Iran's Faces More Economic Problems In Coming Months

As antigovernment protests continue in Iran, the government will face a multitude of additional economic problems and energy crisis in the coming months.

The most urgent problem is a fast-falling national currency that began to nosedive in early November, dropping to historic lows almost on daily basis. The US dollar has risen from 295,000 rials to 365,000 in two months. But that is just an early signal of what is to come.

The retail sector is having its own multiple problems. First, during protests people are buying less, as recently the garment industry complained of very low sales to consumers who are in no mood to go shopping.

Second, a draconian denial of access to the Internet by the government, to contain the protests, has badly hurt hundreds of thousands of small businesses dependent on sales through social media.

Third, Iranian consumers have begun boycotting large retailers and businesses believed to be controlled by the Revolutionary Guard and other regime entities, as another tool in their civil disobedience movement.

Digikala, Iran’s Amazon, and Mihan dairy and food company have been targeted by activists on social media, who tell the people not to enrich the government’s suppression machine. In a matter of days, there are signs of lower sales by both companies, which sponsored appeals from their workers who asked the public not to harm their livelihoods.

Fourth, and the perhaps the most predictable is a looming shortage of natural gas in the winter, as pressure in Iran’s South Pars maritime fields in the Persian Gulf are gradually falling. The country has failed to secure capital and western technology to improve drilling and pumping system to boost production.

Iran has the world’s second largest natural gas reserves after Russia with almost 30 trillion cubic meters of potential supply, but it needs to invest $50 billion and use special technology only a few western firms can provide to keep its level of daily production at around 700 million cubic meters.

The former head of the national gas company, Hamidreza Eraghi told ILNA news website in Tehran on November 7, that this winter the country might be forced to buy gas from Turkmenistan to be able to supply electricity and keep industries in business. Already, in the past few years as consumption has risen, there have been both shortages of electricity and gas. The government sells energy at ridiculously cheap rates and consumers have no incentive to save, with usage fast increasing each year.

There are also ongoing strikes in the oil and gas sectors in solidarity with nationwide protests, which will further hurt production.

What Iran needs most is imported technology for horizontal drilling for gas, Eraghi said, and this winter imports should increase to prevent an industrial shutdown.

The government has periodically highlighted the need to boost prices to lower consumption, but that would anger a public that has become impoverished in the past four years after the United States imposed sanctions on Iran’s oil exports. Already, with nationwide antigovernment protests raging, the government has no way to increase energy prices.

Ordinary Iranians have fallen victim to high inflation rate for years. No one knows exactly what the current annual inflation rate is, but if one would believe the government, it is at least 40 percent, with food prices having risen by 100 percent in the past 12 months. The falling national currency will accelerate inflation as Iran imports a significant part of its food and raw materials.

With a convergence of so many negative economic developments there is very little the regime can do to stop the protesters, who openly say they want to get rid of the Islamic Republic, not only for its economic mismanagement but also for its draconian denial of social freedoms.