September 23, 2020

Iran looks abroad to handle currency crisis

[Notice: The Critical Threats Project frequently cites sources from foreign domains. All such links are identified with an asterisk (*) for the reader's awareness.]

Iran’s mounting economic crisis is pushing the Islamic Republic to take riskier actions that will raise tensions with the US and its allies. The Iranian rial reached a record low on September 20 and has lost around 49 percent of its value in 2020. The regime fears protests in response to the recession and has injected billions of dollars into the economy to stabilize the rial. Iranian leaders are pursuing several different campaigns internationally, including cooperating with Venezuela and pressuring the UK, to bolster their remaining currency reserves in preparation for intervening in the currency market again. Political infighting has stalled regime efforts to acquire currency domestically.

The Islamic Republic risks escalation with the US by expanding economic cooperation with Venezuela. Iran *agreed in April to exchange fuel and technical expertise needed to restart energy infrastructure for around $500 million of Venezuelan gold. Nine Iranian fuel tankers sailed to Venezuela in May and June, but the US confiscated the cargo of four of them in August. The Trump administration had previously threatened to sanction tanker companies and floated using military force to seize future Iranian shipments.

Iranian leaders have clearly decided to risk US interdictions and escalation to trade with the Maduro regime. Iran has sent at least four additional tankers in recent weeks. Iranian state media previously *threatened retaliation against US commercial ships if the Trump administration interferes with Iranian shipments. Iran’s conventional navy briefly captured a Liberian-flagged tanker off the Emirati coast in August in response to the US seizures.

Iran is also increasing political pressure on the UK to pay a long-standing debt of around $470 million. The regime saw an opening when British Defense Secretary Ben Wallace acknowledged the outstanding debt (from a 1971 arms agreement) for the first time in early September. The Iranian Judiciary levied new charges against jailed British-Iranian aid worker Nazanin Zaghari-Ratcliffe on September 15 and postponed her trial to increase pressure on the UK. The regime has tried to leverage Zaghari-Ratcliffe since her 2016 arrest.

Regime infighting is stalling efforts to acquire hard currency internally. President Hassan Rouhani *has lobbied for selling oil bonds domestically since August. His hardline political rivals, Judiciary Chief Ebrahim Raisi and Parliament Speaker Mohammad Bagher Ghalibaf, have *opposed him. The three jointly chair the Supreme Economic Coordination Council, which is Iran’s “economic war room” to mitigate sanctions and set major economic policies. Supreme Leader Ayatollah Ali Khamenei has required Rouhani to obtain Raisi’s and Ghalibaf’s approval to implement the plan.

Hardliners’ political influence has expanded since their victory in Iran’s February legislative elections. They will try to undermine Rouhani and his moderate agenda for his remaining year in office. Raisi and Ghalibaf will likely continue stonewalling the bond sales initiative, further discrediting Rouhani as he is unable to manage Iran’s currency crisis.