It’s Time to Admit That We Don’t Understand Iran’s Economy

This article was originally published by the Atlantic Council’s IranSource.

Give US and European officials a simple quiz about the Iranian economy and they will fail to answer fundamental questions. What is the composition of the Iranian economy? Who sets economic policy and who influences policymakers? How do monetary and fiscal policies explain Iran’s economic resilience? How does Iran use its foreign exchange reserves? Is Iran’s trade with China growing at the expense of its trade with Europe? What does the Iranian public think about the state of the economy?

The United States is pursuing an “economic war” on the basis of a very crude understanding of Iran’s economy. Should the goal of its sanctions policy be havoc, such an understanding will suffice. But if the US is serious about using sanctions as a tool to coerce Iran to change its behavior, or by extension, if the US decides to one day use economic incentives to induce Iran to change its behavior, a nuanced understanding of Iran’s economy will have a direct bearing on the probability of success. A similar determination must be made about Europe’s belated effort to defend its economic ties with Iran in the face of US secondary sanctions—a poor understanding of Iran’s economy has comprised their defense.

US President Donald Trump’s economic war on Iran has had at least one positive impact. It has helped policymakers in the United States, Europe, and even Iran to realize the fundamental role that the economy plays in shaping how the foreign policies and national security strategies of Iran and global actors intersect. These actors are now scrambling to develop a more sophisticated understanding of Iran’s economy and a better package of measures to ease sanctions pressure. As part of this work, policymakers are calling upon the expertise of those individuals in Iran, Europe, and even the United States who possess insights about Iran’s economy. But if a deeper understanding of Iran’s economy is to truly underpin policymaking, institutional efforts will be required that improve how knowledge about Iran’s economy is produced and disseminated in three areas: business journalism, academic research, and corporate communications.

The world’s leading media outlets extensively report on Iran and there remains a limited but experienced corps of foreign correspondents based in Tehran. But the overwhelming editorial focus of foreign reporting from Iran is the politics, rather than economics of the country. This bias extends even to Bloomberg and the Financial Times, the powerhouses of global business journalism. While it is common to see reports on issues such as currency devaluation or rising inflation, particularly with regards to the impacts of sanctions on Iran, these reports tend to present a vox populi view of economic issues. There remains remarkably little reporting about economic policy in Iran or developments in either financial markets or industrial sectors. Similarly, English-language reporting on these issues from Iranian publications lacks global insights.

Of course, the lack of journalistic focus on Iran’s economy is itself a product of the country’s economic isolation. One of the main commercial drivers of financial reporting is demand for information from international investors—who have no real footprint in Iran. But if the intention of the current editorial focus on Iran is to inform global readers about phenomenon driving Iran’s political decisions and security strategy, it is significant oversight not to examine economic precursors in more detail. More effective reporting on Iran from a “world affairs” perspective requires grappling with the complex narratives of the Iranian economy.

In the area of academic research, there is a small contingent of professional economists in the United States and Europe who work on Iran. These individuals are overwhelmingly of Iranian heritage, and tend to look at Iran’s economy as just one part of their research focus, due to a lack of institutional and financial support available for Iran-specific research that is not focused on political or security issues.

Better academic research on Iran’s economy requires stronger institutional support from universities, think tanks, and research centers. Greater funding must be made available so that economists with an interest in Iran can gainfully pursue an Iran-focused research agenda. Cross-disciplinary outreach is necessary to help demonstrate the salience of economic insights to the political and sociological study of Iran, as well as more topical research areas such as the growing body of academic work on sanctions. Finally, the research findings of economists working on Iran should be much more proactively translated into insights for non-specialist audiences through the publishing of research notes, providing commentary to journalists, participation in public and private meetings for non-academic audiences, and the use of social media to reach interested audiences.

Of course, pressure from the Iranian government makes journalism and academic research in and about Iran difficult, and this remains true for work on Iran’s economy. At a time of “economic war,” the Iranian government considers reporting and research on Iran’s economy to be especially sensitive. But the simple fact that so much of the current body of research and reporting on Iran’s economy is focused on the impact of sanctions or published in the context of US national security concerns feeds Iranian suspicions. Establishing more diverse and collaborative research programs and initiatives can help “de-securitize” the study and understanding of Iran’s economy.

Finally, corporate communications remains under-developed in Iran. On one side, Iranian companies have yet to adopt best practices when it comes to corporate communications and investor relations. Many large and important enterprises have little more than a website and an occasional interview by a senior executive to shed light on their role in their given sector and developments in the sector at large.

