Economic misery due to sanctions and mismanagement has been a
reality for years, and while social strains in the 76 million
population are deep, the clerics will seek to contain them, say
experts examining Iran's budget plans for 2015.
The largest drop in oil prices since the 2008 financial crisis means
more budget pressure for the OPEC member, already bereft of tens of
billions of dollars in oil revenue due to Western sanctions and
years of economic mismanagement.
And tougher economic times may spur Tehran's determination to end a
nuclear dispute and lift sanctions that isolate it from the global
banking system and deter most foreign investors.
But significant changes in Iran's regional strategy including its
approach to any nuclear deal are unlikely.
That is partly because funds for security affairs come from Supreme
Leader Ayatollah Ali Khamenei, not the government. He also decides
nuclear policy.
![](http://archives.lincolndailynews.com/2014/Dec/22/images/ads/current/rohlfs_lda_051513.png)
"Our support to our brother Assad will never change," said a senior
Iranian official, referring to Syrian President Bashar al-Assad.
"Because of (declining) oil prices we face economic hardship ... but
we will mange to continue our support to Syria, militarily and
financially."
Ali Vaez, of the International Crisis Group think-tank, said the oil
price fall would hurt, but was unlikely to make Iran accept a
nuclear deal "that it views as lopsided".
"Iran’s support for its allies in Iraq and Syria is not a questions
of means, it’s a strategic necessity. This is why neither the fall
of the rial in 2012 or economic malaise in 2013 affected Iran’s
support for its Syrian and Iraqi allies."
Iran and world powers are negotiating to end a standoff over
Tehran's nuclear goals. Tehran denies Western charges it is seeking
nuclear weapons.
President Hassan Rouhani presented a "cautious, tight" budget on
Dec. 7 in response to falling oil prices, now almost $10 a barrel
below the $70 his budget was based on.
Spending was six percent above this year, a real terms cut due to
inflation of 20 percent.
But with revenues pressured, plans to hike defense spending 33
percent prompted speculation that Rouhani wants to placate security
hardliners, hoping they will indulge his bid to win a nuclear deal
and end sanctions.
POWERFUL HAWKS
Powerful anti-Western hawks in the Islamic Revolutionary Guards
Corps (IRGC), who report to Khamenei, have been wary of the
negotiations.
![](http://archives.lincolndailynews.com/2014/Dec/22/images/ads/current/business_directory_filler.png) They have tolerated the talks, diplomats speculate, largely because
his big 2013 election win revealed the depth of anger over economic
mismanagement and support for his aim of ending Iran's international
isolation.
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Mehrdad Emadi of Betamatrix International Consultancy suggested
Rouhani had to consider the IRGC in setting economic policy because
it could spoil any nuclear deal.
Greater defense spending was aimed at "giving them a big piece of
the public pie so they can stop kicking up a fuss when it comes to
negotiations, especially those with the Americans." "The IRGC are
extremely sensitive to any reduction of ‘military aid’ to what they
see as strategic allies."
The IRGC could ruin any rapprochement with the West it felt might
hurt its interests.
Last year, Iran granted Syria a $3.6 billion credit facility to buy
oil products, with another $1 billion for non-oil products.
Domestically the government has ways of mitigating the pain.
One is gradual depreciation of the official exchange rate at which
it converts oil revenues from dollars into rials. This allows a
progressively smaller amount of dollars to supply the same rial
revenues.
The central bank's official exchange has dropped to 27,043 from
25,651 at the end of June and 24,774 at the end of last year. Next
year’s budget is based on a rate of 28,500, showing the government
plans to continue this strategy.
Meanwhile, the free-market price of the rial has stabilized at about
35,000, far from lows near 40,000 two years ago. That suggests most
Iranians think that while cheaper oil will pressure the rial, they
do not yet expect an economic collapse or a run on the currency.
Emadi said Rouhani would try to shield the poorest from spending
cuts to avoid any repeat of the unrest that followed 2009's disputed
presidential election.
A 30 percent rise in bread prices on Dec. 1 rattled Iranians, but
there was no major unrest. Emadi said the government later took
steps to compensate poorer households.
![](http://archives.lincolndailynews.com/2014/Dec/22/images/ads/current/Symphony_lda_091814.png) There could be further subsidy cuts but open protest was unlikely
since "the regime's machinery of repression still makes this very
risky", said Scott Lucas of EA WorldView, a specialist website on
Iran and Syria.
(Additional reporting by Parisa Hafezi, Andrew Torchia and William
Maclean; Editing by Giles Elgood)
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