Economic Chaos Continues In Iran As Prices Rise And Currency Falls

Iran imported a record eight million tons of wheat in the previous year to March 2022 due to the drought that had a huge toll on domestic production, Kaveh Zargaran said in a conference.

He added that the projected imports would be part of a total of 25 million tons of grains, soybean meal and oilseeds.

The forecast seems plausible as it is close to figures announced by other officials in the sector, such as the head of the Flour Producers Association who said earlier this month that the country needs to import at least 20 million tons of grain this year, including six to seven million tons of wheat. Mohammad-Reza Mortazavi admitted that the country has never been so dependent on imports.

Iran, which has in some years been self-sufficient in the production of the staple cereal, is among countries in the Middle East whose production is heavily dependent on the amount of rainfall and has been suffering from a dry spell as authorities have predicted even less precipitation this year.

The importers are now facing extra difficulties as Russia's invasion of Ukraine has disrupted Black Sea grain shipments, increasing the global prices.

In March, reports revealed that Iran has signed a deal with Russiato import 20 million tons of basic goods, including vegetable oil, wheat, barley and corn.

This foreign policy, he said, can in no way lead to any mitigation of economic hardships Iranians face, adding that the current policy of boosting cash subsidies can only temporarily silence anger and dissent.

Hashemi Taba further blamed the mixture of government control on the market and “revolutionary” policies for a major part of Iran's economic crisis.

President Ebrahim Raisi’s government decided to eliminate import subsidies for key imports of food and medicine that cost the government up to $20 billion annually, according to latest official estimates. As the subsidy was removed prices immediately jumped. To help the people cope, Raisi has promised to pay around $10 billion directly to the people as cash assistance.

The Iranian government has nicknamed its price rise policy as "setting the prices free," and started reducing subsidies for sensitive goods such as bread and flour. However, as parliament Speaker Mohammad Bagher Ghalibaf said recently, the price increases is will cover a wide range of household needs such as meat and cheese as well as other consumer goods and services.

In a televised interview Monday night, President Ebrahim Raisi deliberately did not talk about continuing to raise prices.

Hashemi Taba whose long career included many executive posts including industry minister and vice president (1994-2001), warned in his interview with Khabar Online on Tuesday, that the continuation of the government’s policy will bring about higher inflation. He suggested that the country needs to sort out its relations with others, but Iran is following “revolutionary policies” that are not consistent with the rest of the world, Hashemi Taba said.

He added that pressures are being exerted on Iran because of its “revolutionary approaches.” On the other hand, "setting prices free" should follow a certain economic order which is non-existent. Hashemi Taba further suggested that the Islamic Republic should define its relations with the world and decide how it is going to survive before making decisions about raising prices.

He went on to say that liberalizing prices could be a good idea but not under the current economic regime. "You cannot control prices and at the same time set them free," he said.

Hashemi Taba warned that "Iran has long-standing economic problems that cannot be solved with temporary solutions…and our policies are inconsistent with our foreign policy.

He added that increasing cash handouts will inevitably lead to further inflation. The rate of exchange for the US dollar will increase within a day or two. [In fact, the dollar climbed by 5,000 rials in the morning after Raisi promised to boost cash handouts.] He also warned that a 5 percent shortage of goods in the market will lead to a 50 percent rise in prices.

Meanwhile, several Iranian politicians and lawmakers on Tuesday criticized the government for the way it has increased the prices. Former lawmaker Mansoor Haghighatpoor was one of those critics. He told Nameh News website that the government's performance has made life harder for Iranians even compared to the time when Iran was at war with Iraq in the 1980s. Haghighatpoor made it clear that "The decision was right, but the government implemented it in the worst possible way, making it hard for ordinary Iranians to obtain bread for their daily consumption."

Until further notice, Raisi said in a televised interview Monday evening, the government will pay monthly around 4 million rials (about $15) to 30 percent of the population at the lowest-income groups, and around 3 million to 60 percent of the population. The 10 percent at the highest income level will receive no cash handouts.

This means the government must spend the equivalent of $850-900 million a month to placate an impoverished population that has already been largely deprived of many daily food staples, such as meat, fruit and dairy products. Food prices have skyrocketed in the past year, by more than 60 percent.

The $10-billion annual cash assistance means the government will print more money and create more inflation.

Iranian pundits and politicians have been warning of possible unrest as bread and other food prices suddenly jumped last week when the government removed import subsidies costing up to $20 billion a year.

The government claims it has made elaborate plans to ensure traditional flatbreads cost the same as before although bread at the subsidized rate will be rationed. Raisi said the government will issue smart bread ration cards within two to three months.

For the first three months the cash handout will go to people’s accounts that they can spend for shopping. Later the payments will go to the smart cards to be spent only for bread.

The massive jump in the price of flour after removal of its subsidies will affect the price of a wide range of foodstuffs including bread, pasta, biscuits, and cakes but the cash handout that the government will pay will not compensate for anything other than traditional flatbreads. The price of western-style baguettes and buns which are widely consumed both at home and at restaurants for instance, has already sky-rocketed by around ten-fold.

