270 Cities In Iran Facing Critical Water Shortage: Official

The US dollar dropped to below 400,000 rials from a high of 440,00 earlier this week, a 10-percent gain for the Iranian currency that has fallen more than 10-fold since 2018.

The new central bank chief Mohammad-Reza Farzin announced the bank’s intervention in the market as he began his first official day at work.

“The exchange rate in the open market is exaggerated,” he claimed, although an apparent massive infusion of dollars was needed to reverse rial’s precipitous decline. He added that economic fundamentals do not justify the currency’s fall, insisting that Iran sold $36 billion of oil in the past nine months.

Farzin did not explain why the rial has fallen to unprecedented lows if the country is flushed with hard currency, but he vowed “appropriate intervention” in the market to support the rial.

Even with Saturday’s rise, the currency is still 30 percent lower than in August and almost 50 percent less than in mid-2021, when the current hardliner president Ebrahim Raisi was elected and appointed other hardliners to top positions.

Rial’s current wave of decline began in early 2018 when the United States decided to withdraw from the Obama-era nuclear accord with Iran, known as the JCPOA and impose ‘maximum pressure’ sanctions. The country’s oil exports, its economic lifeline, and international banking came under US third-party sanctions, meaning that any company or country violating the restrictions could itself come under US sanctions.

The rila which was then around 34,000 to the dollar began to fall, with the government forced to offer cheap foreign currency to importers of essential goods, to protect people from an inflationary shock.

The government’s fixed-rate 42,000 rials for one dollar soon became a source of abuse by people who claimed to be importing essential goods, like food or raw materials, and instead imported luxury cars or simply turned around and sold the cheap dollars on the free market making huge profits.

The government began restricting the availability of dollars at 42,000 rials and earlier this year completely ceased the practice, saving around $15 billion annually, but accelerating food price inflation. In effect an important subsidy was removed, raising food, animal feed and medicine prices.

Following this inflationary shock, in early September talks with the US and its European allies to revive the nuclear deal fell apart, signaling a possible worsening of the economy. This triggered a new wave of rial’s de facto devaluation, as it fell in Tehran’s open market. Local reports also have mentioned accelerated capital flight from the country, which might have played a role in the sudden worsening of the exchange rate.

At the same time, nationwide antigovernment protests began in mid-September after Mahsa Amini, a young woman was killed in police custody. The popular uprising created a deeper feeling of instability and uncertainty.

Ali Shariati, a member of Tehran’s chamber of commerce predicted that the rial will be stabilized at 380,00-390,000 to the dollar by the government.

This might be the government’s goal, but to maintain the rial at that range, the central bank will have to continue injecting dollars into the market, a significant part of which simply leaves the country, to the tune of at least $10 billion annually.

The Islamic Republic says that its oil export revenues were around $37 billion in 2022, higher than in 2021 and substantially more than in 2020, when it sold much less oil to China.

IRNA says that because of weaker global demand in 2023, Iran’s exports are estimated to reach $27.3 billion, around $10 billion less than in 2022.

Russia hit by sanctions has significantly increased cheap oil exports to China, becoming a competitor to Iran, although they are military and political allies.

Iran plans its budget according to expected oil revenue since it covers around half of all government financial needs. This year, the government has not published its budget outline yet for the next Iranian year that starts on March 21, 2023.

Already, Iran’s currency has experienced a shocking decline since September, falling from around 310,000 rials to the US dollar to more than 400,000, because of a huge rise in the money supply as the government prints more banknotes to pay its expenses.

Tehran keeps oil export and income figures a state secret and estimates are often offered by OPEC or other international organizations. It is believed that Iran offers hefty discounts to its main customer China, which allows its small refineries to import Iranian crude despite United States sanctions.

A drop in oil in 2023 will have a significant negative impact on the economy, leading to more money being printed by the government and higher inflation.

Iran Meteorological Organization (IMO) on Friday ranked many urban areas as orange or red from Friday December 30 to January 1, specially in Tehran and nearby cities.

According to local media, the government continues to burn mazut at power stations, a dirty oil product banned in most countries. The country usually faces natural gas shortages in winter months, because of higher home consumption. As a result, the decaying energy sector resorts to using mazut with an immediate impact on air pollution.

IMO warned citizens that air quality in many cities is deemed to be harmful or dangerous. These include Tehran, Karaj, Esfahan, Arak and Tabriz. Local officials have demanded that the government stops using mazut, but that could lead to blackouts.

Iran has the world’s second largest natural gas deposits but is unable to boost production because of lack of capital and Western technology. Government officials have said that the country needs to invest $40 billion in modernizing and expanding its gas extraction facilities, but most are in the Persian Gulf and need Western technology.

Due to its anti-West foreign policy and an expanding nuclear program, Iran is under US sanctions and cannot borrow money or technology from most of the world.

The high-ranking clerics have spoken against President Ebrahim Raisi's ultraconservative government, only after the Speaker of the Iranian Parliament Mohammad Bagher Ghalibaf (Qalibaf) who calls himself a neo-conservative went to see them in Qom.

