Economists Doubt Iran Can Mitigate Financial Crisis

In an interview with moderate news website Khabar Online on Saturday, December 17, Mirzaei further said that the Raisi government’s plan to create "a paradise" with reliance on China and Russia has turned out to be an illusion. A very good paradise was how the president’s budget people earlier described the future of Khamenei's Looking East policy and Iran's cooperation with China and Russia.

Earlier, conservative commentator Mohammad Mohajeri had also called the Raisi administration "the weakest government in Iran's history." It appears that the view is shared by most of Islamic Republic political factions. Most recently, reformist cleric Mohammad Ashrafi Esfahani called the Raisi administration "the weakest government in Iran after the 1979 revolution."

Like Mirzaei, Ashrafi Esfahani further added that Iranians are in desperation as they have lost their hopes of a better future because of the poor performance of the Raisi administration. He said: "It is obvious that the people's financial situation will worsen, and their hopes will fade away when the government replaces experienced officials with those who have no outstanding background or experience.

He was clearly referring to the make-up of the government, which is stacked with less experienced hardliners loyal to the Revolutionary Guard and Iran’s ruler Ali Khamenei.

On Saturday, former Iranian Interior Minister Abdollah Nouri also said that "The Islamic Republic has reached a dead-end." He added that most independent observers in Iran are against the course the Islamic Republic pursues, but all the decisions in the country are being made by Supreme Leader Ali Khamenei and that is causing the impasse as no one listens to the majority of Iranians.

Khabar Online website in Tehran wrote that Raisi's slogans have not led to anything tangible. He promised to restore the battered currency rial, but in his 16 months in power the rial has fallen by nearly 50 percent, leading to fears to hyper-inflation.

Mirzaei argued that although the government is weak, but personnel changes will not help it much. "Iran's international relations and the structure of the government are the main problems," he said, adding that "the government should strive to revive the 2015 nuclear deal (JCPOA) and enact laws demanded by the international financial watchdog, the FATF, while also improving its ties with Iran's neighbors."

Mirzaei added that the most important jobs for the government is to introduce transparency, to control financial corruption and to pursue good governance. He maintained that "none of these have happened and it appears that there has been no will in Iran since 2017 to improve the situation. Hardliners have prevented the revival of the JCPOA before Raisi’s election and portrayed the former government as inefficient. These situation led to major protests in 2017 and 2019, and the latest presidential election in Iran in 2021 made the situation even worse."

The politician quipped that "While the situation is getting worse, Raisi is constantly talking about the train of progress."

However, it is not just Raisi who appears to be out of touch with the realities on the ground. Khamenei has also said on various occasions that foreigners have instigated the ongoing protests as they aim to stop Iran's progress.

“Enemies thought they could play the Iranian people, like the people of other countries, with false and grandiose slogans. They thought they could deceive people with the word ‘freedom’ and believed people would trust them if they spoke of ‘life’,” President Ebrahim Raisi told a hand-picked audience in Nahbandan, a small town of around 50,000 in South Khorasan Province, during a visit on Friday.

The slogan has turned into the signature motto of the protests after a young woman, Mahsa Amini died in the custody of morality police in September. She was arrested for ‘improper hijab.’

Raisi also told the United States and other western countries “to open their eyes” and understand that people are determined not to give in despite “problems caused by sanctions, threats, enmity and vindictiveness” and leave the resolution of problems to their own government. “Do you believe people our dear youth and students will be deceived by your words?” he asked while insisting, like Supreme Leader Ali Khamenei, that the “enemies miscalculated the situation as in previous seditions [they stirred up].”

Iran's aging authoritarian ruler Khamenei prophesied in a speech November 19that the protests would end soon because, he claimed, organizers of “riots” failed to mobilize the people.

Khamenei has always referred to past and current protests as “riots” incited by “enemies” and accused protesters of “sedition”. In his speech he also claimed that “the organizers” of the protests, that are foreign powers he insisted, “failed to bring the people to the scene” so they were trying to “exhaust” the authorities, but they were wrong “because these mischiefs make the people hate them more.”

In his speech Khamenei also made no mention of the 400 civilian victims of government violence until then, but accused “rioters” of killing government forces, which he claimed would “anger the nation.”

The number of protesters killed by security forces has now risen to nearly 500 and two young protesters have been executed in an apparent attempt to instill fear among protesters, but an end to protests is nowhere near in sight.

Despite denial of the seriousness of the current protests, authorities including Khamenei seem to be extremely wary of the situation. A secret report by IRGC's media arm, Fars News Agency, which was leaked by hackers in late November, quoted Khamenei as saying protests would not end anytime soon while blaming others for failing to contain the situation including their failures in the “media war” against protesters.

Although there has been a drop in the number of protesters on the streets in the past two weeks, there are still plenty of calls on social media to protest, and according to Mark Pyruz, a military history image analyst, an uptick in nightly arson attacks by individuals and small teams who target municipal banners, monuments, Basij militia and government offices, seminary sites, and local official residences.

The uptick somehow is reflected in the increased calls on social media for “honorable sabotage” against government targets in the past few days. There have also been calls for formation of small independently acting saboteur groups and naming them after Mohsen Shekari, the first protester to be executed by the government last week.

TankerTrackers, Vortexa, Kpler, and other sources estimate Iran exported anywhere from 810,000 to 1.2 million barrels of crude oil per day in recent months. Iran keeps the export volume secret, but top officials constantly claim revenues are increasing.

But the US Energy Information Administration estimates that currently Iran’s daily crude exports are around 600,000 barrels. In addition, Iran is selling a maximum of 400,000 barrels of oil products such as diesel per day. So, the estimate about crude exports ranges from 0.6 to 1,2 million barrels, quite a large spread.

