Iran and Venezuela in the Grip of Similar Crises

The economic crisis in Iran and Venezuela has similar components. Both countries are now simultaneously adopting approaches to manage the crisis, the effectiveness of which is questionable. Nevertheless, Iran's political system has more entanglements compared to Venezuela, which may make the ultimate resolution of the crisis more difficult. Iran's economy has not yet reached the state of Venezuela's, which, according to the World Bank, is experiencing inflation rates that could reach one million percent this year, or where the difference between the official exchange rate and the free market rate is 18 times. However, the crisis in Iran shares elements of the Venezuelan crisis, and both countries are currently announcing and implementing similar decisions to combat this crisis. Rouhani's government has returned to a relative liberalization of the currency market without clarity on how much currency can be supplied under sanctions and how effective this liberalization will be in managing the current crisis. Rouhani's recent statements on Iranian television did not answer this question. In Venezuela, the economic sanctions from the U.S. are not as severe as those on Iran, and the nature of the problems between Caracas and Washington is somewhat different from Iran. However, mismanagement, neglecting to diversify income sources, and reducing dependence on oil, alongside a partially incorrect social policy that has relied mainly on distributing oil wealth and resources among underprivileged classes rather than creating infrastructure and job opportunities, combating corruption and rent-seeking, and failing to establish an efficient and fair tax system, have also been indicators in Venezuela. In addition, political and economic sabotage by parts of the opposition, in direct and indirect collaboration with Washington and Bogotá (Colombia), which has been secondary, has all contributed to the current state of Venezuela's economy. Until 2013, when oil prices were high, the issues stemming from the largely housing policies and lack of vision of the Chávez government and its successor were not very apparent. However, with the drastic drop in oil prices in 2013, the accumulation of problems and the emergence of the crisis intensified. The lack of necessary investments in the oil industry has reduced production from 2.8 million barrels per day in 2010 to 1.44 million barrels currently. Given the low price of fuel in Venezuela and high consumption, a significant portion of oil production is used for domestic consumption, which is effectively seen as a costly subsidy to all segments of society and reduces the volume of oil available for export. Ironically, due to the country's inability to meet the high demand for cheap gasoline, part of the revenue from oil sales is also spent on refining oil in foreign refineries and importing gasoline from these refineries. In 2012, Venezuelan refineries were capable of refining 800,000 barrels of oil, which was 400,000 barrels less than their nominal capacity. Current refining levels now do not even reach 240,000 barrels. The low price of fuel in Venezuela also creates an attractive opportunity for smuggling it to neighboring countries, adding another heavy cost to Venezuela's ailing economy. All these factors have severely reduced Venezuela's revenues, and the government has found a way to pay its debts and cover current expenses through the printing of unbacked banknotes, which itself is a factor in the astronomical increase in inflation and the depreciation of the national currency. Capital flight due to political crisis and distrust in economic outlooks, along with the rent-seeking system and the existence of a multi-rate currency market similar to Iran, have also partly fueled widespread corruption in Venezuela's economic system. Recently, the U.S. Department of Justice uncovered a money laundering case in Venezuela involving former agents of the national oil company. These individuals transferred $1.2 billion to Florida using the difference between the official and unofficial exchange rates and, with the help of financial consulting firms from other countries, purchased real estate and laundered the money. Reliance on loans from China in exchange for pre-selling oil to that country and granting extensive concessions in oil and non-oil contracts are other approaches the Venezuelan government has adopted to tackle the economic crisis. Venezuela's debt to China currently stands at $65 billion. Washington views these extensive relations with China and also the extensive economic and military ties with Russia as an opening for competitors in a region (South America) that it has considered somewhat of a backyard and its exclusive sphere of influence. Throughout Chávez's and his successor's rule since 1999, Washington has been skeptical and sensitive to their anti-American policies and their support for the rise of similar regimes or the consolidation of their positions in Uruguay, Cuba, Nicaragua, Argentina, Ecuador, Brazil, and Bolivia. Today, most of these allied and aligned governments have either been removed (Argentina and Brazil) or have changed their positions (Ecuador and Uruguay) or are in crisis like Nicaragua. This factor has provided the U.S. with more allies in the region, especially during Trump's more aggressive policies, increasing its ability to pressure the 'undesirable' Maduro government and impose some sanctions against it. Naturally, in such conditions, Venezuela's ineffective, low-yield, corruption-ridden system that is dependent on currency faces greater difficulties in overcoming its problems. The chronic political crisis in Venezuela, where the monopolistic