Editor’s Note: Ali Dadpay is an Iranian-American economist who specializes in analyzing the impact of Iranian domestic and foreign policy on the country’s embattled economy. He has written for Stimson previously about the importance of precious metals as a hedge against instability in the stock market and a declining currency.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
As reformist Masoud Pezeshkian and hardliner Saeed Jalili compete in a run-off round Friday in Iran’s presidential elections, the country’s economy fluctuates between pessimism and panic. Stock prices have already begun falling, while hard currency and gold are gaining as Iranians turn to hard assets to protect what little savings they have left.
On June 20, after a week or rising prices, the Tehran Stock Exchange (TSE) experienced a rapid fall in indexes and stock prices across various sectors. Investors and traders are holding their breath as Iran’s presidential elections move to a second round. TSE regulators have limited the daily index changes to five percent, but there is no such limit on gold and hard currency exchanges.
On June 30, two days after the first round of voting failed to produce a winner, the price of gold increased by 5.17 percent. Gold prices would likely have risen even further if not for the scrutiny of the gold market by Islamic Republic security agencies. Their readiness to arrest gold traders and raid their stores help to nominally stabilize the market; many traders fail to report high-price trades to avoid repercussions.
According to Donya e Eghtesad Daily, investors have been leaving the TSE for nearly the last three years. The volume of capital that has fled is estimated to be around 179 trillion tomans, equivalent to U.S. $3 billion. Uncertainty about Iran’s economic future has accelerated these trends. Daily capital flights on June 30 increased nine-fold, reaching 801 billion tomans, equivalent to U.S. $13.3 million. The number of private investors cashing out of the market increased even further, by 1000 percent. Few Iranians are willing to hold onto their portfolios until the presidential election is decided.
Iranians have no illusions about the future of the economy under either candidate. They have lived and worked under both reformist and hardline administrations as sanctions were isolating Iran’s economy. They have witnessed an increasingly interfering government and the growing presence of military organizations in all economic sectors. They have also seen rising corruption that cripples business plans and economic interactions as government officials ask for hefty payoffs to process the necessary paperwork. To hope for a better future is a luxury many Iranians can ill afford.
Reformist Pezeshkian has promised to lift sanctions and bring about economic prosperity and growth. Jalili has also vowed to increase employment and focus on somehow replacing the U.S. dollar with other currencies in Iran’s foreign trade. He also wants to expand government monitoring of various markets. Many Iranians believe Jalili would be more autocratic in implementing his policies and that Pezeshkian would have trouble delivering on his promises because of entrenched opposition from the clerical/military-led system.
Many private investors and small business owners are also concerned with Jalili’s lack of executive experience. A former (and failed) nuclear negotiator, Jalili might not follow expert opinions on the economy. When it comes to reducing risk in the market, Jalili believes Iran can manage and deal with the costs. Pezeshkian speaks of an open-door policy, respect for diplomacy and prosecution of those who attack embassies, like hardline vigilantes did to the Saudi embassy in 2016, leading Riyadh to break ties. Many of Jalili’s ardent supporters are among those self-styled Hezbollah.
Mohammad Tabibian, an Iranian economist and an advocate of the free market, considers Jalili’s agenda one that would increase poverty and volatility. He is not alone. Five Iranian economists issued a statement, urging Iranians to vote for Pezeshkian to prevent “a major economic crisis.”
The choice is not that simple.
Recent trends in the stock and gold markets demonstrate the complicated situation of Iranians, who are facing the future with pessimistic realism. Accustomed to the internal power struggles of the last decades, Iranians remember that the promise of economic prosperity and an end to sanctions pushed Hassan Rouhani to victory in presidential elections in 2013 and 2017. It took the Rouhani administration the better part of its first term to reach an agreement that curbed Iran’s nuclear advances in return for lifting sanctions. However, the Joint Comprehensive Plan of Action (JCPOA), known as Barjam in Farsi, was sabotaged by hardliners, and the Trump administration unilaterally quit the deal in 2018. Rouhani also failed to reduce corruption or carry out other meaningful reforms, such as getting Iran off the blacklist of the Financial Action Task Force (FATF), the global watchdog for terrorism financing and money laundering.
Thus, Iranians are not impressed by Pezeshkian’s promise to lift sanctions. They know that without curbing the influence of military organizations and security apparatuses, the economic situation stands little chance of improvement, even if sanctions are eased.
As hundreds of private investors cash out their stock portfolios, many believe the Iranian economy has passed the point of no return. Without any guarantee from Supreme Leader Ayatollah Ali Khamenei to give an open hand to the elected president to lift sanctions, Iranians believe hardliners, with help from the Islamic Revolutionary Guard Corps, would sabotage any meaningful economic opening even if Pezeshkian wins.
Remembering their bitter experiences, Iranians are preparing for increased volatility and returning to assets they have used for the past 45 years to protect their savings and ensure their livelihoods. No matter what happens on Friday, hard currency and gold will continue to dominate Iran’s capital market for the foreseeable future.
Ali Dadpay is an associate professor of economics and finance at the University of North Texas Health Science Center.