Iran also does not reveal how much it earns from crude oil exports, but if we take the lower estimate of 0.6 million shipments p/d and an average price of $90 p/b for 2022, revenues should total $20-22 billion for the 12 months of 2022.

The higher export volume estimate of one million barrels per day would return an annual revenue of about $32 billion.

The oil products Iran exports in addition to crude also generate roughly the same rate of income as crude oil. This means that if Iran has been selling 400,000 barrels p/d of these products, it earned about $13 billion in 2022.

Thus, total oil export revenues for the year ranges from $35-45 billion depending on which crude export volume is closer to reality.

These are rough estimates because we do not know how much discount Iran offers to its main buyer, China, and how much hard currency it recoups from the sales. Many observers believe Tehran might be bartering some of its oil to get food and other necessities. Also, using middlemen and illicit methods to conceal its shipments and repatriate cash amid US banking sanctions cost more money.

The prevailing financial situation in Iran is perhaps an indication that the lower estimate of its 2022 oil income might be closer to reality. Its currency, the rial, has fallen almost 30 percent in the past 12 months to a historic low of 380,000 against the US dollar.

The central bank has accelerated its habit of printing money to finance government operation and rescue inefficient state banks. Media in Tehran reported Thursday that in the past seven months the government has printed 1,000 trillion rials of money, while the currency was losing value.

If Iran’s oil exports were closer to $45 billion perhaps the currency would not have fallen so precipitously, because the exchange market in Tehran is not that big and the infusion of less than $100 million more every few days could have better supported the currency.

Popular anti-regime protests since September have put a lot of pressure on the government, that risks mass rebellion by a nation suffering from a 50-percent inflation rate and growing poverty.

The government’s official news website IRNA claimed Friday that daily exports have reached 1.5 million barrels, perhaps as a tactic to talk up the rial, but that is also a politically dangerous game because a public under tremendous financial pressure can ask where all the income has gone.

The emergency happened when Owji was attending a meeting to draft next year’s budget bill.

A source at Iran’s Oil Ministry said Owji has been under great pressure during this period to increase oil sales.

As the country is facing natural gas shortages amid the winter cold snap, Javad Owji has been at a dispatching center himself on Thursday to monitor the situation, the source has been quoted as saying.

Owji is currently under treatment at a hospital and according to the Oil Ministry-affiliated website SHANA, he is in a stable condition.

With cold weather gripping Iran in recent days and a surge in demand, shortages of natural gas have become acute.

ILNA news website reported Monday that Iran’s Oil Ministry has released the list of petrochemical units that must stop or reduce their gas consumption. In this letter, petrochemicals producers in Masjid-i Suleiman, Zagros, Shiraz, Bandar Imam, and several others must reduce their consumption.

Iran has the second largest reserves of natural gas in the world but is barely able to satisfy domestic demand as production steadily declines because of lack of investments in the oil and gas sector.

Taking an average of the US dollar exchange rate, the amount comes close to just $4 billion, but Iran has been lavishly printing more money since 2018 when the United States imposed economic sanction after it withdrew from the Obama-era nuclear accord known as the JCPOA.

The astronomical amount in rials constitutes 18 percent of the money supply in this period. In August the money supply had reached 50 quadrillion rials. That is 50 with fifteen zeros.

Mahmoud Jamsaz, an economist in Tehran told Khabar Online news website in July that in the past Iranian year, from March 2021-to March 2022, the government was printing the equivalent of $15 million a day to finance its budgetary shortfall. That is 3.8 trillion rials every day.

The accumulated weight of the money in circulation has effectively devalued the currency, rial, by more than tenfold since early 2018. Money changers in Tehran on Thursday were selling one US dollar for 384,000 rials, a jump of more than 30 percent in one year.

US oil export sanctions have cut Iran’s shipments in half, which mostly go to China, but according to the desperate government in Tehran, all exports are up, and the picture is rosy. However, talking up the rial is not an effective strategy any longer, because few people believe the president, much less other officials.

In order to partially slow down the rial’s fall, the central bank injects dollars into the market, as can be detected from daily exchange rate fluctuations in Tehran, but no official information is given out.

Latest reports on social media indicate that the currency’s fall is not viewed as a normal trend anymore and a panic is setting in to buy foreign currencies and gold. This in turn accelerates the crisis, especially in the light of political uncertainty triggered by three months of anti-regime protests.

The biggest immediate reason for printing money is government borrowing from the Central Bank of Iran (CBI) to bridge its budget deficit estimated to be 50 percent. But the CBI has little gold or foreign currency reserves to back the rial banknotes it prints. The rial is not a fungible currency like the US dollar and no one invests in buying excess rials, the same way hard currencies function and better maintain their value.

The printing presses at the CBI were especially working overtime from September 21 to October 20 - the Iranian month of Mehr. This is after it became clear that talks with the United States to revive the JCPOA had hit a snag, and also after popular protests erupted.

This means that pessimism took hold in Tehran and people began hording dollars. In addition, the government was losing on tax collection as unrest closed businesses, while it had to paying extra to tens of thousands of security forces to keep them in the streets against the protesters. The government was perhaps also forced to be more generous with ordinary salaries, making timely payments to prevent more people from joining the unrest.

Another reason mentioned by local media is the scenario whereby government-owned banks began demanding money from the central bank amid their own balance sheet crises. The CBI charges the banks 21 percent interest for loans, which boosts the already 50-percent inflation rate.

Local sources say that bank borrowings from the CBI even accelerated in November and reached 910 trillion rials, which means the central bank has to print even more money in the coming weeks.