government and the fragmented and partially violent opposition cannot find common ground for dialogue and power-sharing, alongside crises such as rising malnutrition and the dysfunction of the country's healthcare system and the resurgence of several diseases, has all combined to turn the Venezuelan crisis into a blend of three crises: economic, political, and humanitarian. Since 2015, nearly two million of Venezuela's population have left, mainly due to economic and livelihood issues, heading to Colombia, Peru, and Ecuador. Recently, the Venezuelan government has turned to new decisions to manage the economic crisis, including liberalizing the exchange rate, except for essential goods. According to a decree on July 30, the 'Constituent Assembly,' a parallel assembly created by the government to strip the opposition-controlled National Assembly of its power, has abolished the official and fixed exchange rate from August 20, allowing any legal entity in Venezuela to buy and sell currency as much as they want. However, the decree has left the method for determining the exchange rate in the free market and its relation to the official currency unaddressed. The goal of this decree has been declared as creating opportunities for domestic and foreign investors to 'actively participate in Venezuela's economic, productive, and social activities' and to ensure 'the highest degree of security for foreign investments' to 'create a new economic model for greater welfare for the people of Venezuela.' In 2003, when the government resorted to setting the exchange rate administratively, the goal was to 'curb the outflow of currency from the country and provide the government with broad access to the necessary currency for importing public necessities and combating poverty.' However, the difference between the official exchange rate and the black market rate created a wide field for corruption and rent-seeking. Additionally, the kneeling of domestic production against cheaper foreign essential goods imports (like sugar in Iran?) tempted some manufacturing companies to queue for currency and become importers instead of producers. Imported goods at the official exchange rate were also partially sold in black and gray markets at higher prices (recent embezzlement and fraud cases in Iran after the announcement of the official price of 4200 tomans for the dollar?) or even smuggled to neighboring countries. The relatively ambiguous recent decree from Venezuela's legislative assembly regarding the liberalization of the exchange rate (similar to the recent decree from Iran) or Maduro's decision to remove five zeros from the national currency does not necessarily resolve the economic crisis, the currency shortage, and astronomical inflation, facing significant questions, especially since the government lacks a specific plan to combat economic corruption and money laundering or to diversify the country's income sources (freeing from dependence on oil sales) and to create growth and prosperity in production and services. In terms of curbing fuel consumption and reducing the provision of subsidized gasoline, which is itself a means of looting national wealth and widespread fuel smuggling to neighboring countries, the government has also decided to raise gasoline prices to the level of prices in neighboring countries and, like Iran, resort to providing cash subsidies to car owners, an approach that could also create a new ground for corruption and rent-seeking and impose a heavy national burden on the government. Overall, the economies of Iran and Venezuela share many similarities in terms of dependence on oil, the central role of governmental and quasi-governmental institutions in ownership and decision-making, and chronic and widespread corruption and inefficiency. The ambiguity of the oil market situation and the end of the reliance on oil revenues, along with crises in foreign relations and also in the domestic political arena, also affect and are affected by the economic crisis. The difference that may not be insignificant is that both countries have simultaneously resorted to approaches and decisions for which there are serious doubts about their effectiveness and sustainability in managing and fundamentally resolving the crisis. As far as the current economic crisis is concerned, influenced by the somewhat unbalanced and tense foreign relations of both countries at the international and regional levels, there is still no cohesive and unified will for reforming approaches and directions, and both countries are largely waiting for political (or military) equations in the region or Washington to change. The only difference may be that in Venezuela, the multiplicity of power institutions is less than in Iran, and the government truly has complete authority over affairs; the country's constitution is less ideological, and the weight of appointed institutions is not as heavy and extensive as that of Iran's constitution. These differences make the decision-making process in Venezuela easier than in Iran, and if there is a strong will for change and transformation, and the internal and external equations and the interests of the involved groups reach a consensus on a national solution, the crisis can be resolved more easily. In other words, in both countries, resolving the economic crisis is increasingly tied to political decisions, whether in the domestic arena or in international and regional relations. The real and legal system and the ideological constitution based on a vicious cycle, which is centered around an institution (the Supreme Leader) with extensive and unaccountable powers, makes Iran's movement toward such decisions more difficult, as we have seen in previous similar crises.