Last update: 2019-02-08 16:19:51
New wave of sanctions has been re-introduced to Iran from November 5 2018. As expected, the Iranian President Hasan Rouhani must face not only the impasse over the future of the so called “Iran deal,” but also increasing internal pressure coming from his political rivals.
The Joint Comprehensive Plan of Action (JCPOA), also known as the “Iran deal,” signed an historical success of multilateral diplomacy. The deal reached in Vienna in July 2015 aimed to lift nuclear-related sanctions against Tehran in exchange for the restriction of the Iranian nuclear programme. That night thousands of Iranians invaded the streets of Tehran celebrating and chanting with optimism and enthusiasm that “the world has changed,” as the reformist newspaper Etemad titled the following day. Indeed, since that night many dynamics have changed, inside and outside Iran. Challenges of regional security, reconstruction building and management of refugees’ flows confirmed that Iran should be fully reintegrated in the region, even though the United States has reversed this course since the beginning of the Trump presidency. Iran not only has been a crucial actor in fighting ISIS, or the so-called Islamic State, in Iraq, but is also a key player in the future development of Syria. The Islamic Republic is no more isolated but directly involved in several disputes ongoing in the Middle East and will keep its geopolitical imperative with or without international recognition. Thus, engagement with Iran would provide more security in the region and in Europe, as constantly remarked by Federica Mogherini, the EU High Representative for Foreign Affairs and Security Policy.
Resuming sanctions on Iran
Inside Iran, the expectations placed in the deal are unfortunately vanishing. After the “implementation day” in January 2016, when the JCPOA officially entered into force, a substantial number of foreign companies, especially from Italy (first EU commercial partner with Tehran), Germany and France, started to invest in Iran. However, in May 2018 the United States unilaterally withdrew from the deal and announced their intention to re-impose secondary sanctions to Tehran that would therefore punish third countries doing business with Iran. The US sanctions have been revived in two waves: a preliminary in August that targeted Iran’s access to the US dollar, industrial software, trading metals and auto sector; and a second wave in November to limit financial transactions and cut Iranian crude oil exports. Since April, Iran’s crude and condensate export dropped already by 39%. With the abrupt US unilateral exit from the deal, foreign firms left Iran to avoid US sanctions, while the Trump administration showed an explicit anti-Iranian posture. John Bolton, National Security Adviser, and Mike Pompeo, Secretary of State, warned Iran to change its regional behaviour or prepare to suffer the “strongest sanctions in history.” These threats were not related to the JCPOA, as Iran always respected the terms of the deal, as reported by intrusive inspections of the International Atomic Energy Agency (IAEA). Truthfully, the goal of the US sanctions is to weaken the Iranian economy, provoke internal turmoil and societal dissatisfaction, cause political instability and pave the way for the system’s collapse.
While the European Union has been unsatisfactorily trying to keep the deal alive by enacting the “Blocking regulation” and the Special Pursuit Vehicle, the reintroduction of secondary sanctions has already halted EU companies investing in Iran. Because of these changes, the Iranian rial (the national currency) observed a harsh devaluation in the last months that recorded rates of 70% in the free market. Many companies like Total, Siemens, Deutsche Telecom, Pininfarina, have been forced to leave the country and interrupt commercial agreements with Tehran not to incur US penalties. Also, foreign car firms like Peugeot, Citroen and Hyundai left the country, while airplane companies, such as Airbus, KLM, Aegean and British Airways stopped their services to Iran. But as history has repletely shown, sanctions will severely affect ordinary citizens rather than altering Iranian foreign policy behaviour. Already high prices on basic goods are imposing poor families to buy food in stock, and rice, red meat, fruits and milk increased their cost of more than two times. Imported goods like baby’s nappies, sanitary napkins and imported medicine are already difficult to find.
The current debate within Iranian factions
Iranian domestic politics is therefore affected by these recent dynamics. The internal debate presents a much higher degree of polarization between political elite because economic uncertainty. Foreign pressures are exploited by certain factions to weaken the government in charge while the latter is reshuffling his cabinet to face new challenges. Hardliners always rejected the JCPOA within a wider competition for power with the moderate/pragmatists. They are accusing Rouhani’s government “to have sold the country to the historical enemy” and “to have trusted the US.” According to the hardliners, the President of the Islamic Republic is responsible for the current economic worsening. On the other side, Rouhani is condemning the US violation of the deal and their unilateral re-imposition of sanctions. He defines external threats as a jang-e ravani, psychological warfare, that unleashes security forces and hardliners to increase conflictual approaches at the expense of internal political stability.
Hasan Rouhani based his political legitimacy on the achievement of the JCPOA to revive the national economy, open to foreign investments and heal widespread social iniquity. Yet, the expected positive outcomes of the “Iran deal” are difficult to be found, not only due to the new waves of US sanctions, but also because of internal distortions, like the lack of transparency and accountability, widespread corruption within the economic system and continuous factional rivalries that slow down the legislation process. In order to circumvent these internal obstacles, Rouhani is accusing Washington’s policy towards Iran and the hardliners are exploiting US threats to de-legitimize Rouhani’s government. Furthermore, the President has been accused of mismanagement, hence asked to report to the parliament about his economic agenda last August.
