Economic Implications of the Recent Statements by Iran's Leader

On Sunday, March 21, the leader of the Iranian government, Ali Khamenei, delivered remarks in Mashhad that were interpreted as a criticism and even a clear opposition to the de-escalation policy of the President of the Executive Branch. Khamenei stated: "Some in the country have accepted this analysis and want to convince others: 'An agreement was reached on the nuclear issue, we called it the JCPOA. Now they say that another JCPOA must be created regarding regional issues and the constitution, JCPOA 2 and 3, etc., so that we can live comfortably.'" This statement reflects the discursive duality within the Iranian government, but it also carries economic implications. International traders and investors prefer to collaborate with countries that guarantee the principle of investment and its returns with minimal risk. The condition for this is a unified governance, stability, and tranquility in the host country, as well as the adherence of the relevant country to international regulations and agreements. However, what emerges from the essence of the statements and the Nowruz message of the Iranian leader is, at least from two aspects, incompatible with the minimum demands of traders and international investors. First, Khamenei's opposition to international and domestic de-escalation policies, and second, his emphasis on a resistant economy. The main threat and risk to Iran's trade relations with the world is Iran's political risk, which is partly internal and partly external. In the realm of domestic politics, the eleventh government lacks the necessary authority and has not succeeded in political reforms. Therefore, it is not unlikely that hardline forces within the government, particularly in the security and paramilitary sectors, will weaken the government internally and even squander its positive foreign policy achievements. Despite their desires, these forces could not completely take control of the recent elections for the Islamic Consultative Assembly and the Assembly of Experts. Nevertheless, they hold a significant portion of power, especially in the hard sectors, whether in formal or informal arenas. In contrast, despite progress in the official apparatus, the government still lacks the necessary executive authority to fulfill its promises. In foreign policy, tensions with regional countries such as Israel and Saudi Arabia, as well as interventions in Syria, Iraq, Lebanon, and Yemen, continue. The increase in political risk, both internal and external, signifies a reduction in the country's credibility, imposing heavy costs on the economy and the people. The flight of domestic capital, whether financial or human, and the loss of foreign investment opportunities in Iran are consequences of this high political risk. Due to political risk, Iran's foreign trade has become slower and more expensive, and Iranian traders and investors cannot take advantage of various international benefits. Part of this stagnation and widespread unemployment is experienced daily and is a product of this high political risk. Additionally, in the early days of the new year, conservative attacks and pressures on President Hassan Rouhani's government have increased to implement Khamenei's directive regarding what is called the 'resistant economy' plan. In his Nowruz message, the leader named the year 1359 as the year of 'resistant economy, action, and implementation' and called for the practical execution of this plan. This implies that this economic plan has not been implemented so far. The government spokesman responded to the pressures on the government by stating that this plan is on the cabinet's agenda, but government opponents claim that officials are shirking from following the leader's command. The so-called resistant economy plan, from a theoretical perspective, is a collection of vague and general statements that do not contain anything new and have been mentioned before in five-year development plans and the 20-year outlook document, with limited executive aspects. This ambiguous plan has a wide interpretability that can be used as a tool to question the policies and officials of the government. The fundamental pillar of such an economy is 'utilizing domestic capabilities,' which in practice means that the Revolutionary Guards and other institutions under the leader's supervision will take control of the country's economic resources and become more powerful than they already are. In this context, the authoritarian faction opposing the government seeks to intimidate its political rivals and eliminate them from the scene by proposing this ambiguous entity and dictate its discourse in the distribution of national resources as well as foreign policy and economic relations with the world. The struggle in such an arena has a clear message for international business and investment circles, meaning that despite the government's efforts for international economic openness, the leader of the government does not agree with this action. Such tension will inevitably squander the efforts that the government has made so far to attract foreign investment. The consequence of such tension will be that international investors will not feel secure to operate in Iran. International economic actors typically refer to international risk rating agencies or insurance companies to assess the economic credibility, investment, and trade of countries. These agencies have not yet downgraded the risk rating for economic cooperation with Iran. Some of these agencies consider Iran's rating to be very low, while others refrain from announcing Iran's rating due to the uncertainty of the conditions in Iran. For this reason, export insurance companies have not yet guaranteed transactions with Iran. These agencies, which closely monitor the internal and international tensions in Iran that symbolize political and economic risks, will not interpret the Iranian leader's message as a reduction of risks in Iran's economy. Since any foreign investment in Iran and its economic opening to the outside world is conditional on political risks, the Iranian leader's statements will have a negative impact on the process of economic opening between Iran and the world.