On the other side, the foreign companies active in Iran, which better understand the importance of corporate communications, have been deterred from sharing information about their operations in Iran due to the reputational risks associated with sanctions campaigns. While many companies have maintained entirely legitimate and remarkably successful business operations in Iran in the sanctions period, most of these operations are essentially invisible for those outside of the country. In the absence of such information, US officials have had a free hand to characterize Iran’s economy as unusually opaque and corrupt, when it is probably only as opaque and corrupt as other developing economies—a reality understood by the foreign companies that stubbornly operate in the country.

These dynamics had shifted somewhat during the period immediately following the implementation of the nuclear deal. Several of the European large corporations active in Iran began to use corporate communications to highlight their market activities, in part to demonstrate to Iranian stakeholders a kind of pride about their market presence or market entry. But with the re-imposition of US sanctions, companies are once again skittish. As a result of these shortcomings in corporate communications, an understanding of the most important commercial enterprises in Iran, the nature of their ownership, their product offerings, and the general status of key industries and sectors is really only readily available to those individuals or organizations with a presence in Iran or who enjoy direct access to business networks. Company-level information about Iran’s economy remains difficult to obtain for both journalists and economists.

As Iran and the US find themselves trying to avoid stumbling into a military conflict, it may seem ridiculous to suggest that developing a more sophisticated understanding of the Iranian economy is essential to finding a pathway to diplomacy. But this moment of crisis emerged from the failure of sanctions relief following implementation of the Joint Comprehensive Plan of Action (JCPOA), the hardship of the economic war now being waged by Trump, and the inability of the remaining parties of the nuclear deal to meet their basic economic commitments to Iran. Until policymakers are empowered with the insights generated by more business reporting, more academic research, and more transparent corporate communications, they will find their foreign policy and national security strategies inadequate to the task of securing peace. A poor understanding of Iran’s economy is the single most significant gap in our perception of Iran and the nature of the conflict in which it is currently mired

Photo: Nassredean Nasseri

Iranian Newspaper Editors Decry Trump's 'Immoral' Sanctions

In a remarkable joint editorial published Monday, the editors of four of Iran’s leading newspapers—Iran, Hamshahri, Etelaat, and Sazandegi—have invoked the United States Declaration of Independence to decry the reimposition of sanctions as a violation of the “unalienable rights” of the Iranian people to “life, liberty and the pursuit of happiness.”

Published in both Persian and English, the editorial casts President Trump’s decision to leave the Iran nuclear deal and to reimpose sanctions as inconsistent with both the spirit of the US constitution and the letter of international law. Drawing extensively on the values of international liberalism and citing an intellectual legacy from “Thomas Jefferson to Francis Fukuyama,” the editorial serves as an example of the increasingly vocal position taken by Iranian editors and journalists when it comes to holding both the Iranian government and foreign governments to task for restrictions on freedom.

Most strikingly, the self-proclaimed “freethinking” and “freestanding” journalists question the claims of the Iranian and US governments alike. “The US government claims that its sanctions are targeted on Iranian governance, not on Iranian people, while Iranian government believes that the sanction would come to no harm,” note the editors. They forcefully disagree, arguing that “contrary to what governments claim, the US tyrannical sanctions have brought about destructive repercussions for the lives of millions of Iranian citizens who legitimately enjoy the right of life under optimal conditions.”

The criticism of the Iranian government’s line of sanctions is especially notable given that two of the four newspapers, Iran and Hamshahri, are affiliated with the presidency and the municipality of Tehran, respectively. Moreover, while Sazandegi is a reformist paper, Etelaat is known to have a conservative outlook, suggesting that the editorial position crosses political lines.

The editors explain that the “access to medicine, drugs and medical equipments” offers “obvious proof” that it is “children, women and men” who are “actually targeted by blind sanctions.” The recession caused by sanctions will see “many job opportunities lost” in industry and agriculture, effects that will “subsequently provoke escalation of poverty among the households, and these households are just those who constitute Iranian people.”

Citing the principles of the International Human Rights Charter, the recent ruling of the International Court of Justice, and the UN Charter’s provisions for the role of the Security Council in the “authorization of any coercive measure, including sanctions,” the editors detail how Trump’s reimposition of sanctions violates international law. This appeal to multilateral institutions and international legal norms, which are under attack by illiberal political movements around the world, is remarkable.

Looking to American leadership at large, the editors question the Trump administration’s might-makes-right approach to international affairs, asking “Is economic power and authority, by its very nature, sufficiently eligible to foreclose the authenticity of collective rationality, removing it from the processes of decision and policy-making in the international arena?” They also ask whether the “eccentric development” of Trump’s withdrawal from the nuclear deal heralds an attempt to undermine the United Nations, “the highest institution in the world that works based on collective rationality and democratic values.”

