Iran's Hardliners Seek More Control Over Economy, Private Sector
Conflicting reports about the removal of Iran’s Chamber of Commerce chairman indicate a push by hardliners to take control of the country’s private sector.
Conflicting reports about the removal of Iran’s Chamber of Commerce chairman indicate a push by hardliners to take control of the country’s private sector.
On Monday, state media reported that the head of the country’s Chamber of Commerce has been sacked after over four months of contentious relations with the hardliners in President Ebrahim Raisi’s administration, who rejoiced the development on social media. On Tuesday, the report was dismissed by the incumbent chairman himself, Hossein Salahvarzi, whose election in June was a manifestation of the growing divide between the hardliners and the businesspeople.
A large chunk of Iran's economy is controlled by the government and quasi-state foundations, where hardliners have a strong presence as managers with conflicting private interests.
The chamber is often referred to as the “private sector’s parliament” with over 400 members. The chairman's role is coordinating between the private sector and government and is sometimes required to participate in meetings with government officials. However, due to Salahvarzi’s critical views about the government's policies and performance, he was shunned by the administration and was never invited to any of meetings during the past four months, practically sidelining the private sector. The government also froze all its dealings with the chamber to force Salahvarzi out, and even published several fake news about his resignation during the past several months.
Although he won the election fair and square, obtaining 265 votes against 95 votes for Younes Zhaeleh, -- known to have close ties with the government -- the hardliners claim he was disqualified from running in the election by Iran’s Intelligence Ministry. However, the country’s judiciary approved the results of the election, and the parliament did not contest the results, and even the president himself only called for clarification on the issue.
Members of the chamber who are usually private businessmen have often criticized regime policies that have led to an economic crisis, including a confrontational foreign policy. The chambers often produce economic reports that the government finds embarrassing, or they criticize proposed budget bills and other plans.
The real development that occurred Monday was a session of a regulatory board of the chamber, which ended without any agreement, according to Salahvarzi’s post on X social media platform (formerly twitter).
Ali Shariati, a member of the chamber, described the media stunt about removal of Salahvarzi as “a coup against Minister of Industry, Mine, and Trade Abbas Aliabadi,” who holds the position since June. He claimed that the move was orchestrated by members of Iran’s ultra-hardliner Paydari (Steadfastness) Party, as a psychological operation to put pressure on Aliabadi, who does not belong to the group, but oversees the chamber. The party has its tentacles in all government institutions including the parliament where their members form a very influential minority that often takes a leading role amid the weak presence of established conservative and reformist parties. Shariati says the private sector will not allow the hardliners to engineer the elections and suppress the rule of law.
Hossein Marouf, another member of the chamber, told FarazDaily that chambers of commerce are advocacy organizations, explaining that the head of chambers should be part of the top-level government decision making and represent the private sector's demands. “When the government boycotts the chamber’s chairman and doesn't allow him to participate in meetings, there is no chance to effectively pursue demands.”
In the meantime, there is more bad economic news for the government. New reports indicate that the regime is not gaining revenues from its oil exports as much as it advertises, and its budget deficit will be twice as worse as that of the current year. The regime has reasons to muddy the data on its sanctions-hit income, but the parallel systems it has created during the years to circumvent international checks and balances have come back to bite its struggling economy.
Economist Mohammad Gholi Yousefi says Iran needs comprehensive economic reform to eliminate parallel institutions, allowing the private sector to have room for growth. He rejected the common belief that Iran’s economy will flourish if sanctions are removed, saying, “The problem is that we have a big government that intervenes in all affairs, disrupts the economic system, restricts the private sector, and even interferes in people's private lives. To achieve this significant change, amending the constitution is essential.”
Referring to another common belief that Iran’s accession to the Financial Action Task Force (FATF) will lift up the economy, he said, “So long as the constitution remains unamended and individual, social, and economic freedom are not seriously exercised, the lifting of sanctions and international agreements will not significantly contribute to the recovery of the economy.”