Since last week, Iranian security forces have been on high alert in anticipation of possible bread protests and riots. Authorities resorted to shutting down the internet in the southwestern province of Khuzestan where some protests were first reported on Friday.

Before the 1979 revolution, the government subsidized fuel and other necessities, but with high oil exports and better financial management it balanced the books. The Islamic Republic continued and expanded subsidies relying on oil income, which wildly fluctuated due to the war with Iraq in 1980s and later international and US sanctions.

The head of the Planning and Budget Organization said Monday that fuel subsidies cost the government more than $100 billion annually, which is far more than the country’s oil export revenues..

Iran began paying cash handouts to compensate for removal of energy and other subsidies in December 2010 based on legislation proposed by President Mahmoud Ahmadinejad's government. That payment is still made but its purchasing power has declined as the national currency has lost most of its value.

Most Iranians at the time, around 68.5 million out of 75 million, signed up to benefit from the billions of dollars of handouts.

Payment of cash handouts at first brought popularity to Ahmadinejad, particularly among lower-income groups, but his government's failure in controlling inflation and ever-increasing cost of living dissipated the initial euphoria among the lower-income classes.

In a little over three years the depreciation of the national currency pushed down the purchasing power of the 450,000 rial cash handout per person by over 40 percent. The amount of cash handouts has remained the same since the introduction of the plan but the value of the national currency has hugely dropped.

In 2010, the average monthly shopping basket of urban families cost 700,000 rials but the same money buys just a few eggs now.

Documents cited by the agency suggested at least 200,000 barrels of Iranian crude arrived in mid-April at the Cardon refinery, Venezuela's second largest, which processes 310,000 barrels per day (bpd), with another 400,000 barrels discharging this week at the country's Jose port from the tanker (VLCC) Dino I.

Fars News Agency recently reported that under a new agreement reached under Iranian President Ebrahim Raisi, Iran had exported to Venezuela 2 million barrels of condensate – a light liquid produced during gas extraction – in seven months, expanding trade begun under the previous administration in Tehran. Venezuela mixes condensate with its own heavy crude to produce a suitable feed for refining.

Iran in return is offering through National Iranian Oil Company (NIOC) a way for Venezuela to dilute and export its heavy crude, Reuters reported. The Dino I is scheduled to sail later this month with Venezuela oil for NIOC’s Naftiran Intertrade Company. Meanwhile the Venezuela-owned Maximo Gorki will discharge 2 million barrels of Iranian condensate at the port, while the Iran-flagged Derya waits in Venezuelan waters with another cargo.

In a recent voice message sent to all producers and presenters of Radio Farhang, the radio station's director, Alireza Habibi strongly warns them to avoid reporting economic woes and the government's responsibility and threatens them that mistakes will not be forgiven because these issues are now "viewed as [national] security matters."

In an audio recording of the message, which Iran International has acquired, Habibi also says that instead of discussing these problems, in the current circumstances, the media should strive to advance the "psychological security" of the society. "And don't include newspaper headlines that are gloomy, critical, or about high prices in the programs," he tells them.

Avoid criticizing the government, the official tells staff, until "the dust settles and smoke clears" because criticism of government may turn into "criticism of the state" in its entirety.

Supreme Leader Ali Khamenei who charts the country's macro-policies, including the economy, takes no personal responsibility for the failures and has on several occasions publicly blamed the government of President Ebrahim Raisi's predecessor, Hassan Rouhani, for economic troubles. In his speech to workers Monday, he made no mention of the politically sensitive rise in bread prices and urged everyone to support the Raisi administration.

Since 2017, Iran has seen several major protests fueled by economic demands rather than any specific political issue. The driving force of the unrest, including the nationwide November 2019 protests following an increase in fuel prices that left hundreds of protesters dead, and the 2021 water shortage protests in Khuzestan and Esfahan, were mainly ordinary people rather than political groups and parties.

In recent weeks, Raisi and his economic team have come under heavy fire for economic mismanagement from a wide range of critics -- including other hardliners who helped him to power in last year's elections.

Many blame Raisi's government for failing so far to reach an agreement with world powers to restore the 2015 nuclear agreement, which would lift US sanctions and give a boost to the badly ailing economy. But economic failures of the government, and the regime, are becoming more and more difficult to justify, even given US sanctions.

Raisi says his government has stopped the "growth of inflation", which is above 40 percent now, and that it will soon go down and show its effects but the hike in prices do not help convince those most affected by the hardships, that is a good majority of Iranians.

Poverty has soared in the country to unprecedented levels. According to official figures released by the interior ministry, in total, around 60% of the 84 million Iranians live under the relative poverty line of whom between 20 to 30 million live in "absolute poverty". In 2010, for instance, the number of those living under the absolute poverty line was around 10 million according to government statistics.

In the past few months prices of many commodities have risen, by several-fold in some instances, and the government is planning to remove the subsidies it pays for some foodstuff and other basic commodities. The announcement of plans to remove flour subsidies has already pushed up the price of many products including pasta, biscuits, pastries, and sandwiches.