Iran protests set to continue amid collapsing currency, increasing pressure on regime

  • Protests began in Iran’s capital on Sunday, sparked by shop owners shutting their doors to voice their anger at the plummeting Iranian rial.
  • As the country’s economic picture worsens, the movement looks likely to pick up strength. But chances of regime change are still next to zero.
  • Since the U.S. withdrawal from the Iranian nuclear deal on May 8, the rial has lost more than 40 percent of its value.
A briefcase filled with Iranian rial banknotes sits on display at a currency exchange market on Ferdowsi street in Tehran, Iran, on Saturday, Jan. 6, 2018.
Ali Mohammadi | Bloomberg | Getty Images
A briefcase filled with Iranian rial banknotes sits on display at a currency exchange market on Ferdowsi street in Tehran, Iran, on Saturday, Jan. 6, 2018.

Protests began in Iran’s capital on Sunday, sparked by shop owners — or bazaaris — shutting their doors to voice their anger at the plummeting Iranian rial.

As the country’s economic picture worsens, the movement looks likely to pick up strength. But a toppling of the government is far from likely, according to analysts at risk consultancy firm Eurasia Group.

“Growing economic turmoil in Iran means protests will increase in frequency in the short term,” Henry Rome, an Iran analyst at Eurasia, wrote in a research note Tuesday. “Overall, even though some protesters shout anti-regime slogans, the demonstrations are very unlikely to threaten the government’s grip on power.”

On Sunday, the rial plunged 15 percent to IRR 89,000 against the dollar on the black market. Since the U.S. withdrawal from the Iranian nuclear deal on May 8, the rial has lost more than 40 percent of its value.

Business owners marched toward parliament and were blocked by police; shop closings and some demonstrations then spread to at least six more cities.

"Iranians of different classes are increasingly willing to challenge the regime." -Behnam Ben Taleblu, Research fellow, Foundation for Defense of Democracies

On Monday, anti-government rhetoric manifested itself in the protests, as demonstrators shouted slogans critical of the regime in Tehran like “Death to dictator” and “Let go of Syria and think about us.” They echoed widespread protests that took place in January across 80 Iranian cities that were both political and economic in nature, although did not end up threatening President Hassan Rouhani or his government’s hold on power.

"Iranians of different classes are increasingly willing to challenge the regime," said Behnam Ben Taleblu, a research fellow at Washington-based think tank the Foundation for Defense of Democracies. "The fate of the Rouhani government... will be a footnote in this larger struggle for representative government."

People gather to protest over high cost of living in Tehran, Iran on December 30, 2017.
Stringer | Anadolu Agency | Getty Images
People gather to protest over high cost of living in Tehran, Iran on December 30, 2017.

As an immediate-term response, the government is expected to introduce currency reforms, like establishing a secondary currency market for importers and exporters. But faced with any more threatening political protests, Rouhani and Iran’s Supreme Leader Ali Khamenei will likely respond with force, as the government has never conceded to those opposed to Islamic rule or Iran’s interventionist foreign policy. More than 20 demonstrators were killed in the protests of last winter.

“The security forces, the regime’s ultimate bulwark against a serious challenge, will likely have a free hand to limit the scope of protests should they expand,” Rome said.

Severe economic pain ahead

Iran is headed for severe economic pain as U.S. sanctions, described by White House officials as the “strongest sanctions in history,” will by August reimpose curbs on trading of the country’s gold, steel, coal, cars, currency and debt, as well as freeze Iran’s ability to buy U.S. dollars.

Iran’s inward investment figures had picked up significantly after the signing of the nuclear agreement, which lifted many economic sanctions in exchange for curbs and inspections on Iran’s nuclear program. Thousands of European companies began trading with Iran, although the country failed to see its lofty investment targets met thanks to the continued risk of punishment for foreign companies inadvertently falling foul of remaining U.S. sanctions.

The State Department announced Monday that companies and countries have until November to completely cut their imports of Iranian crude, demanding a sharp cutoff rather than the gradual phase-out implemented by the Obama administration prior to the 2015 deal. Sanctions will also fall on Iran’s shipping, ports and central bank transactions. As OPEC’s third-largest producer, Iran currently exports more than 2 million barrels a day.

“Even if the government survives the current crisis by making some currency reforms — as we expect — it will continue to face challenges in the near term,” said Rome, highlighting the power of U.S. secondary sanctions that punish any entity, American or not, that does business with Iran. “European companies are leaving Iran in droves, threatening not only trade and investment but also Iran’s ability to sell oil at current volumes.”

Iranian Supreme Leader Ayatollah Ali Khamanei makes a speech regarding Trump's withdrawal decision from Iran nuclear deal during a press conference in Tehran, Iran on May 09, 2018.
Iranian Leader's Press Office | Handout | Anadolu Agency | Getty Images
Iranian Supreme Leader Ayatollah Ali Khamanei makes a speech regarding Trump's withdrawal decision from Iran nuclear deal during a press conference in Tehran, Iran on May 09, 2018.

Tehran has been defiant so far, with President Rouhani stating that his country will not “give in to U.S. pressure.” The Donald Trump administration has long derided Iran for its ballistic missile testing and regional militant activity, and left the Iran deal on those grounds. Iran’s hardliners, meanwhile, have seized on the discord to criticize Rouhani for having negotiated a deal with the West in the first place.

“We give the government 10 to 15 days to give its plan on confronting the enemy’s plots in the economic war,” parliament member Amir Khojasteh said Monday. “Or else… we will raise the president’s ‘lack of efficiency’ (through impeachment).”

Despite dramatic calls like this, sources cited by Eurasia indicate that Supreme Leader Khameini would not support Rouhani’s removal, as it would give the impression that Trump’s policy had won.

While the unrest is set to intensify, protests will likely be “disparate and uncoordinated,” Rome said, “lacking the centralized structure or specific economic or political demands necessary to force systemic reforms in Iran.” And the bazaaris, who remain influential across the country, are more prone to compromise and generally remain averse to the idea of regime change.

Still, the protests and strikes will not be for naught, Ben Taleblu believes. "Every time Iranians take to the street, the regime trembles," he said, highlighting the significance of the protests coming from the regime's social base.

"This past winter, the urban and rural poor, whom the Islamic Republic calls the 'downtrodden,' took the streets. Now, it is the bazaar turning out, which back in 1979 partnered with the clergy to topple the Shah and create the Islamic Republic."

The government’s handling of the economic crisis will determine, above all, how long Iran can withstand the crippling sanctions, its ultimate ability to control domestic unrest, and the shape of the country’s next government — which at this rate will probably be far less “moderate” in relative terms than Rouhani’s was deemed to be.