Pharmacies On Verge Of Bankruptcy In Iran: Expert

The most urgent problem is a fast-falling national currency that began to nosedive in early November, dropping to historic lows almost on daily basis. The US dollar has risen from 295,000 rials to 365,000 in two months. But that is just an early signal of what is to come.

The retail sector is having its own multiple problems. First, during protests people are buying less, as recently the garment industry complained of very low sales to consumers who are in no mood to go shopping.

Second, a draconian denial of access to the Internet by the government, to contain the protests, has badly hurt hundreds of thousands of small businesses dependent on sales through social media.

Third, Iranian consumers have begun boycotting large retailers and businesses believed to be controlled by the Revolutionary Guard and other regime entities, as another tool in their civil disobedience movement.

Digikala, Iran’s Amazon, and Mihan dairy and food company have been targeted by activists on social media, who tell the people not to enrich the government’s suppression machine. In a matter of days, there are signs of lower sales by both companies, which sponsored appeals from their workers who asked the public not to harm their livelihoods.

Fourth, and the perhaps the most predictable is a looming shortage of natural gas in the winter, as pressure in Iran’s South Pars maritime fields in the Persian Gulf are gradually falling. The country has failed to secure capital and western technology to improve drilling and pumping system to boost production.

Iran has the world’s second largest natural gas reserves after Russia with almost 30 trillion cubic meters of potential supply, but it needs to invest $50 billion and use special technology only a few western firms can provide to keep its level of daily production at around 700 million cubic meters.

The former head of the national gas company, Hamidreza Eraghi told ILNA news website in Tehran on November 7, that this winter the country might be forced to buy gas from Turkmenistan to be able to supply electricity and keep industries in business. Already, in the past few years as consumption has risen, there have been both shortages of electricity and gas. The government sells energy at ridiculously cheap rates and consumers have no incentive to save, with usage fast increasing each year.

There are also ongoing strikes in the oil and gas sectors in solidarity with nationwide protests, which will further hurt production.

What Iran needs most is imported technology for horizontal drilling for gas, Eraghi said, and this winter imports should increase to prevent an industrial shutdown.

The government has periodically highlighted the need to boost prices to lower consumption, but that would anger a public that has become impoverished in the past four years after the United States imposed sanctions on Iran’s oil exports. Already, with nationwide antigovernment protests raging, the government has no way to increase energy prices.

Ordinary Iranians have fallen victim to high inflation rate for years. No one knows exactly what the current annual inflation rate is, but if one would believe the government, it is at least 40 percent, with food prices having risen by 100 percent in the past 12 months. The falling national currency will accelerate inflation as Iran imports a significant part of its food and raw materials.

With a convergence of so many negative economic developments there is very little the regime can do to stop the protesters, who openly say they want to get rid of the Islamic Republic, not only for its economic mismanagement but also for its draconian denial of social freedoms.

While there are numerous reports about shortages of medicines and medical products, including basic drugs and IV fluids in recent months, the country’s health ministry has destroyed a huge amount of the imported supplies without the required examination by relevant organizations, said Saheb Hojjati, the head of the Iranian organization in charge of confiscated goods. 

Large amounts of IV fluids were destroyed earlier this year while the country was suffering from severe shortages, he underlined.

Hojjati added that according to law, the Health Ministry and the Standards Organization must test the drugs and their expiration dates to see if they are safe to be used and announce the results in written documents to the Organization for Collection and Sale of State-owned Properties of Iran (OCSSPI), but this procedure is not being followed at the moment. The OCSSPI is affiliated to the Ministry of Economic Affairs and Finance, with its main purpose being the collection, storage, management and sale of properties that by law are under the ownership, possession, custody or management of the government. 

Hojjati added that if the process is accelerated, the OCSSPI can sell the products in the market to the highest bidders. “This is while we are in an economic war situation and all organizations and institutions should help the government and people,” he noted.

According to Hojjati, over 7.8 trillion rials (about $26 million) worth of products, including basic medical and food items such as vegetable oil, sugar and rice, have been destroyed in the last seven months. The Islamic Republic has been claiming that United States sanctions prevent procurement of medicines, while Washington insists that humanitarian aid is exempt from sanctions. Iran has been importing more than $1.5 billion of medicines a year.

