The presidential election that is due to take place on 18 June in Iran is coinciding with the ongoing negotiations for revival of the Join Comprehensive Plan of Action (JCPOA). A final agreement is unlikely to be reached before the election results are announced and this has increased speculation over the impact of the results on the negotiations.
There is a lot of guesswork over the technical structure of the new deal. Lifting sanctions will be certainly a core element of the negotiations and it has been the key demand put forward by the Iranian side. Based on the news releases and statements made by the negotiators, some banking and trade sanctions are expected to be lifted. The first round of sanctions lift on three former Iranian officials and two petrochemical trading companies was announced on 10 June. Nevertheless, a full sanction lift is out of reach due to the complexity of the US sanctions that are extended beyond the nuclear disputes. Therefore, all parties involved in the negotiations are there expected to remain tangled in a “game of sanctions” past the conclusion of this round of negotiations.
Economic conditions in Iran have been deteriorating rapidly over the past few years. A combination of economic mismanagement, sanctions, structural economic challenges and corruption has worsened the economic environment by slowing down growth, production, trade and consumption. Year-on-year inflation for consumer prices has increased (between 2019 and 2020) by more than 34%; while transportation costs and housing costs’ inflation have increased by 80% and 44.6% respectively. The devaluation of the currency to a historical low leading to high inflation, combined with high unemployment, have pushed more than half of the population into poverty and escalated the tension between the state and citizens.
Iran’s economic difficulties have deepened the rift between the regime and the citizens and caused a widespread political apathy amongst Iranians. This was demonstrated in the low turn-out in the last parliamentary election that indicates diminishing confidence of the constituents in the possibility of change through elections. The senior political figures have openly acknowledged the public’s frustration and its impact on the election turnout. A presidential candidate, Mohsen Mehralizadeh, in a live televised debate acknowledged that the nation is “tired of economic challenges and injustice”. The Supreme Leader, Ayatollah Khamenei, has invited the nation to participate in the election. He also issued a fatwa about voting with empty ballot papers and called it forbidden according to Sharia as it leads to the weakening of the regime.
The ongoing public debate over the presidential election that is covered in printed, broadcast and social media indicates a blame game amongst the senior officials who believe the Rouhani’s administration is at fault for all the economic challenges, mismanagement, corruption and lack of strategic economic planning. All the presidential candidates have openly criticized the economic policies of the Rouhani’s administration that - although instigated by the sanctions - have mainly involved managing the government’s increasing budget deficit through printing money – a key factor for the rise of inflation – and rising taxes. Having said that, none of the candidates’ campaign promises provide substantial practical steps for much needed economic reforms and recovery in Iran. Most of the proposed economic measures that are put forward by the presidential candidates involve increased short-term relief for certain social groups such as: creating jobs (most likely in the public sector), providing affordable housing and increasing targeted subsidies cash handouts. While such measures may be useful in attracting voters’ support in the current economic environment, they do not help long-term economic recovery, growth and efficiency. Realistically, such measures will lead to an increase in government expenditures in order to achieve temporary aid and relief for the poor, which can increase the budget deficit.
One common theme that runs across all the presidential election campaign promises is plans for improving the country’s economic cooperation with the rest of world. Almost all the candidates have signalled that should they win the election, their government will aim to increase Iran’s international economic relations. Moreover, the presidential campaign promises indicated that there is a consensus amongst the hardliner candidates over the importance of economic relations with the non-western economic powers. The future of the US sanctions will undoubtedly play an important role in the delivery of such promises by the next administration.
The ongoing negotiations will most likely conclude with a ‘limited’ sanction relief that will help the recovery of hydrocarbon export revenue and release of the government’s frozen assets, which collectively can narrow the government’s budget deficit (in the short-to-medium term) and maintain the value of the currency that ultimately will slow down inflation. However, the longer-term growth and economic recovery of Iran requires government reforms that are aimed to improve business environment and efficiency of production – through measures such as privatisation and overhaul of industrial technology – as well as attracting foreign investments. The JCPOA has offered some economic relief through allowing hydrocarbon exports and banking transactions, though, it did not provide any meaningful path towards increasing foreign investments in Iran. If the next deal fails to provide a comprehensive agreement that facilitates foreign investments in Iran (to help transfer of technology and capacity building) it will have temporal and limited positive impacts on the economy.