Even for a state as heavily militarized and intractable as the Islamic Republic of Iran, the breadth and depth of the economic maladies it is facing are crushing. Although the authorities, because of a self-defeating hubris, do not admit that they are finding economic pressures to be overwhelming, it is public knowledge that they have long lost the battle against spiraling poverty and an untamed hyperinflation surge.
Iran is the world’s fifth most resource-rich country, with the second largest natural gas reserves and the fourth largest crude oil reserves, and with a total value of resources amounting to $27.3 trillion. Iran’s young and educated population is an additional asset that accords the country a unique international standing. But despite all these fortunes, it has been hamstrung by endemic poverty that, like a vicious adversary, has been clutching at the nation’s throat for years, thwarting its chances of economic betterment.
Dissecting and succinctly summarizing the many drivers of Iran’s economic afflictions is a tall order given the lack of transparency in the economic landscape, as well as both economic complexity and a confluence of factors that have produced the nation’s grinding poverty. However, externally imposed isolation in the form of sanctions and domestic roadblocks to development—including incompetence and flawed statecraft—are the two primary ingredients that have shaped this disaster. Different administrations in recent decades have presented a motley constellation of proposals for economic recovery and the elimination of poverty, but the situation has only worsened. Iran’s economic woes are an interminable disease resistant to different cures, with no amelioration in sight.
A Dismal Situation
As of early 2022, 30 percent of Iran’s households were living below the poverty line, and there are other reports revealing even more alarming figures. Yet the reality of life in a country battered by devastating sanctions and government neglect is still not fully encapsulated by these statistics, since people who are not officially considered as living in poverty also continue to struggle to cope with the rapid pace of inflation and find it difficult to make ends meet.
In February 2023, the value of Iran’s currency sank to an all-time low, with US dollars trading at more than 600,000 rials in the free market. This massive discrepancy is perhaps sufficient to summarize the state of Iran’s economy. Although a steady depreciation has been temporarily halted and the rial has gained value since news of a Saudi-Iran reconciliation deal broke, Iranians still longingly reminisce about the not-so-distant year of 2018, when the US dollar was trading for a mere 50,000 rials.
The official inflation rate currently stands at 53.4 percent, and inflation on food products is at 71.5 percent. However, these numbers fail to capture the actual consumer experience, especially when private manufacturers often decide to increase the prices of their products several times a year. In addition, given the Iranian government’s track record of inaccurate data reporting on economic metrics, the reality of inflation, already in a ruinous state, may be much graver than these figures suggest.
Because of botched regulatory frameworks and the government’s role in the market, and because the country’s doors are closed to international businesses, retailers and vendors play a determining role in price fluctuations.
Because of botched regulatory frameworks and the government’s deleterious role in the market, and because the country’s doors are closed to international businesses, retailers and vendors play a determining role in price fluctuations. This means that a pound of apples can be purchased at ten different grocery stores in a single town for ten different prices; and there are no consequences for those who arbitrarily overcharge customers. The unbridled surge in the price of food items has already curtailed demand for fruit and vegetables, which has contracted by 50 percent, and Iranians are even eating less chicken and red meat as these once essential items become unaffordable.
The overall picture drawn by these developments is dismal, evincing the presence of a full-fledged crisis and penetrating poverty in a country that is neither short of resources to provide for its inhabitants nor divested of the expertise to overturn cyclical economic setbacks. So, why is the population suffering so deeply and unable to obtain basic staples?
First and foremost, it must be acknowledged that Iran’s adversities are, sadly, of its own making, and that the country is mired in an impasse that its authorities are responsible for bringing about. When the economic sanctions that are imposed by world powers are cited as one of the major contributors to the present situation, it should be asked why the sanctions were imposed to begin with. The answer is found in the government’s policies and its antagonistic relations with the international community.
The self-inflicted international isolation for which the Islamic Republic has opted, which is steeped in a practice of allowing ideology to trump national interest in decision-making, has resulted in the Iranian economy becoming a shaky house of cards characterized by unpredictability. A result of decades of nuclear adventurism and hostile relations with much of the world, sanctions have ensnared Tehran so inextricably that it is impossible to define the Iranian economy outside of the ambit of the punitive measures.
Aside from the fact that foreign investment is a rarity, and is often unwelcome, the nation is not capable of conducting regular trade with partners worldwide to procure what it needs and to sell its services and products to generate revenue. This does not mean that Iran conducts no foreign trade; it certainly does. But because the economy is so separated from the international banking and financial systems, and because the bulk of trade happens on the black market, the country loses substantial sums of money in trying to circumvent sanctions. In 2016, for example, it was reported that sanctions increased the cost of trade with Iran by 15 percent, and that removing them would save $15 billion in extra expenditures each year.
