Abu Dhabi, UAETuesday 10 December 2019

As petrol prices soar, the Iranian regime is feeling the squeeze from sanctions

Leaders in Tehran have admitted for the first time that they're experiencing one of the hardest times since coming to power

Iranian President Hassan Rouhani at a cabinet meeting in Tehran on Wednesday. Office of the Iranian presidency via AP
Iranian President Hassan Rouhani at a cabinet meeting in Tehran on Wednesday. Office of the Iranian presidency via AP

If any proof were needed that the US sanctions imposed against Iran were having the desired effect, it can be seen in the nationwide protests that have erupted throughout the country over the regime’s decision to raise petrol prices.

Critics of US President Donald Trump have argued that the punitive sanctions regime that Washington imposed on Tehran after its decision to withdraw from the nuclear deal last year would ultimately prove counterproductive, as Iran would simply find ways to circumvent the sanctions by trading with powers such as China that were still committed to maintaining the deal.

Yet the fact that regime leaders have been forced to raise petrol prices by a staggering 50 per cent suggests that, far from failing to achieve their goal, the US sanctions are indeed having a devastating impact on the Iranian economy, forcing the government of president Hassan Rouhani to take some deeply unpopular decisions.

The increase in fuel prices announced by the Iranian government at the end of last week comes at a time when the Iranian economy is already under intense pressure.

The latest International Monetary Fund assessment indicates that inflation is currently running at about 40 per cent, while there have also been sharp increases in basic staples: the cost of red meat and poultry has risen by 57 per cent, milk, cheese and eggs by 37 per cent and vegetables by 47 per cent.

Consequently, for many Iranians the hike in fuel prices was the last straw after the government announced the price of petrol would be increased to 15,000 rials a litre, and that drivers would be rationed to just 60 litres per month before the price rose to 30,000 rials.

Announcing the increase, Mr Rouhani said the government was acting in the public interest and that the money raised would be distributed to the country's neediest citizens.

But the decision has been met with bitter opposition throughout the country, with banks and petrol stations and other buildings being set ablaze as the protests have spread, affecting some 100 cities and towns.

Iran, like Venezuela, now finds itself in the unenviable position where, despite priding itself on being one of the world’s major oil producers, is now struggling to meet the basic fuel requirements of its own people

The regime has reacted with characteristic brutality in dealing with the protests. The latest reports suggest more than 200 people have been killed and thousands more injured in the government crackdown overseen by Mr Rouhani, who has denounced the protests as rioting. Thousands of demonstrators are reported to have been arrested as the authorities closed down access to the internet in a bid to prevent the protests from spreading further.

Iranian Supreme Leader Ayatollah Ali Khamenei claims the protests have been orchestrated by enemies of the regime, saying they were nothing more than “sabotage and arson” carried out by “hooligans, not our people. The counter-revolution and Iran’s enemies have always supported sabotage and breaches of security and continue to do so.”

Mr Rouhani has now declared victory in the regime’s attempts to quell the demonstrations, claiming "subversive elements" backed by the US, Israel and Saudi Arabia were behind the unrest.

Even so, there can be little doubt that the protests provide a clear indication of the extreme domestic pressure Mr Rouhani’s government is facing as it seeks to cope with the economic consequences of sanctions.

Mr Rouhani is well aware that he owes his election as president in 2013 to his pledge to restore the Iranian economy. It was to this end that he participated in the negotiations that resulted in the 2015 nuclear deal and led to sanctions being lifted in return for Tehran scaling back its nuclear activities.

The Trump administration’s decision to withdraw from the agreement and impose a fresh set of sanctions therefore constitutes a serious setback for his presidency.

Iran, like Venezuela, now finds itself in the unenviable position where, despite priding itself on being one of the world’s major oil producers, is now struggling to meet the basic fuel requirements of its own people.

The regime has tried to put a brave face on the challenge it faces from the sanctions with Mr Khamenei even boasting that the country's economy is self-sufficient and can therefore withstand American sanctions.

But Mr Khamenei is increasingly a lone voice in expressing such optimism, with most Iranian politicians now prepared to concede that the government faces a dire economic predicament. For example, Mr Rouhani, speaking in the city of Kerman last week, acknowledged for the first time that "Iran is experiencing one of its hardest years since the 1979 Islamic revolution" and that "the country's situation is not normal".

A key factor in the creation of Iran’s current woeful economic state has been the Trump administration's decision not to extend its waiver for Iran's eight biggest oil buyers – China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea.

This has led to a run on the rial, which has dropped to historic lows. One US dollar, which equalled approximately 35,000 rials in November 2017, now buys nearly 110,000 rials.

The American measures have also had a dramatic impact on Iran’s oil and gas sectors. Before the sanctions, Iran was exporting two million barrels of oil per day. That figure is now down to 200,000, a decline of 90 per cent in Iran’s oil exports.

Thus, despite the regime’s initial claims that it could withstand the impact of fresh US sanctions, the reality is that they have seriously affected Iran’s economic well-being, with all the long-term implications that could have for the regime's survival.

Con Coughlin is the Telegraph’s defence and foreign affairs editor

Updated: November 21, 2019 06:54 PM

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