NEAR EAST REPORT AIPAC'S BIWEEKLY ON AMERICAN MIDDLE EAST POLICY

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Iran lacks sufficient domestic refining capacity and relies on gasoline imports.
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Gasoline imports in Iran have dropped 90 percent. Iran imported only one cargo of refined petroleum per month this quarter.
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The unemployment rate for those under 30 years old is double the national rate—a worrisome number for a regime that is watching youth-led revolutions across the region.

Iranian Economy Feels Pressure From Sanctions

In recent months, Iran has acted increasingly confident in its foreign affairs. Having already witnessed the exit of one adversary, Hosni Mubarak, Tehran is pursuing its interests across the region, interfering in Bahrain and helping its allies in Syria to violently suppress peaceful domestic dissent.

Supreme Leader Ali Khamenei has described the protests sweeping the Middle East as an Islamist wave, and President Mahmoud Ahmadinejad has boasted, “A new Middle East will emerge without the presence of the United States and the Zionist regime, and their allies in the near future.”

Yet these Iranian self-assurances are not the whole story. The regime has been trying to hide the fact that international sanctions are hurting the Iranian economy, leading to increasing unrest. Here are a few indicators:

The price of gasoline is up 400 percent, natural gas is up 1,000 percent, and diesel is up 2,000 percent: Because of general economic mismanagement and a reduction in government revenue due to international sanctions, the Iranian regime has cut state subsidies on food, gas and other necessities. The reduction in the subsidies for gasoline caused the price to quadruple.

Initial strikes and protests subsided after the government dispatched a large security force to quell public anxiety and criticism. Still, discontent remains strong.

Gasoline imports have dropped 90 percent: Iran imported only one cargo of refined petroleum per month this quarter. Before the imposition of U.S. sanctions, Iran imported 11-13 cargos. To compensate for the loss, Iran has converted some of its petrochemical plants to produce gasoline—an expensive and unsustainable solution. Residents of Tehran have noticed that the worsening air quality in the capital is caused by the poor quality of this domestically produced gasoline.

Consumption has also dropped by as much as 25 percent because Iranians can no longer afford to take car trips and are forced to rely more heavily on an already crowded public transportation system.

The Producer Price Index (PPI) surged 32.8 percent: The Iranian Central Bank, which has a reputation for providing incomplete and doctored statistics, said that the PPI (a measure that tracks the cost of producing goods) was up 32.8 percent year-on-year in February. This staggering number reflects a dramatic increase in manufacturing costs for Iranian businesses and can foreshadow a steep rise in inflation if those costs are passed on to the Iranian consumer, as often happens. While the Iranian economy has not yet hit “hyperinflation,” the Iranian government is considering lopping zeros off of its currency—a classic, if ineffective, move by governments facing hyperinflationary pressures.

Unemployment of those under 30 tops 30 percent: The Iranian Central Bank reported that unemployment reached 14.6 percent, although real unemployment is likely much higher. Unemployment among those under 30 years old is double the national rate—a worrisome number for a regime that is watching revolutions throughout the Middle East led by disenfranchised young people.

Iran also has one of the most tech-savvy populations in the region, and the government is recruiting loyalists to form a “cyber army” to crush dissent on the internet.

Strikes and unrest are spreading: Factory workers are striking because of poor wages and lack of job security. In fact, half of urban Iranians live below the poverty line. As the economic situation worsens, unrest is spreading even to traditional government strongholds. If anti-government sentiment takes hold among the regime’s base and joins the still-simmering Green Movement, the regime will face greater hurdles to its efforts to crush pro-democracy sentiment in Iran.

Government purged of moderate voices: Hardliners, led by President Ahmadinejad, are purging the last remaining moderate voices from government. Last month, former President Ali Akbar Hashemi Rafsanjani lost his chairmanship of the Assembly of Experts to an Ahmadinejad ally. Rafsanjani recently broke with the regime’s dismissive rhetoric about sanctions and has instead urged the government to take international pressure seriously.

Ahmadinejad has also sparred with traditionalists in parliament who criticize his efforts to consolidate presidential power and strip the parliament of its authority.

If Congress and the Obama administration strengthen their efforts to implement and enforce Iran sanctions laws, Tehran will continue to feel the squeeze. As Iranians are mostly blaming the regime’s policies—not international sanctions—for their growing economic problems, the ensuing public unrest could persuade the regime to change course. BACK TO TOP