In its quest to weather the sanctions imposed against it, the Islamic Republic of Iran has resorted to political, economic and — most interestingly — socio-religious instruments.
For a long time, Iran's reaction to Western sanctions was to downplay their effects on the Iranian economy. The official tone was that the sanctions would strengthen the Islamic Republic by compelling Iranians to produce all of the embargoed products themselves. Iranian President Mahmoud Ahmadinejad even called sanctions on Iranian exports, mainly oil, “ridiculous,” saying that it is “funny” to see the West “using oil as a political weapon against a country that is an oil producer itself.”
Today, after six years of successively strengthened international and unilateral sanctions, the Iranian economy is apparently beginning to suffer. Critical commodities, especially for the medical sector, are not available anymore; the rial, already infamous for its instability, has experienced a historic devaluation; and some key industries, like the automotive sector, are facing a lack of spare parts.
Meanwhile, the rhetoric of the Iranian leadership has changed. The president is facing harsh critics from the parliamentarian opposition, which holds him responsible for the economic hardships. The opposition is applying the president's own logic when blaming the president and not the sanctions for the worsening economic situation. It is Ahmadinejad who has repeatedly claimed that the sanctions could not hurt Iran, so who else should be responsible?
The government’s subsidy reform plan, a very rational approach to boost domestic demand and the productivity of the industrial sector, has been the president's prestige project since it was launched at the end of 2010. Now, it has become — together with the president himself — the scapegoat for all of the country’s hardships.
However, Ayatollah Ali Khamenei, the most powerful man in Iran and Supreme Leader of the Islamic Republic, has thrown his support behind Ahmadinejad and has turned the blame back onto the sanctions. “We acknowledge the pressures and sanctions,” he said during a speech to government officials. He admitted that the economic actions against Iran have effects on the government’s performance and the daily life of the people.
For the Ayatollah, the main culprit is not the president, but the “arrogant powers,” namely the United States and some of its allies. According to Khamenei, the US and its allies are not against the Iranian nuclear program, but against the Islamic Republic in principle. “They were ruling the region without any worries. They had full control over a country like Iran, with its rich resources and numerous facilities… But now they have been deprived of all these things,” the Ayatollah stated in the same speech.
Tehran believes that even if the nuclear issue is resolved, Iran’s adversaries would find a new cause for pressuring the country. Consequently, there is no prospect for a diplomatic solution from the Iranian perspective apart from submission to Western pressure. And so, Tehran's objective is to mitigate the impacts of these seemingly unavoidable sanctions, by applying several short-, medium- and long-term strategies using political, fiscal and even religious instruments.
The Politico-Economic Front
On the politico-economic front, Iran maintains a long-term strategy of diversification of its diplomatic relations and strategic economic partnerships. It pursues a set of initiatives aimed at strengthening its relations with countries in the region and worldwide, including almost all South American and Asian countries. Neighboring countries are prioritized in Iranian foreign policy, in hopes that a stable and strong neighborhood will have positive impacts on Iran. However, during the last decade, Iranian embassies have also been opened in countries that most Iranians probably have never heard of.
In addition, Iran is very active in fostering the role of international organizations independent from the West, like the Economic Cooperation Organization, the Organisation of the Islamic Cooperation and even the Shanghai Cooperation Organisation, in which Iran is only an observer state. Tehran hopes to undermine the unilateral capacity of the West to act against Iran as it did against Yugoslavia in 1998 and Iraq in 2003. In the zero-sum game of international power distribution, every increase in the power of independent organizations comes with a power decrease for the US. In addition, it lowers the US capability to form a consensus against Tehran in international institutions like the United Nations Security Council.
In the medium-term, China, India and recently Turkey are playing critical roles in Iran's diplomatic efforts. Iran's strategic politico-economic relations with these key Asian powers are the main factor abating the effectiveness of Western sanctions on the Iranian energy sector. China has become the biggest recipient of Iranian oil after increasing its imports earlier this year. India is Iran’s second largest oil buyer, and there are ongoing Iranian efforts to extend the Iran-Pakistan gas pipeline into India. The main recipient of Iranian gas is Turkey, to which Tehran exported about 21 million cubic meters of natural gas between July 2011 and June 2012.
