DUBAI // A big oil price slide will hurt Iran’s attempts to rescue battered living standards, but economic pain is unlikely to soften its stance in nuclear talks or end aid to allies such as Syria – matters seen by its ruling clerics as strategic priorities.
Economic misery due to sanctions and mismanagement has been a reality for years, and while social strains in the 76 million population are deep, the clerics will seek to contain them, say experts examining Iran’s budget plans for 2015.
The largest drop in oil prices since the 2008 financial crisis means more budget pressure for the OPEC member, already bereft of tens of billions of dollars in oil revenue due to Western sanctions and years of economic mismanagement.
And tougher economic times may spur Tehran’s determination to end a nuclear dispute and lift sanctions that isolate it from the global banking system and deter most foreign investors.
But significant changes in Iran’s regional strategy including its approach to any nuclear deal are unlikely.
That is partly because funds for security affairs come from Supreme Leader Ayatollah Ali Khamenei, not the government. He also decides nuclear policy.
“Our support to our brother Assad will never change,” said a senior Iranian official, referring to Syrian president Bashar Al Assad. “Because of [declining] oil prices we face economic hardship ... but we will mange to continue our support to Syria, militarily and financially.”
The fall of oil price would hurt, but was unlikely to make Iran accept a nuclear deal “that it views as lopside, said Ali Vaez, of the International Crisis Group think-tank.
“Iran’s support for its allies in Iraq and Syria is not a questions of means, it’s a strategic necessity. This is why neither the fall of the rial in 2012 or economic malaise in 2013 affected Iran’s support for its Syrian and Iraqi allies.”
Iran and world powers are negotiating to end a standoff over Tehran’s nuclear goals. Iran denies Western charges it is seeking nuclear weapons.
President Hassan Rouhani presented a “cautious, tight” budget on December 7 in response to falling oil prices, now almost US$10 (Dh36.7) a barrel below the $70 his budget was based on.
But with revenues pressured, plans to hike defence spending by 33 per cent prompted speculation that Mr Rouhani wants to placate security hardliners, hoping they will indulge his bid to win a nuclear deal and end sanctions.
Powerful anti-Western hawks in the Islamic Revolutionary Guards Corps (IRGC), who report to Ayatollah Khamenei, have been wary of the negotiations.
They have tolerated the talks, diplomats speculate, largely because his big 2013 election win revealed the depth of anger over economic mismanagement and support for his aim of ending Iran’s international isolation.
Mehrdad Emadi of Betamatrix International Consultancy suggested Mr Rouhani had to consider the IRGC in setting economic policy because it could spoil any nuclear deal.
Greater defence spending was aimed at “giving them a big piece of the public pie so they can stop kicking up a fuss when it comes to negotiations, especially those with the Americans”.
“The IRGC are extremely sensitive to any reduction of ‘military aid’ to what they see as strategic allies.”
The IRGC could ruin any rapprochement with the West it felt might hurt its interests.
Last year, Iran granted Syria a $3.6 billion credit facility to buy oil products, with another $1bn for non-oil products.
Domestically the government has ways of mitigating the pain.
One is gradual depreciation of the official exchange rate at which it converts oil revenues from dollars into rials, allowing a progressively smaller amount of dollars to supply the same rial revenues.
Mr Emadi said Mr Rouhani would try to shield the poorest from spending cuts to avoid any repeat of the unrest that followed 2009’s disputed presidential election.
A 30 per cent rise in bread prices on December 1 rattled Iranians, but there was no major unrest. Mr Emadi said the government later took steps to compensate poorer households.
There could be further subsidy cuts but open protest was unlikely since “the regime’s machinery of repression still makes this very risky”, said Scott Lucas of EA WorldView, a specialist website on Iran and Syria.
* Reuters