During Ali Khamenei’s leadership, Iran’s economy in 2018 according to GDP per capita, was the 28th largest worldwide. Nevertheless, it faces a precarious situation, especially due to US and United Security Council sanctions. Furthermore, internal mismanagement, harsh and bureaucratic labor restrictions, mostly focused on young women and rampant corruption have impacted Iran’s economy. Consequently, Khamenei has had to deal with significant popular revolts, such as 2018-2019 Iranian general strikes, the 2019-2020 oil crisis and the 2021 Water crisis. Khamenei has no doubt used a harsh tone to control and avoid these protests gaining further momentum.
Khamenei’s continuous economic struggle with the West
Khamenei’s leadership has been marked by the US economic sanctions, except from 2015-2018 with the implementation of the Iran Nuclear Deal. From 2016 until 2018, Washington lifted some sanctions, and so, Iran’s GDP growth increased. For instance, in 2016, Tehran experienced a 13,40% growth rate.
Nevertheless, in 2018, former US president, Donald Trump argued that the JCPOA relief was providing Iran enough resources to conduct “malign activities” in the region. Thus, he withdrew from the JCPOA and reimposed sanctions against Iran. Recently, US withdrawal from the Nuclear deal caused damages to Iran’s economy estimated between $150-200 billion.
Brussels updated their sanctions to protect European entities and individuals against certain US extraterritorial sanctions through a Blocking Regulation. Nevertheless, European countries have taken a more moderate stance towards Iran and played a key role in the 2015 Nuclear Deal.
Khamenei’s legitimacy is under check as a result of Iran’s poor economic performance. Consequently, massive protests have arisen against Khamenei; the most important ones occured in 2018-2019 in which there were key manifestations throughout the country involving key economic sectors. In 2020, Khamenei stated that “even though many of our problems are related to outside of the country, the cure is domestic”.
However, the SARS-CoV-2 pandemic, mismanagement and rampant corruption have weakened Iran’s economic performance. On January, 30th, 2022, Khamenei acknowledged that government mismanagement contributed to Iran’s economic woes.
Khamenei’s Leverage with Russia and China
Before 1978, China’s relations with the Middle East were limited, but Deng Xiaoping realized the geostrategic relevance of the Middle Eastern states to speed up China’s modernization process. And so, in 1992, Beijing had formal ties with all the Middle East . Meanwhile, with the dissolution of the USSR, Russia’s internal turmoil decreased Moscow’s influence in the region.
After 2018, Vladimir Putin and Xi Jinping have improved and deepened their ties with Khamenei. One example is the agreement between China and Iran to develop the South Pars field. Another clear example is that Huawei will gain a monopolistic position in the development of Iran’s 5G network. In 2020, Tehran and Moscow agreed to look for new methods of countering US sanctions’ impact on their bilateral economic relations. One year later, Khamenei and Xi signed a 25-year partnership agreement. Within this, $400 million of Chinese investment will go into Iran’s energy, commercial and transportation sectors.
In October 2021, Tehran became a full member at the SCO, marking Iran’s first major regional bloc since the 1979 Islamic Revolution. SCO members do not recognise US unilateral sanctions.
The Shanghai Cooperation Organization has mainly focused on security and political block. Nevertheless, in 2018, at the Qingdao summit in China, the SCO adopted an agreement consisting of 17 documents, which included action plans for economic cooperation between the SCO member states. Iran’s entry will deepen Khamenei’s ties with Putin and Xi.
According to the latest data announced by Iran’s Customs Administration (IRICA), the value of trade between Iran and the members of the SCO (including observer states) reached $28 billion. This trade has already approached nearly 38% of its total trade.
Khamenei’s Resistance Economy
Khamenei has criticized capitalism as a sign of Western decadence due to the materialistic values and since he came into power, he has issued decrees and made final decisions on key topics, including the economy. Ali Khamenei is a supporter of a concept called “resistance economy”, which endorses policies to make Iran economically self-sufficient.
In 2005, Iran’s “Twenty-Year Vision Document” was released. This policy has in goal that by 2025, Iran should be the leading regional nation in economic, scientific and technological achievements. In 2007, Khamenei called for the privatization of state-owned companies, including telecommunications, 3 banks and small oil and petrochemical enterprises. Despite that call, Iran’s economy is still highly centralized and natural resources play a significant role. For instance, Tehran has the second largest gas reserves in the world and is the 7th largest oil producer.
Contrary to other neighboring countries, Iran has a relatively diversified economy from natural resources, e.g., in 2017, services comprised 55% of Iran’s GDP, while agriculture less than 10% of the total.The main economic challenge for Iran comprises the fate of 2015 Iran’s Nuclear Deal. Its potential revival in combination with sanctions relief would not solve all of Iran’s economic ills. Nevertheless, current Iran’s conservative president, Raisi with Khamenei’s full confidence has to address mismanagement, corruption, inflation, youth unemployment and brain drain.