Another evidence of faction’s pressures on Rouhani is the continuous reshuffle of his cabinet. In the recent months, Ministers of labour (Ali Rabiei), industry, mines and trade (Mohammad Shariatmadari who replaced Rabiei as labor minister), economy (Masoud Karbasian) and roads and urban development (Abbas Akhoundi), resigned. Also, Ministers of foreign affairs, education, science and interior are currently on verge of being impeached. This dynamic highlights the president’s difficulties in maintaining his political line, external pressures and internal discontent among the cabinet. Moreover, new legislation entered into force banning retirees (over 60 y/o for men and 55 y/o for women) from holding public office. The controversial provision has led to the (forced) resignation of some young members of the cabinet, as Mrs. Shahindokht Molaverdi, presidential adviser for civil rights, while older officials could obtain exemptions. The same law caused the appointment of the third mayor of Tehran in 18 months.
Internal divisions on the FATF
With the aim of reducing international pressure on Iran’s economy, the government launched a discussion to meet the requirements of the Paris-based Financial Action Trade Force (FATF), that counters terrorism-financing and money laundering. The parliament ratified the bill on combating the financing of terrorism with 143 votes (and 120 against) to start implementing international standards set by the FATF and thus avoid isolation of the Iranian banking system. However, the constitutional watchdog of the Guardian Council rejected the bill and sent it back to parliament for further revisions. At the very beginning, the Supreme leader Ayatollah Ali Khamenei also contested the bill, but eventually he allowed the parliament to decide how to proceed. The controversial draft is yet another battleground for confrontation and domestic struggle between hardliners and moderate/pragmatists, which have the majority in the parliament.
The current ongoing debate inside Iran is about the provocative statements of Mohammad Zarif, Iranian Minister of foreign affairs, who declared that dynamics of money laundry in Iran are real. He claimed that those who opposed the FATF’s demands are against financial transparency because they benefit from opaque activities. Without referring to any specific person, Minister Zarif implicitly accused the hardliners in the parliament of being involved in money laundry and therefore willing to oppose the bill. These statements have obviously triggered strong reactions from the opposition. Rumours are circulating about the possibility to accuse the Minister of impeachment or force him to show the evidences of his statements to the judiciary. Although Iran’s internal politics may be surprising, it is unlikely that this will happen. On November 23, 2018, the reformist newspaper Aftab-e Yazd titled One Iran behind Zarif, following the declarations of Rouhani and Mahmoud Vaezi, Chief of Staff of the President, in support of the foreign Minister. It is worth noting that Rouhani had tried to soften his tones and avoid the accusations of the hardliners. He diverted attention to the need to fight against drug dealers and alcohol smugglers, as categories who fuel money laundry in the country. Iran has until February to show adherence to the principles of the FATF or return to the blacklist.
Rouhani between hardliners and reformists
Both the JCPOA and the legislation that aimed at meeting the FATF’s demands have been heavily criticised by the hardliners, who accused president Rouhani of opening the country to foreign meddling. From the end of last year, several protests have been spreading in the country due to the deterioration of the economy, the higher cost of living and unemployment. The frustration of lower classes met the anger of workers who complained about unpaid of wages, low salaries, and precarious working conditions. In the recent months, workers at the sugar cane factory Hafte Tapeh (located in the complex region of Khuzestan) went on strike for over two weeks against unpaid wages and unofficial contracts, which followed the controversial privatization of the company. Demonstrations and strikes by teachers, drivers, workers and public employees are thus exploited by hardliners to weaken the government. For instance, the hardliner newspaper Kayhan claimed that these protests were the result of economic dependence on the JCPOA and FATF.
However, not only hardliners are pressuring Rouhani’s policies, but also reformists who complain for not having improved the economy and not having guaranteed more open space for civil society, as promised during his electoral campaign. The “honeymoon” between pragmatists and reformists is thus facing major fractures. Despite the endorsement of the former president Mohammad Khatami (who still has a say in directing the reformist front from behind) for the 2013 and 2017 presidential elections, Hasan Rouhani built a moderate-pragmatic agenda that only at the initial stage of his campaign addressed domestic issues dear to the reformist electorate. Protection of citizens’ rights and free circulation of information were among those promises never accomplished by the current government. The President has quietened his tones over these issues to avoid major frictions with the hardliners, already contesting the multilateral negotiation resulted in the JCPOA. Due to this political shift, he obtained the support of conservative figures, such as Ali Larijani (parliament’s speaker) and Ali Akbar Velayati (former advisor on international affairs for the Supreme leader) and brought the centrists closer to moderate-conservatives and far from reformists.