Davoud Manzour, the head of Planning and Budget Organization (PBO), revealed on October 22 that the 7-month budget has only been realized by 70%, largely due to the unrealistic oil income estimates. While specific figures were not mentioned, Manzour cited discrepancies in both the projected oil prices and export volumes compared to the budget estimates.
As per this year’s government budget, Iran needs to export 1.5 million barrels per day (mb/d) of crude oil and gas condensate at an average price of $85 per barrel to balance its budget, which heavily depends on oil revenues. The government’s budget this year totals 22,630 trillion rial (approximately $45 billion at the free-market USD rate, with the government's share of total oil export revenues standing at 6,200 trillion rials ($12.5 billion), representing 42.5%.
Earlier, the Planning and Budget Organization had reported that only 42 percent of the expected oil revenues were realized from March 21-July 20, a figure that increased to 50 percent in August following higher oil exports. However, the realization of only 70 percent of the government budget over seven months implies a budget deficit of 3,960 trillion rials during that period. If this trend persists, it could culminate in a budget deficit of 6,788 trillion rials ($13.5 billion), marking the highest budget deficit in Iran's history.
The reasons for lower oil revenues
A notable point is that Manzour gave a much lower daily oil export figure than what has been mentioned by Reuters and others since August that claimed 1.85 million barrels per day. At this point the reason for the discrepancy is hard to pinpoint, but Iran’s revenue problems point to both lower volumes of exports and lower revenues.
Iran is delivering oil to Chinese independent and small refineries, called teapots, with 3-month delays in payments. Therefore, Iran’s March-September oil budget realization should be calculated based on January-July 2023 export data.
OPEC statistics indicate that during this period, the average Iranian oil price was $81/barrel, or $4 less than the estimate in the budget bill.
Though Iran’s oil exports soared to 1.5 mb/d in the summer, during January-July 2023, its average oil shipments were 1.2 mb/d, according to Kpler, commodity intelligence company.
On the other hand, about 6.6% or 80,000 b/day of Iranian exported oil was delivered to Syria in this period, a country that receives reportedly free oil from the Islamic Revolutionary Guard Corps, as Iran’s financial assistance to the Bashar Asad regime and regional proxies such as Hezbollah. Iran also delivered 22,000 b/d of gas condensate (ultralight oil) to Venezuela in this period to enable Caracas to boost its crude exports. The Venezuelan oil is too heavy for easy shipping, but when mixed with light Iranian oil, it becomes easier to ship.
Therefore, in total Iran exported only a little more than 1.1 mb/d to China in January-July 2023, about 400,000 b/d less than the budget bill estimate.
The costs for bypassing US sanctions
According to the Reuters and Bloomberg’s reports, Chinese teapots purchase Iranian oil with $10-$12 per barrel of discount.
On the other hand, international tanker tracking companies say a huge amount of Iranian oil is sold to China by middlemen and brokers, by ship-to-ship transfers in and the cargoes mostly are rebranded as Malaysian oil. The transfers take place in international waters, and apparently Malaysia does not interfere.
Therefore, Iran is not only giving a discount to end buyers, but also offers an undetermined amount of its profits to middlemen and tanker companies that are engaged in the diversionary oil export operations. The actual amount that Iran eventually earns could be closer to $40 per barrel than around $70.
On the other hand, Iran barters a part of its oil with Chinese goods.
The China Custom Administration’s statistics show a huge unbalanced non-oil trade with Iran. China has exported $7.493 billion goods to Iran in the first eight months of 2023, while its non-oil imports from Iran was only $3.287 billion.
The barter stems partly from US sanctions on Iran’s oil exports and the banking sector. Chinese buyers cannot easily transfer foreign currencies to Iran. The money needs to be laundered in different ways and in various countries in Asia and in the Persian Gulf.
While the Biden administration has not rigorously enforced US sanctions, thus permitting increased Iranian exports, there's a possibility that some of the optimistic estimates regarding Iran's oil revenues may not be entirely accurate. However, if the sanctions were enforced and Tehran could only sell a limited amount, such as the 500,000 barrels per day seen in 2019 and early 2020, the financial situation in the Islamic Republic would be considerably more dire today.