This might be the starting point of a shift from policies based on conspiracy theories inspired by presidential adviser Saeed Jalili to more pragmatic ideas Ghalibaf has been offering as a prelude to what he called a move toward "a new governance" in Iran. Some social media users have called the move "a soft coup by pragmatists against the ultraconservatives," who try to blame most problems on machinations by “enemies”, meaning the United States and its allies.

The move comes while the Iranian government is at its lowest point of popularity after three months of street protests and another sharp devaluation of the Iranian currency in a matter of a week which brought the rate of exchange for the US dollar to 440,000 rials.

The clerics, the "sources of emulation" as they are known in Qom, hold the highest ranks in Iran's brand of Shi'ism and they are supposed to lead the nation by example in all matters of everyday life. Nonetheless, it is not clear how many people follow them and their advice.

Following meetings with Ghalibaf, Ayatollah Nouri Hamadani, a clerics who has been always silent in the face of whatever that the government has done to the economy, criticized Raisi for bragging about the country's progress and the state of the economy: "No prices have fallen and none of the people's problems have been solved. The only thing that has certainly happened is the devaluation of the Iranian currency."

Ayatollah Nasser Makarem Shirazi who has usually supported the Raisi administration and all the government's hard-line policies, said, "Not only the economic situation is not improving, but the inflation rate has been rising. People ask us why we do not warn the government about the situation. In factو we do warn, but the state television never broadcast our warnings."

Despite his criticism of the government's economic policies, Makarem Shirazi strongly supported the crackdown on protesters.

Ayatollah Jafar Sobhani said that "the Raisi administration has been always promising to solve the people’s problems but this promise has never been met." And Ayatollah Abdollah Javadi Amoli referred to inept officials and said, "We should not appoint good but otherwise inept individuals or capable but bad individuals who will embezzle government funds."

One of the first outcomes of the ayatollahs’ remarks against the Raisi administration was the replacement of Iran's Central bank Governor Ali Salehabadi who resigned on Thursday. The new Central Bank governor Mohammad Reza Farzin is no different from Salehabadi in terms of policies. However, the shock in the Iranian market because of rial’s steep fall forced the government to make a change to pretend that it cares. The actual change was a slight boost for the rial.

The Jomhouri Eslami newspaper, a conservative daily critical of the Raisi administration's ultraconservative policies, wrote in an editorial on Thursday that it would be a big mistake by officials to get the message of the ongoing protests wrong. And, not acknowledging the government's errors could be an even bigger mistake."

The daily pointed out that there is no silent majority in Iran. The people are suffering from injustice, economic corruption, high inflation and government's broken promises and they feel humiliated as the government does not seek their political participation. All of this and the government's insistence on its mistakes will inevitably escalate the people's dissatisfaction.

As the dollar surpassed 430,000 rials , President Ebrahim Raisi replaced the chief of the Central Bank of Iran and ordered his economic team to come up with ideas to support the collapsing rial. 

Raisi appointed Mohammad Reza Farzin as chief banker. Farzin, who has been the CEO of Bank Melli Iran since last year, was also chairman of the board of Karafarin Bank before that. 

During the cabinet meeting where Farzin was appointed, Raisi stressed the importance of controlling the value of foreign currencies, asking central bank chief to “manage” the situation. 

Since the current wave of protests began in Iran in mid-September the rial has fallen to record lows, losing more than a third of its value against the dollar, fueling inflation of around well over 50 percent. The rial has now lost about 80 percent of its value compared to mid-2021 and close to 50 percent since December 2021. Inflation is also skyrocketing. Food prices have jumped much faster than the overall inflation, with some items registering 100-percent increase in one year.

The impact of rial’s devaluation is still not fully felt in the market, but Iran faces the danger of hyper inflation in the coming months.

On Wednesday, Khabar Online, an Iranian conservative website published an article that said the historic devaluation has proven to be divisive among the country’s hardliners. Hardliners in parliament and some in the military have begun harshly criticizing the presidential administration that they were praising just recently. 

Numerous officials and insiders, including senior clerics are issuing warnings about the rial’s fall that puts people’s livelihoods in jeopardy, but no one is willing to take responsibility.

Mohammad Eslami, the head of Iran's Atomic Energy Organization, said, "The dollar rise and rial’s fall is one of the plots by the Americans," adding that the US wants people to be fed up with the economic hardships so they took to streets to protest.

He was probably referring to tough sanctions imposed by the United States since 2018, when the Trump administration withdrew from the Obama-era nuclear accord known as the JCPOA. The Biden administration held talks with Iran for 18 months to revive the agreement but the diplomatic effort stalled in late August, because Tehran made unacceptable demands, according to Washington. 

Interior Minister Ahmad Vahidi claimed that "There is plenty of foreign currency in the country," a statement which might anger ordinary people even more, who would blame the government for not supporting the rial. 

Professor of Economics at California Lutheran University Jamshid Damooei, described the situation as an unprecedented “economic storm” whose root cause is the lack of confidence in the government’s economic policies. He told Iran International that the majority of the Islamic Republic’s income has always been from selling oil, which has been impeded due to US sanctions. Rial’s fall will lead to higher inflation, which in turn will drag the currency lower, he argued.