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As with the nuclear agreement, supreme leader Ali Khamenei and President Rouhani may have more in common than in dispute over the economy and foreign investment
Gareth Smyth for Tehran Bureau 19 April, 2016
The relationship between Ayatollah Ali Khamenei, Iran’s leader, and president Hassan Rouhani has been at the heart of the domestic political realignment that made possible last July’s nuclear agreement with world powers and the strong showing for pro-agreement candidates in February’s elections for parliament and Majles-e Khobregan (the Experts Assembly), the clerical body that chooses the leader.
Next up comes improving economic performance, and this will be another challenge for both men and for their relationship. Both would like to see higher economic growth – at least the 5% that could see the labour market absorb new entrants each year – and both know faster and wider easing of international sanctions would help.
In his Nowruz speech in Mashhad on 20 March Khamenei accused the US of failing to respect the terms of last July’s nuclear pact by not lifting financial sanctions. The leader suggested Iran needed to maintain a “resistance economy” to “fight unemployment and recession, control inflation and confront the threats of enemies”.
At tone at least, this differed from Rouhani’s continuing emphasis on attracting foreign investment and encouraging overseas trade, and from his desire to boost the role of the private sector – foreign and domestic – and therefore to constrain state and quasi-state organisations like tax-exempt religious foundations and the Islamic Revolutionary Guard Corps (IRGC).
Just as over the nuclear agreement, Khamenei must placate a variety of constituents. Would-be foreign investors need reassurances – no wonder, given the billions involved in many cases – but Khamenei needs also to carry fundamentalist supporters wary of foreign influence and fearful of any weakening of the Islamic Republic’s commitment to egalitarianism. And, of course, vested interests need appeasing.
Suitably, the term ‘resistance economy’ is flexible. Since Khamenei first used it in 2010, it has generally carried two related if different meanings – a push for self-sufficiency and domestic production, and secondly a commitment to the central place in the economy of ‘committed’ bodies like the IRGC. While the case for a ‘resistance economy’ in either sense was enhanced by sanctions, the term can stretch far enough to cover either a near-siege wartime economy with low international trade or an economy with a vibrant private sector that can compete well internationally.
Two years ago, Khamenei issued a degree calling for a ‘resistance economy’ based on higher production and self-sufficiency, greater investment of revenue from oil sales, financial reform, greater transparency and ‘knowledge-based’ industries. The decree was drafted by the Expediency Council, chaired by Akbar Hashemi Rafsanjani, Rouhani ally and fellow schemer in February’s elections.
Since Rafsanjani as president first encouraged the IRGC into an expanded economic role after the 1980-88 Iraq war, he has had second thoughts: it seems his notion now, presumably shared with Rouhani, is to shape the ‘resistance economy’ in such a way as to convince, or undermine, opponents who want to defend the IRGC’s protected economic position or resist Rouhani’s desire for detente with the US.
Will it work? The roots of a siege mentality are strong, going back to the 1979 Revolution and the heroism of the 1980-88 war with Iraq, when there was talk of “economic jihad”. Years of economic sanctions have hardly encouraged openness, and have enhanced the IRGC’s role, both in import-export and in energy and infrastructure projects as its affiliated companies took over when international operators dropped out. Security considerations invariably favour those with the right connections and play against any kind of open competition.
The challenge for Iran’s leadership – Khamenei and Rouhani – is increased by the fact most Iranians have not benefited from the easing of sanctions since the nuclear deal. As has been highlighted by the invariably astute Djavad Salehi-Isfahani, economics professor at Virginia Tech, the Statistical Centre of Iran reported last month that both inequality and poverty had increased in the Iranian year ending on March 20, so ending a four-year decline in both.
Poorer Iranians are an important base for the egalitarianism that has long fuelled the fundamentalist camp, including the Basij movement, while improving economic conditions has always been at the motivational heart of more pragmatic conservatives like Rouhani and Rafsanjani.
It was surprising, then, that Khamenei in his Nowruz speech welcomed the “preliminary actions” of Rouhani’s government in reducing inflation to 13% from over 40% but also set a timescale for “appropriate actions” to produce improvements by “the end of the year” (that is, the end of the Iranian year in March 2017).
Rouhani is well aware that the next presidential election is due shortly after that, in June, and that he will need a clearer ‘feel good’ factor if, as widely assumed, he seeks re-election. With his critics still on the back foot after February’s elections, Rouhani must feel a reasonable confidence.
This will be helped by the lack of an obvious, charismatic challenger. Saeid Golkar, senior fellow at Chicago Council on Global Affairs and lecturer at Northwestern University, who closely monitors chatter on social media told Tehran Bureau recently there are many who think Mahmoud Ahmadinejadshould run again: “He remains popular with the lower class, including the Basij, these people. Ahmadinejad knows this and believes they will come back to him for the next election…without Ahmadinejad, the hardliners don’t have anyone to compete, someone with charisma who can mobilise people”.
In 2005 Ahmadinejad promised to put the ‘oil money on the sofreh [the mat poorer Iranians sit on to eat their dinner]’. With oil revenue so far down, a new slogan would be needed, but economic expectations, or hopes, remain crucial to any electoral battle.
In his own message for Nowruz, Rouhani said he aimed for 5% growth over the next year and announced himself “certain that with interaction with the world, we can move towards economic prosperity”. With unemployment at 11% officially, job creation is vital and what Rouhani can achieve – and how he can achieve it – is complicated by the US dragging its feet over financial sanctions.
Interestingly, recent discussions in Tehran between Bijan Namdar Zangeneh, Iran’s oil minister, and his Indian counterpart Dharmendra Pradhan focused not just on increasing Iran’s oil exports and Indian investment of up to $20bn in energy schemes in eastern Iran but over payment methods. Tehran’s continuing problems in accessing around $6.5bn in oil receipts from India reflects Washington’s continuing restrictions on Iranians’ access to the dollar.
International sanctions against Iran are a complex web – and not one that could be readily swept away with the speed or vigour Iran’s leaders hoped. Washington continues to designate some Iranian entities, including the IRGC, as terrorist, which worries potential investors in Iran as they struggle to understand exactly what the IRGC ‘owns’.
So, as with the nuclear agreement, the “resistance economy” will depend not just on what happens in Iran, but on what happens in the US. The US Treasury has expanded its reach through enforcing stringent financial sanctions: it can spread fear merely by flexing its muscles. Or, as Khamenei put it at Nowruz, by acting “in such a way that big corporations, big institutions and big banks do not dare come and deal with Iran”.
Barack Obama has delivered on his 2008 campaign promise to engage with Iran, reaching a nuclear agreement many sceptics said would never happen. But his term is nearing its end, and Donald Trump is only the most extreme option facing Tehran.
Candidates have been competing, noted Khamenei, “to vilify” Iran. Take that as call for the troops of the “resistance economy” – whether in uniforms or civvies – not to leave the trenches any time soon.