The editorial ends with an exhortation to “free-thinking peers all around the globe” to “speak out in defense of the truth” lest the achievements of liberal thinkers including “Thomas Jefferson, John Dewey and Walter Lippmann to Abraham Lincoln, Mahatma Gandhi, Martin Luther King, Nelson Mandela, John Stuart Mill, Friedrich Hayek and Karl Popper and to Isaiah Berlin, Hannah Arendt, Francis Fukuyama” be lost.

High-minded in both principles and style, the editorial is nonetheless an important expression of the kind of righteous indignation felt among many Iranians. For now, the imposition of sanctions is taking place without a clear justification—Iran continues to uphold its commitments under the JCPOA. As such, while there is anger over the Rouhani administration’s somewhat facile reassurances regarding the impact of sanctions, there is greater anger felt towards the Trump administration, which has appeared to cast aside the long-standing liberal principles of American leadership, simply to enact suffering on the Iranian people.

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Iran's Government Steps in to Address Paper Crisis, But Papers Over the Cracks

Among currency fluctuations and returning sanctions, Iran is now battling a paper crisis. Gradual price hikes have been increasing pressure on book and newspaper publishers over the last year, but the scale of the crisis became clear when Culture Minister Abbas Salehi announced on August 4 that the country has just enough newsprint paper in storage to meet two months worth of demand. In response to the shortage, some newspapers have been forced to cease publishing, while others, including the popular reformist newspaper Shargh, have put up a pay wall.  

The government has rolled out a support package that includes importing paper as an essential good. This will most likely calm agitated publishers in the short-term, but will prolong a vicious cycle and defer the real reform needed to address a decades-long problem of corruption and inefficiency. The paper crisis represents something bigger.

Mahmoud Sadri, a veteran journalist who currently heads the publishing department of Donya-e-Eqtesad, Iran's foremost business daily, sees the paper crisis as just the latest manifestation of “Iran's economic inefficiency.” Speaking to Bourse & Bazaar, Sadri explained, "We have no phenomenon called a paper crisis as a separate and standalone phenomenon. It's not accurate to just say paper is in crisis since many goods are in crisis.”

In Sadri’s view, the paper crisis has its roots in the time of the 1979 Islamic Revolution, during which the government took on the mission to foster cultural production and provided for all the paper and raw material needs of the publishing industry. In order to do that, the Iranian government has typically opted for one of two options: they have either purchased the paper and offered it at cheap subsidized rates or offered handouts directly to private importers.

This misguided approach created conditions ripe for rent-seeking and corruption. Importers sought to abuse the cheap money they were being provided instead of creating actual in-demand value.

Such rent seeking accelerated in recent months, as the Iranian rial came under increased pressure due to returning US sanctions. "A group of profiteers and rent-seekers have entered the market and are making things much harder for paper consumers," Abolfazl Roghani Golpaygani, president of the Iran Paper and Paperboard Syndicate said in a recent interview.

But the government seems intent to maintain the longstanding subsidies. On August 6, the Ministry of Industry announced that paper used for publishing had been added to the limited list of essential commodities that will be imported using the preferential government exchange rate of IRR 42,000 to the dollar. That rate is to remain unchanged until at least March 2019 as President Hassan Rouhani promised recently. Furthermore, the ministry agreed to immediately import 20,000 tons of paper to address the shortage.

Many journalists and publishers, like Sadri, are critical of this arrangement. They believe that the government should not use taxpayer money for handouts to publishers who often publish content simply to maintain their license, or who wish to publish content in accordance with their own political and economic leanings. There are growing calls for for a free market approach to publishing  in order to encourage competition that will boost newspaper quality and balance prices.

"How and based on what logic has paper been considered an essential good under the current circumstances?" asked Saeed Laylaz, a prominent journalist and pundit in a recent interview. He also referred to the decision as "explicit theft.”

However, cutting the flow of government support will mean that hundreds of book, newspaper, and magazine publishers will fold, with the potential for thousands of job losses at a time when high unemployment is a major challenge for the Rouhani administration. It should come as no surprise that the administration is unwilling to take a leap and reform the paper subsidies, despite Rouhani’s longstanding intention to reduce subsidies across the economy.

"The other issue is that the majority don't accept that government paper subsidies are wrong in essence," Sadri adds. In this way, Iran's government is failing to address the long-term problem by dealing with the current paper crisis as a short-term phenomenon.

But while change to the government policy may not be imminent, Sadri does believe it is inevitable. "Even if no prospects of change are foreseeable at the moment, it will happen either way," he said, pointing out that many countries have undergone similar processes of reform that on many occasions took decades to realize. In publishing, as with other parts of Iran’s economy, reform remains a waiting game.

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