The internal political scenario in Iran appears therefore as highly polarized. The growing factionalism among the ruling elite also contributes to destabilise national economy, already targeted by US sanctions. To alleviate the effect of these internal divisions, the Supreme leader Ali Khamenei called insistently for unity. In the last three years, Khamenei preserved a balanced posture supporting the diplomatic efforts of the Iranian delegation in Vienna and Ginevra, but also tried to avoid severe domestic fractures. Without finding an internal scapegoat for the economic worsening, Khamenei exhorted Iranian elite to come together to fight the common enemy and overcome mutual disputes. The Supreme leader’s behaviour displays how internal stability and system survival remain the foremost priorities over factional competition. Also, it shows how hardliners are mostly weak within the system and without a charismatic leading personality. The fragmentation of the conservative front started during the Ahmadinejad presidencies, which had shifted the political framework of conservatism towards a more radical and populist position.
What to expect next?
From an economic point of view, it is likely that Iran will survive despite sanctions and increasing economic pressures. Notwithstanding, life of ordinary Iranians will confront impoverishment as people from the middle-class will experience a significant loss of their purchasing power. Lower-classes and educated youth are the main target of the sanctions and therefore the government should alleviate the pressure on them through a powerful system of subsidies, provision of basic foods and improvement in the employment rate. Yet, these measures should not increase social inequality, a permanent cause of street protests and popular dissatisfaction. Groups linked to the Revolutionary Guards with access and control of national borders and ports will likely continue to import and export illegally through the black market, with the effect of altering prices in the market. The government is already planning to shift from the free market-oriented reforms towards a more state involvement in the economy. To manage the upcoming crisis, President Rouhani is willing to reform the banking system, prevent the hyperinflation and solve the problem of shortage of circulating liquidity and capital possibly using state and public funds to finance large companies.
From a political point of view, the long-lasting rivalries between Iranian political elite will remain. The government should resist political cleavages but as shown by the Supreme leader’ posture, the survival of the system will overshadow major factional rivalries. The isolation of the country could lead to a new internal political and economic emergency, yet it won’t provoke the fall of the system, nor the “regime-change,” as expected by the Trump administration. The Islamic Republic could survive after the most serious phase of isolation in 2012, when even the European Union imposed sanctions on the Ahmadinejad government. Today, Iran enjoys a different environment, including the commitment of the European Union to cope with the situation and to save what remains of the JCPOA.
 Remarks by High Representative/Vice President Federica Mogherini at the press conference following the Foreign Affairs Council, 28/05/2018, https://www.un.org/unispal/wpcontent/uploads/2018/05/EUREMARKS_280518.pdf.
Secondary sanctions impose limitation to non-American companies, firms, people involved in activities with the Islamic Republic of Iran. Primary sanctions, instead, interdict American citizens in doing business with Tehran.
 After the Deal: A New Iran Strategy, Remarks by Mike Pompeo, Secretary of State, U.S Department of State 21/05/2018, https://www.state.gov/secretary/remarks/2018/05/282301.htm.
 فیلم/روحانی:دلیل تلاطم بازار"جنگ روانی"است, (Video: Rouhani: the reason of economic turmoil is the psychological warfare), Mashregh news, 14/06/2018, https://www.mashreghnews.ir/news/864525/فیلم-روحانی-دلیل-تلاطم-بازار-جنگ-روانی-است.
 “Why Tehran's Reformists Changed Three Mayors In 18 Months,” Radio Farda, 13/11/2018, https://en.radiofarda.com/a/iran-reformists-controlling--tehran-city-council-elect-mayor/29598451.html
 “Iran hails FATF’s decision to extend suspension of its counter-measures,” Press TV, 19/10/2018, https://www.presstv.com/Detail/2018/10/19/577464/FATF-Iran-Marshall-Billingslea-commitments.
 اعتیاد به استیضاح (Addiction to impeachment), Etemad, 27/11/2018, http://www.etemadnewspaper.ir/fa/main/detail/114436/اعتياد-به-استيضاح
 یک ایران حامی ظریف, (One Iran behind Zarif), Aftab-e Yazd, 22/11/2018, http://aftabeyazd.ir/122564-یک-ایران-حامی-ظریف.html
 FATFتلخی نیشکر هفتتپه حاصل گره زدن اقتصاد به برجام و, (The “bitterness” of the “sugarcane” of Haft-Tappeh is the result of the nuclear deal and FATF), Kayhan, 21/11/2018, http://kayhan.ir/fa/news/147708/تلخی-نیشکر-هفتتپه-حاصل-گره-زدن-اقتصاد-به-برجام-و-fatf.
 Mohsen Shariatinia, “Sanctions push Rouhani to boost state involvement in Iran’s economy”, Al monitor, 13/11/2018,https://www.al-monitor.com/pulse/originals/2018/11/iran-economy-market-rouhani-sanctions-doctrine-government.html