Iran’s Economic Climate and the Post-Election Crisis (Re-post)

Even before the current political crisis began in June 2009, Iran’s economy was confronted with many daunting challenges. Investors were already feeling the pressures of inconsistent economic policies and intensifying international sanctions on their shoulders. The street protests and political unrest that have follwd the disputed election have led to further deterioration in the economic climate. Now the economic players must deal with a new level of political uncertainty unprecedented since the early years of the Islamic revolution.

The election dispute has evolved into a deep division in the highest ranks of the Islamic regime. So far the ruling faction of Ayatollah Khamenei and the Revolutionary Guard has been unable to neutralize the protest movement led by former candidates Mir Hossein Moussavi, and Mehdi Karroubi. These two opposition leaders also enjoy the support of former President Khatami and several high ranking Shi'ite clerics such as Ayatollah Montazeri. At the same time it appears that the protest movement is also unable to defeat the ruling faction or force it into a compromise anytime soon. Nearly five months have past since the initial street demonstrations and yet the total number of people who join the periodic street protests in Tehran does not exceed two or three hundred thousand.

Hence private investors and business owners are gradually arriving at the conclusion that unlike the 1979 Islamic revolution which reached a climax in a relatively short period of time, (period of intense street protests lasted no more than 9 months), the current power struggle can drag on for a significantly longer interval. There is also much uncertainty about how it might end and which faction will win. The worst possible outcome for Iran's economy is the escalation of current protests into large scale political violence or a civil war similar to the Algerian experience in 1990s. Although the likelihood of such a scenario is small, it is a cause for concern among businessmen and investors and can discourage long-term investments.