The JCPOA and the Iranian Political Economy
By Hooshang Amirahmadi
AIC Founder and President
A major reason Iran wanted a nuclear deal with the P5+1 group of nations was sanctions relief. The Supreme Leader Ali Khamenei had allowed the negotiations for this purpose and to reduce tension with the US. He had even established a “red line” for the negotiators regarding sanctions relief: that it must begin “simultaneously” with the signing of the deal – which was ignored in favor of reducing tension. While certain sanctions relief will be granted to Iran, largely by the European countries, it is certainly not coming soon nor at the level expected. Americans are still barred from business with Iran except for certain licensed transactions and humanitarian items. This fact is now widely discussed in Iran and has become a rallying point for the conservatives and nationalists opposed to the Joint Comprehensive Plan of Action (JCPOA).
Aside from the scale and timing of sanctions relief, another dispute surrounds the size of Iran’s “frozen” funds in various nations— largely the proceeds of oil sold to China, South Korea, India, Japan and a few other nations as well as frozen funds belonging to the Central Bank of Iran and to the private sector. In the Western media, the number has ranged from $100 to $150 billion. Some have even said the figure is much larger than $150 billion. They have also raised alarms about the size of the funds because, in their view, they could end up in the hands of the “terrorist” groups and governments that the Islamic Republic supports in the Middle East, including Hezbollah and Syria’s Bashar Al-Assad. The Western debate has also focused on whether Iran can actually afford to spend a sizable amount on its foreign operations.
In Iran the figures are even more disparate. The Islamic government, prior to the deal in Vienna this July, used to talk about $150 billion and more. After the deal, the figures were dramatically lowered. The Director of the Central Bank said in an interview following the deal that the figure is $29 billion, of which $5 billion is already “used” and the rest is available. The deputy speaker of Iran’s Parliament, Mohammadreza Bahonar, put the figure at $100 billion, but added that only $35 billion is available to the Islamic Republic (he did not say where the rest will go). In addition, the spokesman for the government, Mohammad Bagher Nobakht, put the number at $28 billion, of which he said $23 billion has already been exchanged into Rials by the Central Bank, and that only the rest is still available in dollars and to the government.
While this confusing debate has ensued inside the country over the figures, some are suggesting that the government is trying to lower expectations, while others say that the disparate figures point to plans for major corruption. The truth is somewhere in between. The government wants to lower expectations, but is also concerned that the funds could be usurped before they can be put into good economic use. This concern is certainly well placed, as the Iranian economy is riddled with unprecedented corruption scandals. Moreover, Iranians are, generally speaking, a suspicious people and conspiracy theories abound. They may simply assume that most of the funds will be corrupted by certain elements in the government and their private cronies. This suspicion will be particularly coming from middle and lower classes who are economically separated from the rich by a wide margin. In recent years, a “super rich” group has emerged whose desire for further accumulation of wealth seems insatiable.
Specifically, Iranians can be put into three socioeconomic categories. First is the upper class of businessmen and wealthy individuals, including high-ranking public officials and their cronies and institutions. Their numbers are low (in the 5-10 percent range), but their economic and political position gives them all the levers they need to benefit from the JCPOA. Among them, merchants, brokers and banks with international dealings, who also closely work with the government, are in the best position to benefit from the deal. This is the group that is most supportive of the JCPOA and sees it in purely trade, finance and brokerage terms (as opposed to industry). I believe a disproportionate economic benefit of the deal and the released funds will accrue to this group and they will become even richer than they are today.
The second group is the middle class of university people, professionals, and mid-level business people, making up some 20 percent of the population. While this group also has its eyes on the economic benefits of the deal, most among them are hoping to reap “political” benefits. They expect the post-deal Islamic Republic to become more open politically. They think, or hope, that the deal will place them in a better position during the next parliamentary elections and are planning to pressure the regime for a freer election now that the “West” is coming back. If past experience is any indication, this group will soon become disappointed, as its wishes will hardly materialize. Even if they were to win the next Parliament, as they did in 2000, they will still be constrained by “Islam”, the “Revolution” and the “hardliners”.
The third group is the working and non-working people, including peasants, industrial and trade workers, petty producers and shopkeepers, unemployed and underemployed persons, and the poor. This group’s need is certainly economic; however, more than economic growth, they value social justice in terms of better wealth and income distribution or higher income through wages and stable jobs. While the Islamic Revolution was to ostensibly redress inequality and help the “oppressed” groups, in reality Iranian society has become more unequal, with income and wealth increasingly accumulating in the hands of a few, while the “oppressed” groups are losing economic ground by day and becoming increasingly poor, some in relative terms and others even in absolute terms. I am not hopeful that the deal will significantly change the plight of this group.
There are two additional reasons for my “distributional” pessimism. First, the government is not adequately attentive to the plight of this last group. Instead, it favors the upper class, particularly merchants and financiers in control of the political-economic levers of the country. Second, there is still no plan for the post-deal Iranian economy, and most resources that might be generated by the deal could be utilized in international trade even though President Rouhani has promised to help build industries and infrastructure to boost production and employment. Meanwhile, foreign competition will weaken domestic producers and usurp a part of the national market, the non-oil exports will remain sluggish or insignificant for the foreseeable future, and prices of domestic commodities and services will rise with more money supply. Already the impact of the deal on Iran’s Rial is negative. Therefore, what I see coming is mixed news for the government at best.
If these predictions come true, then the toiling people, unemployed folks, and petty producers will not benefit from the deal. This economic outcome for the country will be politically unsettling at a time when the middle class may not secure its desired political development. The “losers” will then be most likely agitated by the radical conservatives opposed to the JCPOA and Rouhani government, creating a tenuous “business climate” and political atmosphere. Only a wiser slant to Iran’s political economic future can avert this unproductive path, an approach that would place control over corruption, luxury foreign trade and speculative finance capital, while promoting export-oriented industrialization that generates employment and higher income. The state must also open the political society and shed the ideology of “us versus them” so that the broader civil society and Iranians abroad can become participants in building a better Iran.