By Brayden Zimmerman, AIC Summer Research Associate
Please note that the views expressed in this publication, as with all articles written by AIC interns, do not necessarily represent the views of the American Iranian Council.
In recent history, the world has seen the harm that can result from instability. As a result, governments around the world must work towards peace, particularly in places where conflict seems so inevitable. One way that America can work towards that goal of promoting peace, and reducing the chance of more unnecessary violence and instability is by working to lock in the benefits and improved relations ushered in by the adoption and implementation of the Joint Comprehensive Plan of Action (JCPOA). The next 10-15 years are absolutely critical in this regard. We need to start focusing on doing what it takes to foster a peaceful, mutually beneficial, and trusting relationship with Iran. The risks of following any other path are too great and too real.
President Rouhani of Iran promised his people that signing the Nuclear Deal would result in improvements in Iran’s economic conditions; however, it is clear this has not yet happened. Although he and his government claim that the economy is booming and better than ever, a June 2016 poll conducted by the University of Maryland’s Center for International and Security Studies and IranPoll.com found that 43.4% of Iranians believe economic conditions are getting worse in Iran. It also found that 58.6% of Iranians believe the country’s economic situation is bad, a 10 percentage point increase from January, when the JCPOA was implemented. This same poll found that 73.7% of Iranians would say that living conditions have not improved as a result of the JCPOA, 22.6 percentage points higher than in January 2016 (1). This is a trend that President Rouhani, who is facing reelection, is desperately trying to downplay. Pro-government sources are claiming the Iranian economy is better than ever. The truth is that the vast majority of people are struggling. Since January, there has been a 9.2 percentage point increase in Iranians who believe there will never be an improvement in the economy. There was also a 15.3 percentage point decrease in people who believe that the improvement will happen in less than two years (1,2). Iranians are losing faith in their government. Top Iranian officials told their people that when the United States lifted its nuclear related sanctions, more foreign companies would invest in Iran, but the number of Iranians who believe that will happen in less than two years is down 12.1 percentage points since January 2016 (1,2). According to the United Nations Conference on Trade and Development (UNCTAD), since the JCPOA in 2015, foreign direct investment in Iran decreased by $55 million, or 2.7% (3). It is clear that the population feels this trend in foreign investment.
President Rouhani usually points to the decrease in inflation rates that occurred over his tenure as proof that he has improved the economy. However, while it is true that there has been a reduction in inflation rates it is not the strength of the economy that caused this change; instead the change reflects worsening economic conditions and a recession. The worsening economic conditions have decreased Iranians’ purchasing power, and therefore decreased spending. This is not a sign of a prospering economy, but of a deteriorating one.
If there is any growth in the Iranian economy, it is negligible and comes from the oil industry. About three months ago, a government official’s pay slip that was leaked online showed that top government officials were earning about 50 times more than the lowest-earning officials (5). As this new “pay gap scandal” has revealed, any revenue from growth from the oil industry is being paid to top government executives, not being dispersed across Iran. It is clear that the average Iranians’ economic situation is not getting better. The Iranian government desperately needs to pursue improved economic conditions for all Iranians, not one that benefits only top government officials.
As the economic situation gets worse in Iran, so too do the country’s opinions on the nuclear deal, and perhaps in time, the West. Since January 2016, the approval rating of the deal has decreased by 9 percentage points. In June, 11% fewer Iranians, “strongly approved,” of the deal than in January (1). These numbers may seem small, but they are still significant. The June poll was conducted in mid-June, and perception of the Nuclear Deal and the US changes every day that the government does not deliver on the JCPOA. If taken right now, those numbers would likely be more dramatic.
The next 10-15 years are absolutely imperative in growing our relationship with Iran, so we can’t ignore the downward trend in JCPOA approval ratings. Iran’s economy directly affects its peoples’ views on the United States and further cooperation with the West. The opinions mentioned and the trends in the graphs demonstrate this. 73.7% of Iranians’ living conditions have not improved. The majority of the country believes the economic situation is bad, and, as the graphs show, that number is growing. The decline in Iran’s economy could lead to a decline in desire for peace. Iran’s economy must be improved to keep Iran going down the right track for its people and the world. Since January, there has been a 10.1 percentage point increase in people who believe that President Rouhani has been unsuccessful in improving the economy, and a 16.2 percentage point increase in people who believe he has been unsuccessful in improving unemployment in the country (1). President Rouhani should change his focus from presenting economic strength to the world to actually creating it. He can do this by investing in non-oil sector growth and job production. To get the funds he needs to do this, he should start by getting foreign investors more interested in Iran. Foreign investors are not turned off to Iran solely because of American primary sanctions; they are also unsure that Iranian banks and businesses are safe to invest in. President Rouhani can increase foreign investment by strongly encouraging and incentivizing Iranian banks to start complying to international banking standards created by the Financial Action Task Force (FATF). Once it can be confirmed that Iranian banks have complied with the standards and are safe to do business with, Iran will start to see an increase in foreign investment. To improve the economy, President Rouhani needs to make this a focus.
The United States also has a part it can play in improving the Iranian economy. They can lift certain primary sanctions that disallow the US from making direct transactions with Iran. They can and should make it clear to the other countries that they will not be fined for doing business with Iran. Most importantly, the United States should give more money and expertise to the officials in charge of the Iranian banking system to help it come into the modern world and conform to FATF standards. There are too many risks for countries who want to invest, and the US needs to do what it can to fix that. The polls show that, in spite of what the government is claiming, Iran’s economy is lagging, and that it directly affects Iranian desire for peace. Peace won’t prosper until the economy does.
53.3% of Iranians still believe that the JCPOA is beneficial for both Iran and the P5+1. 66% of Iranians are still optimistic that living conditions will improve (1). If the US and Iran can work together to improve the banking system, and show the FATF and the rest of the world that it is safe to do business with them, Iran will see the benefits of diplomacy and continue down that path in the next 10-15 years. A country once thought to be one of the biggest threats to the United States could become a constructive partner in a region where we so desperately need more. If Iran’s economy continues to suffer in the coming years, there will be nothing to keep them from creating more instability with their paramilitary proxies in coming years.
For all parties involved, to help establish peace in a region that so desperately needs it, now is the time to act.
(6) This graph was prepared using charts found in source (1)
(7) This graph was prepared using charts found in sources (1) and (2)