How currency collapse compounds Iranian regime’s crisis of legitimacy

IRBIL, Iraqi Kurdistan: Iran’s currency is hitting a record low against the US dollar in what observers say is a reflection of the regime’s growing isolation internationally and the severity of new EU sanctions against its paramilitary force, the Islamic Revolutionary Guard Corps. is a reflection of ,

The currency crash defied measures such as the replacement of the central bank chief last month and fueled speculation, following ongoing mass protests following the death of 22-year-old Zina Mahsa Amini in police custody last September. This will destabilize, or even bring down, the regime in 2023.

The rial has lost 29 percent of its value since anti-government protests and a harsh regime crackdown began late last year. On 22 January, it was trading at around IRR450,000 against the US dollar, marking an all-time low.

Dr. James Devine, associate professor in the Department of Politics and International Relations at Mount Allison University, believes it is Iran’s growing political isolation – due to its brutal crackdown on protesters, its military support for Russia’s war with Ukraine, and Doubts about a resurgence are due to the 2015 nuclear deal – which has dragged down the rial’s value.

“All of this is compounded by the mismanagement and corruption that has plagued Iranian economic planning since the regime came to power,” Devine told Arab News.

While Iran’s economic situation appears particularly dire at present, Emily Hawthorne, a senior Middle East and North Africa analyst at risk intelligence company RANE, described the rial’s depreciation as severe, “but certainly not unprecedented.”

“High inflation, international isolation, low investor confidence and low consumer confidence are all driving the decline,” he told Arab News.

The double whammy of a depreciating riyal and high inflation has led to a cost-of-living crisis, which in turn has fueled discontent and anger towards the regime.

Arash Azizi, author of “The Shadow Commander: Soleimani, the US, and Iran’s Global Ambition” and doctoral candidate in history at New York University, says the currency’s collapse “has long had an important psychological effect in Iran, Possible political and economic consequences

“Those who yearn for Iran before 1979, for example, usually like to talk about how one US dollar was worth IRR70 – as opposed to today’s more than 450,000,” Azizi told Arab News. told.

“It also continues to have a real declining effect on wages, which haven’t nearly kept up with inflation and currency collapse.

“A lot is imported into Iran and it is becoming increasingly difficult for individuals and companies to pay for these imports. This has made travel abroad very difficult for most Iranians, even to nearby places such as Dubai and Turkiye, although the latter has also seen its own currency depreciate.

According to Hawthorne, the “poor and fragile” state of the global economic environment makes this period worse than the previous one and creates “additional external pressures on the Iranian economy”.

“In addition, some Iranians feel strong anti-government anger, as reflected in the Mahsa Amini protests and some of the recent organized labor strikes and demonstrations, contributes to a sense of economic insecurity,” she said.

However, Hawthorne doubts that the new EU sanctions against the IRGC “will have a significant impact on the rial, beyond the downward pressure already created by increasing sanctions from Europe on other Iranian individuals and entities.”

For his part, Devine is convinced that with increasingly aggressive sanctions “there is a cumulative effect that is becoming dire for the regime.”

However, while the collapse of the currency has put further pressure on Tehran, it is not certain that it is the regime’s “weakest spot”.

“I haven’t seen any clear indication that currency devaluation or sanctions represent the last straw for the IRGC,” Devine said. “The IRGC controls between 25 percent and 40 percent of the Iranian economy, so they will still have access to goods and services within Iran.”

According to Devine, given this privileged position, the IRGC is in the best position to take advantage of black markets and smuggling. And while it is undoubtedly feeling the pressure, neither its leaders nor the rank and file are likely to consider regime change or defection from the regime.

Devine said: “If the regime goes, the IRGC goes with it. It serves no purpose without the Islamic Republic. Furthermore, if there is a change of government, the IRGC leadership may face prosecution at home and/or abroad.” may have to face.

“At the lower levels of the rank and file, there may not be the same ideological commitment or privilege, but they are still better off than the average Iranian and their post-regime future is also uncertain for them.

“In short, it will take a lot to separate the IRGC and security services from the regime.”

While the growing global consensus against Iran does not include China and Russia, the ability of the two non-Western powers to help reverse the rial’s decline is in question.

“China and Russia dislike Iran for unilateral sanctions from any one country or entity and are likely to continue dealing with Iran, especially Russia, which has been isolated from the rest of the global community because of sanctions linked to its invasion of Ukraine. is isolated. Hawthorne told Arab News.

“However, this will not provide Iran with a sufficient lifeline to help keep the rial afloat. Rather, it may facilitate some trade and exchange of some goods and equipment but will not save the economy.

Devine also believes that although Iran is selling a “healthy” amount of oil per day, mainly to China, it is unlikely to be enough to “reinvigorate the rial”.

In addition, Washington has begun cracking down on dollar smuggling by Iran from neighboring Iraq, which is also negatively affecting the rial’s value.

“While Russia and China may not be able to salvage the rial, they can ensure that going forward Iran will not be as economically isolated as it was in the past,” Devine said.

Hawthorne predicts that there will be more “economically motivated protests” in Iran throughout 2023, but doubts that the Iranian government will fall this year or in the near future, “even though economic tensions will contribute to its unpopularity.”

Azizi also says, “The regime has long avoided harsh economic crises and this is no exception.” He added: “This adds to its problems, but it does not yet seem to have caused the collapse of the kingdom.”

Devine expects rising prices and a shortage of goods for Iranian consumers to lead to more protests, further weakening the regime’s legitimacy and making it rely more heavily on coercive power to maintain control.

But whether or not this is a turning point for governance is a more complex question.

“I think the regime has the institutional and coercive capacity to survive the current level of unrest and maybe a little bit more,” Devine said. “However, he may lose control if he makes political mistakes.

“For example, if they get over a protest and start killing large numbers of Iranians in the street, especially young women. Even the execution of dissidents has the potential to create a backlash.

Devine believes the “complicating factor” at play is the “consistency of governance”.

“(President Ibrahim) Raisi has been criticized by the reformists and moderates for being too tough on the protesters and by the hardliners for being too soft,” he told Arab News. “Such an environment may lead the regime to ill-calibrate its response.

“At a certain point, more moderate members of the regime may go beyond criticism and reject the regime. If enough of them do, it could turn into a crisis, especially if the regular army becomes involved.” Is.

In the meantime, says Devine, protesters need better organization. While they can cause “small disturbances”, he said, it does not seem they have the kind of organization that can really challenge the regime’s “control of the country and the economy”.

“Perhaps the currency crisis will provide the impetus for that to happen, but I haven’t seen it yet.”