Real Story Behind Supreme Leader’s “Resistance Economy”

The Iranian economy is in a state of emergency. Those who endlessly declare, “Iran has won”, have missed this hard reality.

Saying this, one should avoid falling into the classical trap — or aspiration — that “both economy and regime are collapsing”. This would be an enormous mistake: if nuclear negotiations collapse, the regime will try to survive at any cost.

In part, that is the message of the Supreme Leader’s proclamation of “Resistance Economy”.

However, Ayatollah Khamenei is also making an admission: even if a final nuclear agreement is reached, then Iran faces an conomic crisis born from both sanctions and the eight-year mismanagement of the Ahmadinejad Government.

The deleterious effects of a rentier economy, control and confiscation of resources by factions — such as the Revolutionary Guards and their friends — and corruption will not end with a miraculous flow of long-awaited dollars. Withdrawal of financial restrictions will be a painstaking job, not least in getting the US Congress to rescind sanctions legislation, and the economy needs fundamental, in-depth reform including a sensible approach to privatization.

The hope — embodied in the statements of the Rouhani Government about investment in the energy sector — is that foreign firms will move quickly into an attractive Iranian market, bringing financial oxygen so Iranian entrepreneurs and a strangled economy can recover and rebuild. The Islamic Republic may also look for assistance from the World Bank and International Monetary Fund.

But these are only hopes, not realities, and the Supreme Leader, with his deep distrust of Washington, does not want to be taken by surprise.

Thus, on the one hand, Ayatollah Khamenei is offering tough rhetoric for conservatives and hardliners, declaring that the Iranian economy can withstand sanctions and other pressures. And on the other, he is empowering the Rouhani Government.

The plan put forward by the Supreme Leader last week may go beyond urgent repairs and safekeeping and start implementing critical reforms. Drafted by the Center for Strategic Research, now heading by Khamenei’s top advisor Ali Akbar Velayati, it looks for a comprehensive approach to investment, production, taxation, and Government expenditure.

President Rouhani’s hope is for a genuine, transparent privatization that will not be a tool for the Revolutionary Guards, Basij militia, and other groups to grab companies and recycle large amount of funds — fueling inflation while doing little for long-term growth.

This cannot be achieved in one dramatic step: the businesses of the Revolutionary Guards are too entrenched. So Rouhani and his advisors have to match economic measures with careful political steps, for example, increasing the allocation to the Guards in this year’s Government budget while cutting back funds to the Basij. Guards commanders Rostam Qassemi, who had been Minister of Oil under Ahmadinejad, has been appointed as advisor to 1st Vice-President Eshagh Jahangiri — he has specific responsibility for economic and business relationship with Iraq, with Tehran and Baghdad pursuing mutual benefits over oil, gas, and electricity.

Rouhani will also face a challenge over largesse to the large network of Iranian foundations and organizations supported by the State. A Parliamentary commission recently decided to restrict aid to 51 entities, including the Sadra Foundation, headed by the Supreme Leader; however, Speaker of Parliament Ali Larijani urged MPs to reinstitute funding to some of the organizations.

However, for now, the President has the Supreme Leader’s backing. Supporting the line over privatization and corruption, Khamenei summoned Rouhani, Ali Larijani, and head of judiciary Sadegh Larijani to demand that all branches of Government maintain the same line while pursuing implementation at full speed.

Shaken by Rouhani’s reports since last autumn of the scale of the economic crisis, the Supreme Leader appears to be accepting that the Revolutionary Guards have an excessive influence in both economic and political spheres. As there will undoubtedly be issues raised about the Government’s proposals, both regarding Constitutional legitimacy and the effect of institutions, that endorsement from the top is vital.

There is no guarantee that the Guards will roll over in the face of Khamenei’s support for Rouhani — their defiance this week of the President’s call to mute anti-US threats is notable. But they, and the hardline opposition groups who may be alongside them, have to weigh the political cost of defying the Supreme Leader as well as challenging the Government.

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