The Iranian Protests

In early December, small protests developed in parts of Iran due to sharp increases in some food prices. By the last week of 2017, the protests had spread across the country and have continued into the New Year. In this report, we will discuss the current protests, comparing them to the unrest that developed in the wake of the 2009 elections in Iran. We will examine Iran’s geopolitical position, focusing on the country’s natural barriers that both protect it and increase the costs of power projection. We will analyze the possible impact of the protests and conclude, as always, with potential market ramifications.

The Protests

Recent protests in Iran have left 22 dead and over 450 people incarcerated. These protests, though widespread, are fundamentally different from the 2009 “Green Movement.” One important contrast is that the participants are not the same. The 2009 protests were a fight between competing elites as the “reformists” and “hardliners” were vying for power. The hardliners won. However, these terms should be used with great care. The hardliners are fairly obvious in their views, but the reformers were not “reformers” in the Western sense. They were as committed to the Islamic Revolution as the hardliners. The reformers were simply open to more social and market freedoms compared to the hardliners, but neither group was willing to allow for full democracy. When Akbar Hashemi Rafsanjani[1] is considered a reformer, it is clear the differences between the two groups aren’t all that great.

The current protestors, instead, are from the lower economic classes. In some respects, these protests reflect similar political issues recently seen in the West. These protestors are angry about the state of the Iranian economy. Officially, unemployment is 20%, but economists estimate that unemployment among Iranian youth is probably closer to 40%. Many of the protestors are from the underclass from the countryside who have moved to towns and cities in the hope of finding work only to find unemployment. This group has traditionally supported the regime. In 2009, they would have been opposed to the Green Movement. But, Iranian President Rouhani raised hopes of economic improvement after the nuclear deal that has, thus far, disappointed the masses. Not only are jobs scarce, but inflation remains elevated. The official data indicates that Iranian CPI rose to 9.6% in November compared to an 8.4% rise in October. These numbers appear rather benign compared to the 45% rate in the latter half of 2013. However, during this earlier period, the regime could blame poor economic conditions on Western sanctions. Now that most international sanctions have been lifted, the current state of the economy remains disappointing. One could argue that President Rouhani oversold the positive impact of lifting sanctions to foster support for the nuclear deal. In his defense, however, he probably assumed that Hillary Clinton would win in 2016 and continue the policies of Barack Obama, who seemed open to normalizing relations with Iran.

Reportedly, one of the catalysts for the protests was a leaked government budget that showed billions of dollars going to the clerical elite and the Iranian Republican Guard Corps (IRCG), while cutting social spending and raising subsidized fuel prices and educational tuition. In other words, money was being channeled to areas that help Iran project power and taken away from the common citizens. Another problem was simply bad luck. A bout of avian influenza struck Iran’s poultry industry, leading to the death of thousands of birds. This outbreak has reduced the supply of both chicken and eggs and led to rising prices.