Asa Fitch in Riyadh, Saudi Arabia, and
Jared Malsin in Dubai
With Iran’s economy in a free fall earlier this decade, Tehran gambled on accelerating talks with the international community to remove nuclear-related sanctions in the hope that reopening the country’s doors to foreign business could lift livelihoods.
That bet has yet to pay off. Two years after the landmark nuclear deal between Iran and six world powers took effect, many Iranians are on the street protesting, in part because the economic windfall from sanctions relief never fully materialized.
Consumer prices are rising at a double-digit clip—the price of eggs has risen by more than 50% in the past year, Iranian media reported last month. And Iran’s currency has lost about one-tenth of its value against the dollar since May, crimping Iranians’ spending power for foreign goods they covet.
“The regime over-promised and the deal under-delivered,” said Rob Malley, a former special assistant to President Barack Obama and now the president and chief executive of International Crisis Group. “The over-promising reflected both their genuine expectation of greater returns from the deal and a desire to hype its anticipated benefits to sell it to their domestic detractors.”
The economic troubles show not only how Iran’s revival after the nuclear deal has fallen short of expectations, but how any business that is being done is leaving out large portions of the Iranian public, particularly the working class.
Unlike mass protests that broke out in 2009 over what many saw as political injustice in the disputed re-election of hard-line Iranian President Mahmoud Ahmadinejad, protests now are tied to economic injustice—and have quickly escalated into an existential critique of the regime.
Among the chants hurled by protesters at the ruling establishment have been cries of “Bread, job, freedom” and “No to inflation.”
“The inflation is really unfair,” said Ali, a 38-year-old civil construction engineer from Tehran. He said Iran’s economic malaise was in some ways out of current Iranian President Hassan Rouhani’s control, “but they could have stopped the deterioration through better policies.”
Antigovernment protests continued for a seventh day Wednesday, after large pro-government rallies across Iran in the morning. Government employees, national oil company workers and students at state-run schools received orders from their superiors to participate in the pro-government demonstrations, according to messages shared on social media.
More than 20 people have died in the unrest, and authorities have arrested hundreds. Gen. Mohammad Ali Jafari, the commander of the Islamic Revolutionary Guard Corps, said Wednesday that the “sedition” of recent days was over, and sought to minimize the scale of the protests. The IRGC, a force answerable only to Supreme Leader Ayatollah Ali Khamenei, has deployed its forces in Isfahan, Lorestan and Hamedan provinces, he said.
Iran’s economy has largely been inwardly focused since the country’s revolution in 1979. The revolution was closely followed by a hostage crisis in which 52 Americans were held for more than a year, an event that drove a deep wedge between the two countries and continues to hang over relations.
People bought fruits and vegetables in Tehran on Wednesday.Photo: atta kenare/Agence France-Presse/Getty Images
Today, American cars made after the revolution are virtually nonexistent and streets in Tehran and other cities are dominated by boxy Iranian-made models because the leadership places high taxes on imports to encourage local production.
Many Iranians use American technology, including smartphones, but they are expensive because they can’t be directly imported.
The Iran nuclear deal, a central foreign-policy objective of the Obama administration, promised to relieve the Persian nation from its international isolation. For European countries that took part in the agreement, it also presented an opportunity to invest in and trade with a newly opened market of around 80 million people.
The deal took effect in early 2016, and it has spurred an economic recovery. Iran’s gross domestic product rose by 12.5% that year.
But the economy still faces struggles, and polls indicate that many Iranians haven’t felt the benefits. While Mr. Rouhani has brought inflation down from nearly 40% under his predecessor, it is still running at about 10%. And while Mr. Rouhani wants to create hundreds of thousands of jobs in the coming year, unemployment still stands at 12%.
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The election of Donald Trump as U.S. president has only made Mr. Rouhani’s job harder. Mr. Trump, a staunch opponent of the nuclear deal, has sought to undermine the pact, imposing fresh rounds of sanctions targeting Iran’s ballistic missile program.
He has also refused to certify Iran’s compliance with the deal, and must decide later this month whether to renew waivers of sanctions and keep the deal in place.
The U.S. stance has caused jitters among global investors. French energy giant Total SA hesitated for months before finally committing to a $5 billion gas-field development deal in July. Many other smaller investors undertook similar reviews of their plans in Iran after Mr. Trump’s election.
Amir Alizadeh, the deputy managing director of the German-Iranian Chamber of Commerce and Industry in Tehran, said the lack of certainty was a pressing problem for foreign investors.
No companies have called about the protests, he said, though he added, “The fact is that such a tense situation doesn’t give companies the feeling that stable conditions are there” for investment.
The unrest in Iran also follows years in which the Rouhani government pursued austerity measures, including cuts to social welfare programs—even as it poured funds into foreign operations in Iraq and Syria. The president’s most recent proposed budget includes around $8 billion for the Revolutionary Guard Corps.
That budget was one of the immediate triggers of the protests. It included a steep reduction to a popular cash assistance program that was introduced in 2010. It also included generous allocations to religious foundations close to Mr. Khamenei.
Subsidy reform is seen by the International Monetary Fund and other outsiders as fiscally prudent, but pulling back handouts can be politically risky.
“People understood the budget as the last straw,” said Ali Fathollah-Nejad, an associate with the Iran Project at Harvard University’s Kennedy School.
—Zeke Turner in Berlin contributed to this article.
Write to Asa Fitch at email@example.com