Politics

Iranian Protests Could Deal Catastrophic Blow To Regime

In early December, small protests developed in parts of Iran due to sharp increases in some food prices. By the last week of 2017, the protests had spread across the country and have continued into the New Year. In this report, we will discuss the current protests, comparing them to the unrest that developed in the wake of the 2009 elections in Iran. We will examine Iran’s geopolitical position, focusing on the country’s natural barriers that both protect it and increase the costs of power projection. We will analyze the possible impact of the protests and conclude, as always, with potential market ramifications.

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Iranian Revolution in Shahyad Square.jpg
By Aristotle Saris - AP Photo, Public Domain, Link

The Protests
Recent protests in Iran have left 22 dead and over 450 people incarcerated. These protests, though widespread, are fundamentally different from the 2009 "Green Movement." One important contrast is that the participants are not the same. The 2009 protests were a fight between competing elites as the "reformists" and "hardliners" were vying for power. The hardliners won. However, these terms should be used with great care. The hardliners are fairly obvious in their views, but the reformers were not "reformers" in the Western sense. They were as committed to the Islamic Revolution as the hardliners. The reformers were simply open to more social and market freedoms compared to the hardliners, but neither group was willing to allow for full democracy. When Akbar Hashemi Rafsanjani is considered a reformer, it is clear the differences between the two groups aren't all that great.

Unfortunately for the Iranian leadership, the problems affecting the economy won’t go away anytime soon and may, in fact, get worse. President Trump is considering new American sanctions on Iran which would likely hurt its economy. Of course, President Rouhani could blame the downturn on the new sanctions as such claims have pacified the lower classes in the past. Whether that tactic works in the wake of the budget revelations remains to be seen.
Finally, there is one other potential outcome. Iran, facing continued economic pressure, may opt for a major conflict to create a distraction from its domestic problems. We view this as an unlikely path. Iran tends to operate covertly and has avoided open conventional wars. For example, it should be remembered that Iraq invaded Iran in 1980. Although the likelihood is low, it isn’t zero, and it is something we will monitor this year.
Ramifications
The primary market ramification for unrest in Iran is higher oil prices. History shows that the major oil producers are usually successful in overcoming obstacles to maintain oil flows but the threat to supply reduction remains. A secondary effect we will be watching is in cryptocurrencies. We have seen North Korea use these instruments to evade sanctions. If Iran believes new financial sanctions are coming, it would not be a major surprise to see a move to own various cryptocurrencies in a bid to evade restrictions

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