In April 2021, former Minister of Roads and Urban Development Abbas Akhoundi said that over a 16-year period the Islamic Republic incurred a staggering loss of $400 billion from working to bypass sanctions, which in turn generated significant corruption. The bottom line is that funds that should have been allocated to alleviating poverty, diversifying the economy, and investing in critical infrastructure, healthcare, and education were spent instead on enabling basic trade that was made illicit under the sanctions. Setting up front companies, transaction clearinghouses, smuggling networks, and reinsurance schemes are some of these costly techniques.
The Iranian government has long inflicted sanctions on itself, as the authorities have consistently discouraged international brands and merchants from coming and opening branches, even when sanctions have allowed for such connections.
It is not only western powers, however, that have sanctioned Iran. The Iranian government has long inflicted sanctions on itself, as the authorities have consistently discouraged international brands and merchants from coming and opening branches, even when sanctions have allowed for such connections. Thriving on an aggressively self-sufficient approach to commerce built on hardline ideologies averse to free trade and even marginal evocations of liberalism, Iran’s leadership has in effect outlawed the presence of foreign retailers in Iran. The corollary is a corrupt monopoly of domestic manufacturers and suppliers who believe they have been given carte blanche to produce low-quality goods and sell them at uncompetitive, frequently increasing prices because there is no viable alternative to their products. As a result, with time the average consumer becomes more impoverished.
For years, foreign direct investment has been a chimera, and even at its crescendo in 2011 only totaled $4.3 billion, which is nowhere near enough to meet the nation’s development needs. When investment by major international lenders is trivial and Iran lacks the wherewithal to enhance communities, infrastructure, housing, roads, schools, hospitals, and airports, the natural result is a decline in the people’s well-being. The government has rarely shown an appetite for courting other countries, including the handful of friendly nations with which it works, to use their assets to invest in Iran. Meanwhile, the Islamic Republic continues to squander the nation’s capital and wealth in a number of ways.
Domestic and Foreign Priorities
An overview of Iran’s annual budget points to where the ruling elite’s priorities lie. With the lion’s share of national wealth allocated to propaganda organizations, state-run television with dwindling credibility and shrinking viewership, and religious seminaries and other foundations under the aegis of the supreme leader, it is no wonder that institutions that are tasked with improving the livelihoods of the country’s citizens are left in the lurch.
The Islamic Republic is so preoccupied with moralizing about people’s lifestyle choices and deciding how they should behave in public and private so as to conform with the rigidities of the theocracy that it scarcely works to conceive roadmaps to remedy the economic challenges they face. One implication of the extent of poverty in Iran is a substantial housing crisis, including significant swathes of dilapidated housing that needs to be renovated or replaced. The fact that the government has not been able to solve this problem after four decades is telling.
The government’s outsized focus on priorities such as undertaking its nuclear enterprise, sponsoring proxy militias across the Middle East, challenging the United States, and oppressing its own people, including women, who have long been strangled by a law making hijab-wearing compulsory and other forms of discrimination, has siphoned off vast resources from Iranians. The prevalence of poverty is therefore unsurprising, however resource-rich the country may be.
A political system that has a predisposition to alienate the nation’s most gifted and entrepreneurial citizens, and that has inadvertently caused hundreds of scientists to immigrate every year, has already stripped itself of the knowledge and skills that could be gained from the very scholars and experts who could offer solutions to reverse the country’s overarching economic dilemmas. There is no dearth of accomplished Iranian economists whose insights could help crack down on poverty and improve the standard of living. But the regime has not recognized the importance of drawing on their expertise to vanquish poverty and change the desolate status quo.
There is no dearth of accomplished Iranian economists whose insights could help crack down on poverty and improve the standard of living. But the regime has not recognized the importance of drawing on their expertise to vanquish poverty and change the desolate status quo.
Every sector of Iran’s diverse economy has the potential to turn the tide, including tourism, agriculture, farming, fishing, manufacturing, retail, education, and healthcare. Rampant poverty is not an unsolvable riddle lacking solutions. Although immeasurable destruction has been wrought over the decades as a result of misguided policies, it is possible to eliminate poverty from this resource-rich country and to ensure that its people enjoy the riches that rightfully belong to them.
The road to economic recovery and poverty mitigation in Iran needs a government that decides that its mandate is to abandon its aggressive foreign policy and to establish normal working relations with partners across the world, a government that takes pride in the number of allies it finds, not in the number of foes with which it winds up sparring. Such a government would cultivate policies and ties that benefit its people and help them unleash their full potential, while also minimizing its footprint on the Iranian people’s daily lives, ceasing to indoctrinate them, and instead making sure that they have the means to prosper and live dignified lives. This, of course, requires a recalibration of priorities in governance. But at the moment, the Islamic Republic does not seem to be prepared to make these and other reforms, having decided instead to fight other battles.
The views expressed in this publication are the author’s own and do not necessarily reflect the position of Arab Center Washington DC, its staff, or its Board of Directors.
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