The Iranian riyal continues to decline to record levels, as its price was the day before the launch of the missile attacks on Israel At the end of last September, it was around 610,000 riyals to the dollar, while it is currently hovering around 640,000 riyals in the open market.
Israel is preparing to respond to the Iranian attack with dozens of ballistic missiles this month, which it said Tehran It came in response to the killing of Hassan Nasrallah, the leader of Iran-backed Hezbollah, and a senior commander in the Iranian Revolutionary Guard in air strikes on Beirut. Senior Israeli officials informed the United States that they planned to target military sites.
The expectation of an Israeli attack also led to travel chaos, as airlines canceled their flights, which led to higher ticket prices and a lengthening of travel times as a result of rerouting flights, according to a report by the British newspaper “Financial Times”, which indicated that:
- Many Iranians are now deeply concerned about the prospect of a potential war between Iran and Israel, which has vowed a “precise and lethal” response after escalating hostilities since a previous exchange of fire in April.
- While regime loyalists insist that Iran does not fear war and welcomes military confrontation with Israel, many fear that the country’s sanctions-hit economy cannot withstand another cycle of escalation.
Last week, Iran’s leading airline canceled itsIran AirIts flights to European destinations after the imposition European Union Sanctions on the airline over what it said was the transfer of ballistic missiles to Russia for use against Ukraine, which Iran denies.
In a related context, the newspaper quoted political economy analyst Saeed Laylaz as saying:
- “The government has been managing supply and demand in the currency market to reduce significant fluctuations.”
- “There is certainly a psychological atmosphere affecting the country, but this new unrest will not deter Iran from continuing its regional policies or responding to any Israeli attack.”
- “The Iranian economy is accustomed to dealing with political crises.”
Difficult repercussions
In exclusive statements to the “Eqtisad Sky News Arabia” website, the Executive Director of the Arab Center for Research and Studies, Hani Suleiman, says:
- The imminent Israeli attack on Tehran will have a difficult and strong impact on the Iranian economy.
- Part of this impact and these economic repercussions are originally linked to the nature of the Israeli target bank and the nature of the Israeli strike and the targets monitored.
- The questions raised now in this context: Will the attacks be on Iranian nuclear facilities or institutions associated with them, or will they be on a conventional military facility linked to the Revolutionary Guards and the regime? Or will they be targets on some strategic and vital facilities related to oil and ports linked to economic institutions?
He points out that if nuclear institutions or related facilities are targeted, “there may be very serious economic repercussions on Iran, most of which may lead to a wide and comprehensive war, which will witness the allocation of many resources to confront Israel in that war, which will lead to redirecting all resources to mobilizing Military capabilities and economic polarization, and their economic repercussions.
As for the traditional military installations of the Revolutionary Guard, the command and planning facilities, or some factories related to the production of drones or missiles, Suleiman believes that the economic repercussions of targeting these facilities may be moderate to limited, and will not be very broad, given the nature of the goals and the nature of the Iranian movements that may occur. It keeps the conflict at this level without expanding.
As for Israel’s targeting of oil facilities, despite the opinion of the United States of America and the mediators who are trying to prevent this, whether with regard to targeting oil export facilities or some economic targets of a vital nature, such as electrical networks or ports, he adds: I believe that this matter has very serious economic repercussions; Especially with regard to its impact on the standard of living and oil revenues.
He explains that the damage to oil revenues affects Iranian society, especially since Iran achieved growth of more than 5 percent in 2023 thanks to these revenues. Consequently, the impact of this will be tangible in the economic sectors, which may increase the suffering of the Iranian people in light of the tense economic conditions over the past years, which contributed to igniting waves of protests and anger in Iranian society.
Uncertainty
A report by the Atlantic Council indicates that a state of uncertainty still looms over Iran, with Israeli officials pledging to respond to the ballistic missile attack launched by Tehran on Israel earlier this month.
However, while most analyzes focus on Iran’s geopolitical goals in the region, there has been less discussion of the severe economic constraints faced by the Iranian regime. These challenges are at the heart of Iran’s priorities during the first BRICS summit currently being held in Russia.
