How Iran's Economic Strains Helped Stoke Protests: QuickTake Q&A

(Bloomberg) -- Demonstrations have erupted across Iran, sparked by discontent over rising living costs and broadening into rallies against the religious and security establishment. They come less than a year after voters reelected President Hassan Rouhani, a cleric who favors closer ties with the rest of the world. His efforts to end his country’s economic isolation were underpinned by a 2015 deal to limit Iran’s nuclear program, and he has promised that the agreement will bring the nation prosperity -- eventually. In a sign the protests could further polarize Iranian politics, Rouhani’s supporters have accused opponents of fanning economic concerns among poorer citizens. At the same time, hostility toward Iran under U.S. President Donald Trump raises the risk that the nuclear accord will founder.

1. How bad is the economy?

Unemployment is 12 percent, with women and young people among the hardest hit. While inflation has dropped from more than 40 percent in 2013, when Rouhani was first elected, it still hovers around 10 percent. Some reports say a recent spike in egg and poultry prices -- blamed on a cull over bird flu concerns -- may have provoked the initial protests last week.

2. What is Rouhani’s strategy?

Rouhani spearheaded the deal that restricted his country’s ability to enrich uranium only for peaceful purposes in return for rolling back economic sanctions that, for example, prevented Iran from selling oil on international markets. Oil output is now back to levels seen before the U.S. imposed sanctions in 2011. Gross domestic product is growing again after shrinking in 2012 and 2013, but almost all the growth has been in the oil industry, with credit woes hampering the wider economy. So far, little of the benefits have filtered down to ordinary citizens. Rouhani tells Iranians that will take time.

3. What has he said about the protests?

Seeking to calm the unrest, Rouhani on Sunday defended Iranians’ right to protest while urging them to work with his administration to address what he said were justified grievances about the economy. Late in 2017, he submitted a $337 billion draft budget to parliament that earmarks about $100 billion for public service programs that would create jobs, address a banking crisis and seek to bring all poor families to a minimum standard of living through a new social security program.

4. What’s up with the banks?

A lack of access to finance has been a major impediment for Iranian companies outside the energy sector, with the International Monetary Fund identifying an urgent need for financial reforms including tackling under-capitalized banks. Anger has deepened over the way so-called credit institutions -- providers of cheap loans -- have grown almost unchecked since the time of former President Mahmoud Ahmadinejad. Last year, customers protested outside branches, demanding deposits back as concerns grew over the possible collapse of some of the largest credit institutions. Rouhani said Sunday the government had sought to address the problem with a $3 billion aid package for the industry.

5. Have all economic sanctions been removed?

No. Most American companies have been kept on the sidelines by a sweeping 1995 U.S. ban on trade and investment, triggered by concern about Iran’s links to terrorism. Since Trump became president in 2017, the U.S. has imposed new sanctions related to Iran’s ballistic missile program and its premier security force, the Revolutionary Guards Corps, neither of which are covered by the nuclear accord. Trump has also asked the U.S. Congress to determine whether to withdraw altogether from the nuclear deal.

6. What is Trump’s objection?

He’s called the pact the “worst deal ever” and said it will lead to Iran obtaining nuclear weapons. But changing its terms would require the cooperation of Iran and the other signatories: China, France, Russia, Germany, the U.K. and the European Union.

7. What do others think about Iran’s economic recovery?

Some in the U.S. and Europe think that supporting Iran’s economy — about the size of Austria’s — is the best way to boost political moderates represented by Rouhani. They say that better integrating Iran into the global economy creates incentives for the country to abide by the nuclear agreement and other international norms. Skeptics argue that such thinking underestimates the commitment of Iran’s leaders to expanding their power in the region. They say an Iran with more money is just a more dangerous Iran, better able to support allies such as Syrian leader Bashar al-Assad as well as militant groups like Hezbollah and Hamas. Iranian authorities point out that their forces played significant roles in defeating Islamic State jihadists in both Syria and Iraq.

8. Are foreign companies returning to Iran?

Some oil and construction companies, as well as airplane and car manufacturers like Airbus Group SE and PSA Peugeot Citroen, have inked deals, but the interest among overseas firms has fallen short of projections by Rouhani. In November, France’s Total reached a non-binding agreement to develop a natural-gas field in Iran, and the next month Royal Dutch Shell signed a deal to assess three of the country’s largest oil and gas fields. U.S. sanctions on financial transactions with Iran have made international companies wary of doing business there. Then there’s the political risk in a country where the religious establishment holds sway.

9. What powers does Iran’s president have?

The president heads the executive branch but is subordinate to the supreme leader, Ayatollah Ali Khamenei. A number of government entities are outside the president’s purview, including the state broadcaster, whose head is appointed by the supreme leader, and the Iranian Revolutionary Guard Corps, which answers directly to him. The Guard is an elite security force that has an economic wing with interests in telecommunications, infrastructure and energy. Its mandate is to safeguard the Islamic Revolution, which in 1979 overthrew the shah and installed Ayatollah Ruhollah Khomeini. Over the weekend, it vowed to take tough action if the unrest continued.

The Reference Shelf

• QuickTake explainers on Iran’s nuclear program, economy and oil industry.
• Negotiating with Iran could pay off for Trump, writes Amir Handjani.
• A QuickTake Q&A on Trump’s aim for a new nuclear deal.
• Death toll in Iranian protests rises.

--With assistance from Golnar Motevalli

To contact the reporter on this story: Grant Clark in Singapore at gclark@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Mark Williams, Stuart Biggs

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