-Hossein Adeli summed up the core dilemma in an editorial for Donya-ye-Eghtesad last week.
“The gap between subsidized and free-market exchange rates produces severe distortions, instability, and unjust rents—while simultaneously serving certain political and distributive goals,” he wrote.
Iran’s “preferential” currency system began in April 2018 under President Hassan Rouhani, when the exchange rate was fixed at 42,000 rials per dollar.
The rial plumbed new record lows of over 1.31 million to the dollar on Monday.
Designed to curb price shocks, protect low-income households, and guarantee access to essential goods and medicine, the subsidy was funded through oil and petroleum revenues.
But as the gap between the official and free-market rates continued to widen—and maintaining the system strained the budget—the administration of Ebrahim Raisi scrapped it as part of its so-called “economic surgery.”
Officials defended the move by pointing to massive arbitrage opportunities, rent-seeking among importers of essential goods, waste of foreign-exchange reserves, and the failure of subsidies to reach consumers.
The system, they argued, had become a costly burden on the state.
The “economic surgery” triggered Iran’s highest annual inflation since World War II and sparked widespread protests.
After several months, the government reintroduced subsidized foreign exchange at 285,000 rials—about half the free-market rate at the time.
The subsidized currency initially covered 25 categories of goods, though several items were later removed from the list.
In recent months, the government has also eliminated preferential currency from the import chain for several key commodities such as rice, vegetable oil, red meat, animal feed and medicine.
The state provided importers with roughly $18 billion at the 285,000-rial rate in 2023 and about $15 billion in 2024, and allocations are expected to fall to around $12 billion this year.
An economy distorted
Supporters of the multi-rate structure contend that it keeps essential goods and industrial inputs affordable, curbs inflation, and preserves some purchasing power.
Critics argue that while cheap currency slowed price increases temporarily at first, the widening gap with the market rate ultimately entrenched systematic corruption and prevented subsidies from reaching consumers.
Adeli, the former Central Bank governor, wrote that keeping prices artificially low through “subsidized, rent-laden exchange rates has only marginally contained prices while generating huge rents for importers who gain access to cheap currency.”
“Allocating subsidized currency in the name of supporting the final consumer ends up serving special-interest groups, diverting resources, and fueling informal markets.” Importers, he warned, often manipulate invoices to amplify profits.
Still too risky to end?
One of the starkest illustrations of the system’s failure was the Debsh Tea corruption scandal. Between 2019 and 2022, the company received an estimated $3.4–$3.7 billion in subsidized foreign currency.
Large portions were never used to import high-quality tea. Instead, part of the allocation was sold on the open market for profit, while some was used to import low-quality tea, later repackaged and marketed as premium.
The scandal became emblematic of how subsidized currency rewarded manipulation over genuine import needs, further eroding public trust.
Despite the failures, Adeli argued that Iran is not prepared for a unified exchange rate. Geopolitical tensions, intensifying sanctions, weak economic growth, the risk of inflation rising above 50%, and the possibility of a budget deficit exceeding 50% together create a fragile environment.
He therefore advises maintaining a cautious two-tier system, with essential goods and medicines supplied at a controlled rate.
Former economy Minister Ehsan Khandoozi has similarly echoed this caution, warning that abrupt unification could ignite fresh inflation and insisting on a gradual approach.
Economist Morteza Afghah told ILNA that some advocates of free-market policies act “as if they do not realize that we are in an extremely critical situation, and we cannot apply formulas designed for advanced economies under normal conditions to Iran’s current crisis.”
Tehran’s unveiling of a towering statue depicting the Roman Emperor Valerian kneeling before pre-Islamic Persian King Shapur I has renewed criticism of the Islamic Republic’s appeal to nationalist sentiment following the June war with Israel.
For over forty years, the theocracy purged ancient Persian history from schoolbooks, replacing it with post-Islamic narratives. But after the 12-day conflict with Israel, officials have turned to the distant pre-Islamic past to rally a divided society.
From murals of ancient kings and soldiers to patriotic songs added to Shi’ite mourning ceremonies performed before Supreme Leader Ali Khamenei, Tehran now embraces imagery once deemed heretical by its own revolutionary ethos.
'Kneel before Iran' campaign
Tehran’s Revolution (Enghelab) Square was the scene of an unusual spectacle on Friday as officials unveiled a massive bronze statue depicting Roman Emperor Valerian kneeling in submission before Sassanid King Shapur I, commemorating Iran’s victory at the Battle of Edessa (260 AD).
The event was held under the slogan “Kneel before Iran,” part of what authorities describe as a campaign to project “national unity and historical pride” following the June war with Israel.
Tehran Mayor Alireza Zakani, a staunch ultraconservative, said on X: “Enmity with Great Iran can only end in kneeling before this historic nation.”
Municipal official Davood Goodarzi said the installation would be accompanied by visual displays depicting “other victories of Iranians over foreign aggressors,” including the defeat of British forces by local commander Rais-Ali Delvari, Mirza Kuchak Khan’s resistance against Russian troops, and Surena’s triumph over Rome at the Battle of Carrhae in 53 BCE.
The goal, Goodarzi said, is “strengthening concepts such as national dignity, social unity, and Iranian identity.”
The statue, he said, would remain temporarily at Revolution Square before being moved to a city gateway “where it will stand as the first emblem of Iran before diplomats and foreign visitors.”
Unveiled women were allowed to attend the unveiling ceremony—an uncommon scene at events organized by Tehran’s ultra-hardline municipality.
The turn to the pre-Islamic past
The sharp reversal also recalls remarks once made by Khamenei. In a 2011 speech, he asserted that “all the great military victories of this nation came after Islam,” dismissing pre-Islamic accounts as “things that are not documented.”
In 1987, he had said that prophets triumphed over kings such as Cyrus and that “nothing remains of these monarchs in history but names remembered with derision.”
Nevertheless, pro-government social media accounts have now gone so far as to circulate posters equating Khamenei himself with Shapur, showing him standing with a staff as Benjamin Netanyahu and Donald Trump kneel before him. The caption reads: “You will kneel before Iran.”
'Hypocrisy'
Pro-government figures have hailed the move as a patriotic success. Conservative political reporter Hossein Saremi posted: “Today’s grand Iranian gathering showed that people and the state share one essence: Iran itself. Nothing can take our homeland away.”
Others, however, called the spectacle “hypocrisy.” Journalist Gholamhossein Pashaei wrote on X: “Every year you close Pasargadae to stop people from celebrating Cyrus Day, yet you unveil Shapur’s statue in Enghelab Square with drums and fireworks during Fatimiyya (mourning period)!”
Dissident commentator Hamid Asafi called the ceremony “a perfect snapshot of the Islamic Republic’s contradictions.”
On Telegram he wrote: “A week ago they closed Cyrus’s tomb out of fear of the crowds, and now they glorify Shapur in the same breath. The Islamic Republic fears living history but poses for selfies with its corpse.”
He added: “They know people no longer respond to rosaries and sermons. That’s why they’ve brought history back to the stage—in a controlled costume. If they can’t erase the past, they’ll try to own it.”
The irony deepened as UNESCO formally recognized Cyrus’s Charter as one of the earliest human-rights documents.
President Masoud Pezeshkian wrote on X: “Iran, the cradle of dialogue, justice, and coexistence, can still inspire peace today.”
Users swiftly replied, questioning how such pride could coexist with a government that blocks access to Cyrus’s tomb each year to those wishing to visit it on his birthday.