The Islamic Republic has been claiming that United States sanctions prevent procurement of medicines, while Washington insists that humanitarian aid is exempt from sanctions. Iran has been importing more than $1.5 billion of medicines a year.

Considering the incessant bemoaning by the Islamic Republic’s officials about the effect of US sanctions on shortages of medicine in the country, not only does the move seem the result of a cumbersome bureaucratic process, but it also strengthens speculations that the government is pleased with psychological effects of the shortages on foreign audiences. 

However, as per the US sanctions, the Islamic Republic is legally allowed to import medicine, agricultural commodities, and medical products. According to a mandate by the US Department of Treasury, it is not necessary to acquire any permit for selling agricultural commodities, medicine, and medical devices to Iranian buyers.

In September, an Iranian lawmaker warned about the failure of the government’s Medicine Assistance Plan to make prices affordable amid high inflation and rising poverty. “Patients, particularly those with rare diseases, have been facing problems since the removal of medicine import subsidies,” Mohammad-Taghi Naghdali, a member of the parliament's judicial and legal committee, said, adding that lawmakers have warned that without allocation of cheap foreign currency to pharmaceutical imports the government's Medicine Assistance Plan is bound to fail.

President Ebrahim Raisi announced in early May that his government had begun the process of removing up to $15 billion import subsidies for basic foods, medicine, and animal feed despite warnings of more inflation and hardship. Raisi also said the government would be paying cash assistance to most Iranians as compensation.

The removal of import subsidies meant that manufacturers would no longer receive cheap dollars from the government to import raw materials to produce medicine.

Since August, when there were some hopes for a nuclear deal with the United States, the rial has lost more than 20 percent of its value, hit by the double impact of an impasse in the negotiations and nationwide protests.

The Iranian currency fell almost 20,000 points after the Friday weekend, from around 340,000 on Thursday to 360,000 when the markets reopened on Saturday. By evening, the rial made slight gains in what could have been a central bank intervention, but the fate of the currency remains bleak.

It is not clear how much foreign currency the government has injected into the market since the first week of September when the rial began to fall. Often, the Central Bank of Iran (CBI) withholds such information.

There have been unconfirmed reports that people associated with the government have been sending their capital out of the country as protests show no signs of stopping. Unlike past nationwide unrest, this time it is clear that protesters want an end to the clerical regime of the Islamic Republic and will not be easily satisfied with minimal concessions, even if the hardliner core of the regime decides to offer an olive branch.

The government insists that it is successfully circumventing US sanctions on its oil exports, selling more than one million barrels of crude per day, mostly shipped to China that silently ignores Washington's threat to penalize third parties for buying Iranian oil.

However, it is not clear how much discount Tehran is offering Chinese buyers and how much foreign currency it receives despite parallel US banking sanctions. Some have argued that most of Iran's oil is shipped in lieu of goods in illicit barter trades, which according to former Tehran officials costs the country more than 20 percent in lost value.

The freefall in the exchange value of the rial signals insufficient CBI resources to effectively intervene in the market. A relatively stable rial is politically vital for a government under siege by growing protests.

During the 1979 Iranian revolution the rial stayed at 70 to the dollar until after the overthrow of the monarchy when the currency began its 43-year-long decline, which has surpassed a 5,000-fold loss of value.

The unprecedented currency crisis will have a direct impact on inflation and especially food prices, which can lead to more people joining the protests and severely destabilizing the government. Annual inflation is already around 50 percent and food prices have risen by 100 percent since last year.

While the clerical regime still has hundreds of thousands of Revolutionary Guard troops, Basij militia and vigilantes to confront the people on the streets, and no major defections have been reported so far, the currency crisis will contribute to an image of a government in disarray, facing its most serious crisis in 43 years.

So far, hardliners in charge of the military, the presidency and parliament have shown no willingness to compromise with the populace, but even major concessions may prove to be insufficient to quell the young generation that has tasted success in defying a fearsome suppression machine fore almost 7 weeks.

