Coming as it does on top of ongoing mass protests sparked by the death of 22-year-old JIna Mahsa Amini in police custody last September, the currency crash has defied measures such as the replacement of the central bank chief last month and fueled speculation that it would destabilize, or even bring down, the regime in 2023.
The rial has lost 29 percent of its value since anti-government protests and a harsh regime crackdown commenced late last year. On January 22, it was trading at around IRR450,000 against the US dollar, representing a new all-time low.
Dr. James Devine, associate professor in the Department of Politics and International Relations at Mount Allison University, believes it is Iran’s growing political isolation — due to its brutal crackdown on protesters, its military support for Russia’s war with Ukraine, and doubts about a revival of the 2015 nuclear deal — that has dragged down the value of the rial.
“All of this is compounded by mismanagement and corruption, which have dogged Iranian economic planning since the regime took power,” Devine told Arab News.
Although Iran’s economic situation seems particularly bleak at present, Emily Hawthorne, a senior Middle East and North Africa analyst at the risk intelligence company RANE, describes the rial’s depreciation as serious, “but certainly not unprecedented.”
“High inflation, international isolation, low investor confidence, and low consumer confidence are all driving the decline,” she told Arab News.
The double blow of a depreciating rial and high inflation has triggered a cost-of-living crisis, which in turn has spread discontent and stoked anger at the regime.
Devine also believes that although Iran is selling a “healthy” number of barrels per day of oil, mainly to China, this is unlikely to be enough to “reinvigorate the rial.”
Furthermore, Washington has begun clamping down on Iran’s smuggling of dollars from neighboring Iraq, which is also negatively affecting the rial’s value.
“While Russia and China may not be able to bail out the rial, they can make sure that going forward, Iran will not be as economically isolated as it was in the past,” Devine said.
Hawthorne predicts there will be more “economically motivated protests” in Iran throughout 2023, but doubts the Iranian government will collapse this year or in the near future, “even though economic strain will contribute to its unpopularity.”
Azizi also says “the regime has long survived harsh economic crises and this isn’t an exception either.” He added: “It adds to its problems, but it doesn’t seem to lead to state collapse just yet.”
Devine expects more protests due to rising prices and a scarcity of goods for Iranian consumers, which will further undermine the regime’s legitimacy and make it more reliant on coercive power to maintain its control.
But whether or not this is a tipping point for the regime is a much more complicated question.
“I think the regime has the institutional and coercive capacity to survive the current level of unrest and probably quite a bit more,” Devine said. “However, they could lose control if they make political mistakes.
“For instance, if they overreact to the protests and begin killing large numbers of Iranians in the street, particularly young women. The execution of dissidents also has the potential to cause a backlash.”
Devine believes the “complicating factor” at play is the “coherence of the regime.”
“Reformists and moderates have criticized (President Ebrahim) Raisi for being too hard on the protesters and by the hardliners for being too soft,” he told Arab News. “This kind of environment could lead the regime to mis-calibrate its response.
“At a certain point, the more moderate members of the regime may go beyond criticism and disown the regime. If enough of them do that, it could snowball into a crisis, particularly if the regular military joins.”
In the meantime, Devine says, the protesters require better organization. While they can create “small disturbances,” he added, they do not seem to have the kind of organization that could really challenge the regime’s “control of the country and economy.
“Perhaps the currency crisis will provide the impetus for this to happen, but I have not seen it yet.”