The Council notes that:
- Iran’s economy is underperforming – Among its fellow BRICS members, Iran has one of the weakest economies.
- Inflation rates hover around 34 percent. According to local media reports, bread prices have risen by 200 percent over the past year, while other basic necessities, such as water and housing, have seen sharp price increases.
- Since the initial US economic sanctions, Iranian GDP growth has remained consistently below its 2011 highs.
- International Monetary Fund projections indicate that the country’s GDP will continue to lag behind that peak until 2029.
- Iran’s gas and power plants are rusty and outdated, operating at only 70 percent of capacity. The country’s inability to modernize is a direct result of the withdrawal of Western companies from the country over the past decade.
- Energy shortages in Iran have already sparked significant public outrage, with frequent power outages disrupting daily life, halting industrial operations, and forcing the government to partially close offices during periods of peak demand. This is in addition to ongoing fears of corruption and mismanagement.
Iranian economic crisis
The Executive Director of the Arab Center for Research and Studies talks about some of the crises that the Iranian economy is suffering from, explaining that:
- The level of inflation inside Iran has reached record levels.
- The currency witnessed an unprecedented decline in the modern history of Iran.
- Poverty and unemployment rates rise significantly.
- The Iranian government had previously taken measures to remove support from some sectors. These measures increased the suffering of the Iranian people, especially in light of the decline in revenues.
- This comes at a time when the Iranian regime is allocating many of its resources to exporting the revolution and fighting battles on various fronts, by supporting militias and greatly preferring spending abroad at the expense of the interior.
Suleiman points out that the continuation of the confrontations with Israel, the expansion of the conflict, and the opening of new fronts will lead to increased suffering for the Iranian people, and may cause the currency to decline further in light of the tense conditions.
Unemployment and inflation
In turn, Ali Atef, a researcher specializing in Iranian affairs at the Egyptian Center for Studies, said in exclusive statements to the “Eqtisad Sky News Arabia” website:
- The Iranian economy is currently suffering from several crises, most notably unemployment, inflation, and the deterioration of the value of the national currency to its lowest levels in history.
- Israel’s attacks targeting vital sectors in the country, such as energy facilities and others, will greatly deepen the deteriorating economic situation.
- Iran’s oil revenues will be materially affected and may reach zero, given the government’s reliance on them as a primary source of national income.
- In addition, attacking Iran’s infrastructure facilities, which are also suffering from noticeable deterioration, will exacerbate the social crisis in Iran.
He points out that all of these risks may lead to agitation in the internal Iranian political street, and may result in the outbreak of widespread protests in the Iranian provinces (..), stressing that the economic and social repercussions of such Israeli attacks may threaten the survival of the Iranian regime from within.
Account for the economic repercussions
The researcher specializing in Iranian affairs, Muhammad Ebadi, also stressed in exclusive statements to the “Eqtisad Sky News Arabia” website that:
- In all its steps, Iran is preparing for the economic repercussions.
- Iran, which has been facing difficult economic conditions since former US President Donald Trump withdrew from the nuclear agreement, is today living in a complex reality.
- For example, if we look at the currency collapse factor, we find that one dollar in 2017, before the return of sanctions, was worth about 5,000 tomans, but today, one dollar is worth 64,000 tomans, which reflects a significant impact on inflation and unemployment.
He says that Iran, which faced a major popular uprising in November 2019 after raising fuel prices, today fears Israeli attacks that may strike its oil facilities, which will have very important repercussions on living conditions inside Iran, especially with the approaching winter and Iran’s increasing need for heating.
He adds: Iran also has a very negative legacy regarding air traffic during clashes. We can return to the incident of downing the Ukrainian plane in the wake of the Iranian response to the assassination of General Qassem Soleimani in January 2020, which Iran fears will be repeated today as a result of anticipation of a large-scale Israeli attack inside the country. Therefore, Iran imposes warnings and procedures on domestic air traffic.
