IRAN

The Islamic Republic of Iran is facing a serious economic crisis due to oil price volatility, US-imposed sanctions, low investment, and the impact of the pandemic. Moreover, entrenched state corruption, public mismanagement, and deep-seated political grievances are further eroding Iran’s economic stability. In 2021, the main driver of political risk will be determined by any perceptible shift in the US administration’s stance toward Iran, in particular whether the US will return to the JCPOA nuclear deal and again phase out sanctions. President Hassan Rouhani will seek such a détente with the US, but he is likely to be opposed by hardliners in the government and security forces. The removal of economic sanctions would allow European, US, and other companies to resume investments in Iran’s energy and mining sectors and tap into its massive consumer base.

• Supreme Leader Ali Khamenei runs a theocratic autocracy, supported by segments of Iran’s complex governance structure, especially hardliners in the Islamic Revolutionary Guard Corps (IRGC). Over the past decade, anti-government protests have become more frequent, including unrest in 2019/2020 that was initially caused by an increase in fuel prices and mass demonstrations in 2017-2018 that were focussed on opposition to economic policies. Such protests have ultimately demanded political reforms or the end to the Islamic Republic. However, the police, IRGC, and its Basij militia have suppressed mass protests by violent means, which has resulted in thousands of protesters killed. Fresh unrest is expected in 2021 as the economy fails to recover and if, as is likely, opposition groups and activists mobilise again around the presidential elections in June.
• Iran’s nuclear programme has resumed since the US withdrawal from the JCPOA nuclear deal in 2018. Iran’s so-called “breakout time” — the time needed for it to build one nuclear weapon if it chose to do so — is estimated now to have dropped from one year under the deal to as little as three months. Nuclear facilities such as those at Natanz would be at increased risk of sabotage, cyber-attacks, and air strikes by Israel, Arab states, and perhaps the US, if Iran is perceived to pursue atomic weapons. Retaliatory attacks would be likely in the Gulf, including on shipping vessels and US assets and allies in the region. The assassination of a senior IRGC general in 2020 triggered a retaliatory attack on US forces in Iraq and resulted in the accidental shooting down of Ukraine International Airlines Flight 752.
• Economic sanctions against Iran, such as the embargo against Iranian crude oil, have led to a depreciation of the rial currency, rampant inflation, and massive unemployment. Iran failed to secure IMF financial assistance and remains vulnerable to US-imposed punitive sanctions. Crude oil exports have shrunk from more than 2.5 million barrels per day since the US withdrew from the nuclear deal in 2018. Still, Iran has been working to get around the measures and keep exports flowing. Efforts to expand the private sector and boost exports of manufactured goods are being hampered by sanctions and corruption.