Iranians hoping for relief from recession soon

Prices of foodstuffs and other essentials in the Tehran bazaar and markets across Iran have risen sharply in the past year as the Islamic Republic faces one of the deepest economic crises in its 40-year history.

Inflation hit a high point of 52 per cent in May and is expected to remain at high levels into 2020, according to domestic and international estimates. The price of meat to make the ubiquitous joojeh kebab and other Persian delicacies has more than doubled.

These hardships, driven in part by US sanctions, are really taking their toll on a public who in past crises have tended to unite behind those in charge. But public reaction this time has been mixed. The government acknowledged tens of thousands had been involved in sometimes violent street protests against fuel price increases in mid-November in which more than 100 were reported dead.

While the pain mounts up, a full picture of the economic situation needs to take in occasional glimpses of relief even if these will not ease any mounting frustration with the regime in the short term.

In spite of the outbreaks of violence, tourism for example has paradoxically been on the rise, in part driven by the far weaker currency. Luxury providers such as the bazaar’s army of Persian carpet sellers are focusing their sales on foreign visitors, five million of whom visited in the six months to late September, more than 25 per cent up on the same period last year.

Meanwhile in November, Tehran announced the discovery of a major new 50 billion barrel oilfield. But with current exports down to a trickle, this will not help solve the current problems either.

Tehran has been turning to more sympathetic governments in Moscow and Beijing to help it over the current economic hurdles, with the latter continuing to import albeit reduced quantities of Iranian crude despite US blacklisting of Chinese companies involved in the trade.

In the UK, Lord Lamont, chairman of the British Iranian Chamber of Commerce, said there had been suggestions of an oil-for-goods programme along the lines once operated by the UN for Iraq. But he has also said it might take some time to put it in place.

Although the headline figure in an October World Bank report was that the economy would contract by 8.7 per cent in 2019-20 in a second year of recession, the report also acknowledged that the currency – the rial – was now relatively stable and inflation was easing.

Iran’s rulers have in past crises established a network of traders, businesses and money exchange operations in a variety of countries to circumvent previous restrictions. Similar responses have followed Donald Trump’s announcement last year that he was pulling out of an international agreement with Tehran to limit Iran’s nuclear programme and imposing sanctions.

The European Union set up an Instrument in Support of Trade Exchanges, the so-called INSTEX, essentially a barter mechanism to ensure Iran receives oil revenues in the face of a US embargo on banking transactions. However, deputy foreign minister Abbas Araqchi said in a recent interview that the mechanism “has been suggested too late and operates at a low level. It has not yet been fully implemented”.

France has also proposed providing Iran with a $15 billion credit set against oil sales if Tehran returns to full compliance with the international nuclear deal. That prospect currently looks doubtful however.

Although there are avenues to outside trade, a chill from the US has settled over many of them. Human Rights Watch has warned for example that, even though humanitarian imports including medicines are exempted from the US measures, European companies and banks are still worried about exporting or financing these goods. Overall EU-Iran trade plunged by 75 per cent in the first eight months of the year.

Lord Lamont, in his statement to the BICC, noted the exemption on humanitarian goods but added: “Experience continues to show that for UK companies in sectors such as agritech, healthcare and pharma, the single biggest obstacle remains the UK banking system which will not at this stage handle such transactions.”

On the domestic front, the Iranian government has been moving to reform a near-universal cash benefits system and has offered guarantees that only the richest will be hit by proposed cuts. The World Bank report said the challenge of protecting vulnerable households would put additional pressure on government finances and potentially the value of the rial.

Economic activity would remain subdued in the medium term, the Bank said, but Iran could look forward to growing 0.5 per cent annually from next year, although from a much lower starting point. The outlook is certainly bleak on many fronts and hard-pressed Iranians will be hoping for a change in circumstance soon.