Iran’s Economy Keeps Declining Amid Political Uncertainty and Popular Discontent
By Ali Dadpay
Middle East & North Africa
Editor’s Note: Ali Dadpay is an Iranian-American economist who specializes in analyzing the impact of Iranian domestic and foreign policy on the country’s embattled economy. He has written for Stimson previously about the importance of precious metals as a hedge against instability in the stock market and a declining currency.
By Barbara Slavin, Distinguished Fellow, Middle East Perspectives
As reformist Masoud Pezeshkian and hardliner Saeed Jalili compete in a run-off round Friday in Iran’s presidential elections, the country’s economy fluctuates between pessimism and panic. Stock prices have already begun falling, while hard currency and gold are gaining as Iranians turn to hard assets to protect what little savings they have left.
On June 20, after a week or rising prices, the Tehran Stock Exchange (TSE) experienced a rapid fall in indexes and stock prices across various sectors. Investors and traders are holding their breath as Iran’s presidential elections move to a second round. TSE regulators have limited the daily index changes to five percent, but there is no such limit on gold and hard currency exchanges.
On June 30, two days after the first round of voting failed to produce a winner, the price of gold increased by 5.17 percent. Gold prices would likely have risen even further if not for the scrutiny of the gold market by Islamic Republic security agencies. Their readiness to arrest gold traders and raid their stores help to nominally stabilize the market; many traders fail to report high-price trades to avoid repercussions.
According to Donya e Eghtesad Daily, investors have been leaving the TSE for nearly the last three years. The volume of capital that has fled is estimated to be around 179 trillion tomans, equivalent to U.S. $3 billion. Uncertainty about Iran’s economic future has accelerated these trends. Daily capital flights on June 30 increased nine-fold, reaching 801 billion tomans, equivalent to U.S. $13.3 million. The number of private investors cashing out of the market increased even further, by 1000 percent. Few Iranians are willing to hold onto their portfolios until the presidential election is decided.
Iranians have no illusions about the future of the economy under either candidate. They have lived and worked under both reformist and hardline administrations as sanctions were isolating Iran’s economy. They have witnessed an increasingly interfering government and the growing presence of military organizations in all economic sectors. They have also seen rising corruption that cripples business plans and economic interactions as government officials ask for hefty payoffs to process the necessary paperwork. To hope for a better future is a luxury many Iranians can ill afford.
Reformist Pezeshkian has promised to lift sanctions and bring about economic prosperity and growth. Jalili has also vowed to increase employment and focus on somehow replacing the U.S. dollar with other currencies in Iran’s foreign trade. He also wants to expand government monitoring of various markets. Many Iranians believe Jalili would be more autocratic in implementing his policies and that Pezeshkian would have trouble delivering on his promises because of entrenched opposition from the clerical/military-led system.
Many private investors and small business owners are also concerned with Jalili’s lack of executive experience. A former (and failed) nuclear negotiator, Jalili might not follow expert opinions on the economy. When it comes to reducing risk in the market, Jalili believes Iran can manage and deal with the costs. Pezeshkian speaks of an open-door policy, respect for diplomacy and prosecution of those who attack embassies, like hardline vigilantes did to the Saudi embassy in 2016, leading Riyadh to break ties. Many of Jalili’s ardent supporters are among those self-styled Hezbollah.
Mohammad Tabibian, an Iranian economist and an advocate of the free market, considers Jalili’s agenda one that would increase poverty and volatility. He is not alone. Five Iranian economists issued a statement, urging Iranians to vote for Pezeshkian to prevent “a major economic crisis.”
The choice is not that simple.
Recent trends in the stock and gold markets demonstrate the complicated situation of Iranians, who are facing the future with pessimistic realism. Accustomed to the internal power struggles of the last decades, Iranians remember that the promise of economic prosperity and an end to sanctions pushed Hassan Rouhani to victory in presidential elections in 2013 and 2017. It took the Rouhani administration the better part of its first term to reach an agreement that curbed Iran’s nuclear advances in return for lifting sanctions. However, the Joint Comprehensive Plan of Action (JCPOA), known as Barjam in Farsi, was sabotaged by hardliners, and the Trump administration unilaterally quit the deal in 2018. Rouhani also failed to reduce corruption or carry out other meaningful reforms, such as getting Iran off the blacklist of the Financial Action Task Force (FATF), the global watchdog for terrorism financing and money laundering.
Thus, Iranians are not impressed by Pezeshkian’s promise to lift sanctions. They know that without curbing the influence of military organizations and security apparatuses, the economic situation stands little chance of improvement, even if sanctions are eased.
As hundreds of private investors cash out their stock portfolios, many believe the Iranian economy has passed the point of no return. Without any guarantee from Supreme Leader Ayatollah Ali Khamenei to give an open hand to the elected president to lift sanctions, Iranians believe hardliners, with help from the Islamic Revolutionary Guard Corps, would sabotage any meaningful economic opening even if Pezeshkian wins.
Remembering their bitter experiences, Iranians are preparing for increased volatility and returning to assets they have used for the past 45 years to protect their savings and ensure their livelihoods. No matter what happens on Friday, hard currency and gold will continue to dominate Iran’s capital market for the foreseeable future.
Ali Dadpay is an associate professor of economics and finance at the University of North Texas Health Science Center.
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