- The COVID-9 is part of a “perfect storm” of challenges facing the government.
- Iran’s status as a CDC Level 3 country seriously compounds the country’s economic problems resulting from sanctions and falling oil prices.
- In the next six months, the government is more likely to try to hunker down and avoid war with the Trump administration than engage in brinkmanship with regional proxies or the nuclear file.
Two months ago, the Iranian government already knew 2020 would be a hard year. Reeling from the killing of Gen. Qassem Suleimani, laboring under sharply reduced oil exports because of US sanctions, and looking at projected flat economic growth, the Islamic Republic seemed set on measured brinkmanship with the outside world. Such a strategy was intended to persuade European and Asian countries that it was better to engage Iran than isolate it, and it would lay the groundwork for direct US negotiations in early 2021, regardless of who won the US presidential elections.
Enter COVID-19
Then came the COVID-19 outbreak, which has led to more than 3,000 cases in Iran and almost 100 deaths. According to the Washington Post, those infected include about two dozen members of Parliament and at least 15 current or former top figures. A member of Iran’s Guardian Council, the country’s 12-member senior clerical body, has died.
Iran is categorized as one of four countries given a Level 3 travel advisory warning by the US Centers for Disease Control and Prevention (CDC) – the highest risk level which advises against all nonessential travel; the others are China, South Korea, and Italy. Yet, the Level 3 designation hits Iran especially hard because it is the most fragile of the group. While Iran’s trade has been hit hard by US sanctions in the last year, Iranian traders had remained active up to now. Iranian markets have been well stocked, and Iranian goods continued to find their way into neighboring countries.
Economic effects
Yet, in recent weeks, the COVID-19 outbreak has both deterred traders from visiting Iran and prevented Iranian traders from traveling overseas. Because Iran has been the source of infections that have hit a number of neighbors, including Iraq, many have barred the entry of Iranians and halted flights to the Islamic Republic. Many travelers who have been in Iran will face quarantine upon returning home; this will encourage many religious pilgrims to defer travel to Iran until conditions improve. As the disease continues to spread swiftly in Iran, restrictions on Iran travel are set to grow for the indefinite future. The impact of the pandemic on the Iranian economy is likely to increase further.
Iran also suffers from the indirect effects of the pandemic. Other economies, and especially the Chinese economy, are slowing under the impact of COVID-19. Reduced global oil demand is softening prices. Iran, whose export volume is approximately 20% of pre-sanctions levels, thus suffers the double-penalty of low volumes and low prices. In December 2019, the Iranian government forecast that oil revenues would drop 70% in the next fiscal year. It proposed selling domestic bonds, privatizing state-run companies and raising taxes. With lower prices and reduced trade, the economy will be considerably worse than estimated just a few months ago.
Government mismanagement
The apparent governmental mismanagement of the COVID-19 outbreak, coming on top of the accidental downing of a Ukrainian airliner in January carrying hundreds of Iranian citizens, is heightening Iranians’ distrust in governmental competence. Security forces were able to put down domestic protests in the fall, and turnout for the February parliamentary elections from which more moderate candidates were excluded was low. As the government flails to respond to a complex health emergency amidst a sinking economy, it may find itself hard-pressed to keep public discontent at bay.
The question for the Iranian government is how to deal with sharply rising economic discontent and growing distrust of government. Mismanagement of the growing pandemic makes it harder for the government to merely blame external forces for Iran’s woes, as it seemed determined to do a few months ago. In November and December, when the government had more confidence it had put down public discontent, and when deniable attacks on neighbors’ oil assets brought those neighbors to the table, it seemed likely that the government would try to play a game of brinkmanship with outside powers. By threatening chaos, Iran hoped to soften sanctions and pave the way for resumed negotiations with its adversaries.
Nuclear politics
With a much weaker domestic position, Iran is likely to seek to use its internal crisis to appeal for humanitarian aid that circumvents sanctions, and to blame sanctions for Iranian deaths. The government will seek to portray itself as a victim of an external conspiracy, but it may have a hard time persuading the public that outsiders are to blame. The Revolutionary Guard Corps (IRGC), which might have been planning retribution for the killing of Suleimani, is likely to be less adventurous in the months ahead. Instead, IRGC clients are likely to avoid contact with their Iranian patrons, and IRGC officials will travel less, if at all.
News this week that Iran has sharply increased its stocks of enriched uranium seem an artifact of Iran’s pre-COVID-19 strategy. While Iran will not resume compliance with the Iran nuclear agreement without significant sanctions relief, the avenue for that sanctions relief in the coming months will almost certainly be Iran’s shuddering health system – which had problems obtaining supplies before the COVID-19 outbreak – rather than fear of Iranian nuclear breakout.