The government is talking about a 20-percent raise for workers in its sprawling state-sector economy, but the rial's steep fall has already eaten away at any benefit for workers who make less than $200 a month.

On the contrary a big raise at this point would mean that the CBI has to print more money and push the inflation rate higher.

In an interview with Asian News International, Ambassador Elahi said, “We always express our readiness to increase our economic ties with India. It's up to India, we are ready to deliver oil.”

Noting that the US sanctions have been an obstacle for the export of oil to India, he said that “India and Iran should find a way to solve this problem according to their national interests, and not according to illegal US sanctions.” The Islamic Republic’s independence is the “best guarantee for India,” he added. 

India abided by US sanctions when former US president Donald Trump withdrew from the 2015 nuclear agreement known as JCPOA and gradually imposed a full ban on purchase of Iranian oil by third countries. But China continued buying small volumes until November 2020 when it began noticeably increasing imports of illicit Iranian shipments.

However, according to an analysis published by Reuters in July, China’s growing imports of Iranian oil has made India not follow Western sanctions on Russian crude as it did regarding the Islamic Republic. 

Indian officials said, “New Delhi wants to avoid repeating what it sees as the mistakes of the past: abiding by sanctions on Iran and winding down oil imports, only to see its main regional rival China continue unpunished and benefit economically.” 

Mohsen Zanganeh, a member of parliament’s budget committee, who is an engineer and an economist, told Tasnim news website that Supreme Leader Ali Khamenei has agreed to more oil income to be spent for the budget instead of being deposited in the country’s National Development Fund (NDF).

Both President Ebrahim Raisi and Parliament Speaker Mohammad Bagher Ghalibaf are loyal followers of Iran's ruler Ali Khamenei, who has hand picked both officials.

By law Iran must save 40 percent of its oil revenues in the NDF, “for future generation,” but since 2018, successive governments have withdrawn money from the fund to bridge their budgets, with Khamenei’s permission. Now, Zanganeh says that the Supreme Leader has allowed the government to reduce the 40-percent rate of savings to 30 percent and use the 10 percent help with its large budget deficit.

Zanganeh who spoke with Tasnim on Thursday did not mention any numbers, as Iran keeps exact oil revenue figures and the size of the NDF secret. But by most accounts, Iran is exporting anywhere between 750,000 to one million barrels of crude oil daily, mostly to China. But how much discount it offers and how much foreign currency it receives remain secret.

One thing which is clear is that Iran’s $40 billion budget had a deficit of around 70 percent earlier this year. While 79 percent of tax revenues were collected from March 21 to May 20 this year, just 15 percent of official oil revenues in the budget were realized.

There could be two explanations for the huge difference between amount of oil shipped amid high prices earlier this year and what was collected by the government.

One possibility is that Iran is not receiving cash for the oil exports. Many have mentioned barter trade, whereby Iran receives good in lieu of the oil sent to China. The other possibility is that Beijing is keeping the money for now, given United States’ banking sanctions on Iran.

However, oil minister Javad Owji claimed on July 4 that Iran is receiving 80 of oil proceeds in cash and only 20 percent in barter. If this is true, then one can wonder where the money is and how it happened that the government got only 15 percent of what it expected.

This brings us to the second possibility. Cash collected from oil exports does not end up in government coffers and instead it is distributed to secret military projects and among ‘revolutionary’ entities in Iran and abroad whose existence and operations are deemed essential for the regime, controlled by Supreme Leader Ali Khamenei and his hardliner followers.

It has always been known that the official government budget pertains to routine operations, such as civilian ministries and the large public-sector industrial companies, banks, etc.

In the meantime, sporadic protests have gripped the oil and petrochemical sectors since September and the non-stop protests have reduced business activities, especially in the retail sector.

The government must be also printing money, because the inflation rate hovers around 50 percent and the national currency this week hit an all-time low of 340,000 rials to the US dollar.

Ebtekhab website in Tehran reported on Thursday [November 3] that cooking oil prices increased by 377 percent and rise by 207 percent since last year. It was reported in July that food price annual inflation is around 100 percent.