To counter the domestic short-term impacts of the financial sanctions, the Iranian Central Bank has instituted a multiple exchange rate system. Due to Iran’s huge oil revenues and foreign currency reserves, the government can choose to sell rials at an artificial rate, far lower than the one on the free market. And it does so, depending on the priority which it assigns for the goods in question. Food enjoys the lowest exchange rate, while luxury goods have no subsidies at all. This system is the reason why the impact of the recent devaluation of the rial — an event that caused many Western analysts and pundits to predict the immediate collapse of the Iranian economy — has been less dramatic for the Islamic Republic than expected.
In one way, the devaluation of the rial and the separation from the international financial market are unexpectedly helping the Iranian economy. On the quest of middle- and upper-class Iranians for a safe harbor for their savings, they have resorted to investments in the national stock market, thereby providing Iranian enterprises with unexpected liquidity. Given the lack of certain industrial goods, this liquidity might become the seed money for Iranian industries to invest in research and development activities aimed at designing the lacking commodities and spare parts. Ultimately, this could increase self-sufficiency in certain areas of the Iranian economy.
A Religious Strategy
This trend toward economic self-sufficiency mirrors another Iranian strategy for resisting sanctions, a religious strategy. Supreme Leader Khamenei delineated a concept that, if applied, would produce a situation where “not only will their technique [Western sanctions and pressure] prove ineffective, but also it will be impossible for them [the West] to repeat such things in the future.” Khamenei aims to include every aspect of the Iranian economy in the framework of an economy of resistance.
Every economic actor in Iran is asked to consider the impacts that his individual economic decisions have on the country's interests — a practice which contradicts the academic economic dogma that individuals act as egoistic, self-serving profit maximizers. The economy of resistance's aim is to provide the Iranian homo economicus with a disposition to serve the country's interests.
How should that work for a country of 75 million individuals? The Ayatollah has turned the individual support for the economy of resistance into a religious obligation by issuing an economic fatwa, a powerful tool in a highly religious society like Iran’s. Khamenei, one of the most influential marjas* in the world, is applying an economic weapon that is reminiscent of a fatwa that led to the Iranian Tobacco Protest in 1891.
Then Iranian ruler Nasir al-Din Shah had granted a concession to a British company for a full monopoly over the tobacco industry, an act which was seen countrywide as a submission to Western imperialism. The influential marja Mirza Hassan Shirazi responded by declaring the consumption of tobacco religiously forbidden, and the resulting nationwide boycott of tobacco led to the cancellation of the concession. The collective boycott was interpreted as a victory of individual religious conscience over egoistic consumption interests.
Today we have a different situation and a different fatwa. Khamenei's call asks not for the boycott of one product, but for a change in the whole economic culture. This global character of the fatwa may limit its effectiveness, but for the same reason, will increase the range of its effects. Every single economic decision in Iran becomes a matter of religion.
The Iranian leadership's ambition is for millions of people to choose to buy Iranian products instead of foreign ones (a Khodro instead of a Peugeot, for example), for wealthy Iranians to start investing in Iranian enterprises instead of in foreign currencies, and for thousands of engineers to become motivated to work harder and be more creative, all for the sake of religion and the well-being of their county. Thus, the core idea of the economy of resistance is that millions of individually altered decisions provide, when aggregated, the whole country with an unseen boost for its economy and self-sufficiency.
Should this extraordinary Iranian economic weapon turn out to be successful, academics will be confronted with a truly revolutionary economic phenomenon. The dogma of a national economy composed of egoistic profit maximizers would become obsolete in the Iranian case. Special concepts of behavioral economics would be necessary to properly analyze the Iranian economy of resistance.
There is much at stake for the Islamic Republic. The success of the economy of resistance depends on the participation of the bulk of Iranian society, and the fatwa's success or failure in mobilizing Iranians will disclose their level of trust in the problem-solving capacity of the Iranian Islamic system.
Should the economy of resistance fail, Iran's ability to face the sanctions will become highly dependent on the country’s fiscal and the political strategies. These policies might limit the effects of sanctions, but they carry an important ideological disadvantage for the Islamic Republic. The fiscal strategy, which is highly oil-dependent, and the political strategy, which relies on foreign powers, cost Iran one of the main pillars of its ideological legitimization: the country’s independence.
*A marja is a religious authority in Shi'a Islam who makes binding legal decisions for his laymen followers and for less-credentialed clerics.
The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.