(Bloomberg Businessweek) -- As is often the case when people take to the streets in protest, the recent uprising in Iran may have its roots in something as basic as the price of eggs. Toward the end of December, several provinces reported a significant increase in the cost of agricultural goods, including a 50 percent spike in egg prices. Several factors were blamed, such as rising feed prices and an outbreak of avian flu that led to the culling of millions of chickens.
Whatever the cause, on Dec. 28, about a hundred people gathered in the streets of Mashhad, Iran’s second-largest city more than 500 miles northeast of Tehran, to protest the government’s handling of the economy. What started as a rally backed by conservative clerics quickly turned into a broader demonstration against the very theocracy they uphold. Within a few days, protests had spread to 20 cities and included calls for the death of the Islamic Republic’s supreme leader, Ali Khamenei. By Jan. 3, Iranians supporting the Islamic Republic were staging counter rallies, and a police crackdown had left 21 people dead and more than 700 arrested.
The last big antigovernment uprising in Iran was the Green Movement in 2009, when more than 2 million people protested the disputed reelection of conservative President Mahmoud Ahmadinejad—what Khamenei refers to now as simply “the sedition.” The crackdown that followed killed upwards of 73 people, according to opposition estimates, and led to the arrests of some 4,000.
There are a few major differences this time. The Green Movement was led by reform-minded intelligentsia and educated middle class and was concentrated in the streets of Iran’s capital city. This one has been led by mostly working-class young men; there are far fewer people rallying, yet the protests are more widespread across the country. “These protesters are from the fringes of Iran, from small towns that no one had heard of before,” says Alireza Nader, an international policy analyst at the Rand Corp. “In 2009, the protests were about empowering the reformists. This time, this is anti-establishment. This is against the whole Islamic Republic.”
Navigating this will be a critical test for President Hassan Rouhani. Seen as a reformer and a moderate, he’s faced criticism since his reelection in May, both from hard-line opponents and from disillusioned supporters, who’d been expecting a broader economic recovery following the country’s 2015 nuclear deal with world powers and the easing of international sanctions. Unemployment stands at 12 percent, and while inflation has dropped from more than 40 percent in 2013, when Rouhani was first elected, it still hovers at about 10 percent. A wave of bad loans from unregulated lenders has rocked the banking sector. Meanwhile, oil prices have averaged less than $60 a barrel for the past three years, draining Iran of a key source of revenue.
On Dec. 10, Rouhani submitted a $337 billion draft budget to parliament. Based on an oil price forecast of $55 a barrel, it earmarks about $100 billion to create jobs, address the banking crisis, and introduce a social security program that Rouhani says will bring all poor families to a minimum standard of living. The budget also introduces significant increases to various fees, including car registration and the departure tax for citizens leaving the country. It makes steep cuts to cash subsidies for food and fuel while also raising funds allocated to the clergy and the premier security force, the Revolutionary Guards.
Rouhani has to strike a balance between the people and the religious and security establishment that wields ultimate power. He’s defended Iranians’ right to protest while urging them to work with his administration to address what he says are justified grievances. He has a chance to use the protests to his advantage and push through more reforms, says Amir Handjani, a senior fellow at the Atlantic Council: “Rouhani is savvy, he needs to ... say to the other factions in Iran, ‘Hey, look, people want change, and time isn’t on your side.’ ” While Handjani doesn’t think the protests will lead to a revolution, he says they “will serve as a warning shot for the regime that they have serious structural problems to address, and I think this gives Rouhani the upper hand.”
There are also forces outside of Rouhani’s control. Iran has a serious water shortage that’s caused people to move from rural areas. Foreign investment has also been slow to materialize following the nuclear deal, in part because the U.S. never lifted some of the sanctions that bar U.S. companies and banks from doing business there. Some oil and construction companies, as well as airplane and car manufacturers such as Airbus Group SE and Groupe PSA, have signed deals, but interest among overseas businesses has fallen short of projections by Rouhani.
And then there’s President Trump, who’s tweeted his solidarity with the protesters and is using the demonstrations to bash the regime. “Many reports of peaceful protests by Iranian citizens fed up with regime’s corruption & its squandering of the nation’s wealth to fund terrorism abroad,” Trump tweeted on Dec. 29. A day later he tweeted, “the good people of Iran want change” and that “Iran’s people are what their leaders fear the most.” Rouhani in turn hit back, claiming Trump has “no right to show sympathy” for Iranians, especially since he’s branded their country a terrorist nation and banned their citizens from obtaining U.S. visas.
Trump has imposed new sanctions related to Iran’s ballistic missile program and the Revolutionary Guards, which fall outside the scope of the nuclear accord. He’s also asked Congress to determine whether to withdraw altogether from the nuclear deal. This all makes investors even more nervous about putting money into Iran. “If there is a kind of scapegoat to Iran’s economic problems post the nuclear deal, it would be the U.S. administration,” Jean-Paul Pigat, Dubai-based head of research at Lighthouse Research, told Bloomberg Television. “Donald Trump continues to threaten to renegotiate the nuclear deal. That does not encourage foreign investors to enter the market.”
On Jan. 2, Trump met with Vice President Mike Pence and members of his national security team to discuss the protests amid deliberations already under way about reimposing suspended sanctions or adding new ones, according to two White House officials who asked not to be identified discussing internal deliberations. The meeting came about 10 days before Trump must decide whether to continue waiving sanctions that were lifted under the nuclear deal.
Trump’s tweets allude to another potential source of grievance among some protesters: the billions of dollars that Iran has spent outside the country to support allies such as Syrian leader Bashar al-Assad as well as militant groups including Hezbollah and Hamas. Iran is also backing Houthi rebels in Yemen who are at war with Saudi Arabia. It’s all part of Iran’s efforts to project influence across the Middle East and challenge the Saudis for regional dominance.
Some in the U.S. and Europe think that supporting Iran’s economy is the best way to boost political moderates represented by Rouhani. They say better integrating Iran into the global economy creates incentives for the country to abide by the nuclear agreement and other international norms. Skeptics—led by Trump—argue that such thinking underestimates the commitment of Iran’s leaders to expanding their power in the region and that a richer Iran is a more dangerous one.
To contact the authors of this story: Golnar Motevalli in Dubai at gmotevalli@bloomberg.net, Kambiz Foroohar in New York at kforoohar@bloomberg.net, Grant Clark in Singapore at gclark@bloomberg.net.
To contact the editor responsible for this story: Matthew Philips at mphilips3@bloomberg.net.
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