Iran Under Raisi: Four Months In

A Conversation with Nader Habibi and Amir Mahdavi

Organized and edited by David Siddhartha Patel

December 14, 2021

Ebrahim Raisi assumed office as the eighth president of the Islamic Republic of Iran on August 3, after winning the June presidential election. Replacing the centrist Hassan Rouhani, Raisi is often described as a conservative hardliner and ally of Ali Khamenei, Iran’s supreme leader. Raisi’s administration faces a myriad of challenges, including a floundering economy that remains under U.S. sanctions, the potential for urban unrest similar to what occurred two years ago, and one of the deadliest outbreaks of COVID-19 in the world.

In this Crown Conversation, we spoke with Nader Habibi, Henry J. Leir Professor of the Economics of the Middle East at the Crown Center; and Amir Mahdavi (GSAS MA ‘19), an Iranian journalist, former member of the central council of a reformist party in Iran, and currently a PhD candidate of political science at the University of Connecticut, about the Iranian government’s domestic and foreign policies and what they reveal about the direction in which the Islamic Republic is headed. 

In what ways, if any, has life changed for ordinary Iranians in the first months of the Raisi administration as compared to the final year under Rouhani? Has there been a noticeable restriction on freedoms or greater enforcement of conservative regulations?

Nader Habibi:
Social and security policies were not under President Rouhani’s control, to be changed by his successor. The Iranian government is well aware of the worsening economic conditions and rising frustrations in society. Yet, there is no evidence that restrictions on political freedoms and lifestyle have systematically changed. The punishment of regime opponents seems to be selective and ad-hoc. One vocal dissident might go on without being arrested for months, while another dissident might be arrested for a similar protest and sentenced to a long jail sentence or even execution. It is not clear if this seemingly random response is deliberate or represents a lack of coordination and cohesion.

In the welfare and economic domain there have been both positive and negative developments in the lives of ordinary Iranians since Raisi was inaugurated in August. One relative success has come in the fight against COVID. In January 2021, when the COVID vaccine first became available, Ayatollah Khamenei issued a ban on the import of American and British vaccines and ordered the government to focus on developing a domestic vaccine. As a result of this decree, the vaccination rate in Iran was low and COVID cases and deaths remained high at the same time as other countries rapidly expanded vaccination efforts. Until Raisi became president, Iran repeatedly complained that it had difficulty importing other vaccines because of the U.S. economic and financial sanctions—though the Biden administration and the World Health Organization rejected this accusation. Yet, immediately after Raisi assumed office, vaccine imports increased sharply even though the sanctions had not been eased. The most likely explanation is that, in response to growing public complaints about high rates of COVID cases and casualties, the policy on vaccine imports was reversed after the inauguration to improve Raisi’s image and increase his popularity. As a result of increased vaccination, Iran’s daily COVID death toll has declined sharply and some health-related social restrictions have been lifted.

Unfortunately, the deterioration of economic conditions has continued after Raisi’s inauguration. Inflation has increased, and poverty rates are still on the rise. The business environment is still suffering from high uncertainty about the outcome of nuclear negotiations and prospects for an agreement that could end, or at least reduce, the impact of economic sanctions. Hence, the Iranian stock market has declined since August. There is also a growing fear that if negotiations fail the U.S. or Israel or both will resort to military strikes, cyber warfare, or sabotage, which could further deteriorate social and economic conditions. For example, a cyberattack on Iran's gasoline distribution system disrupted the computerized operations of gas stations throughout the country on October 27.

Amir Mahdavi: I have to emphasize that Ebrahim Raisi’s brand as a politician is the weakest among the eight presidents of the Islamic Republic. In other words, it is misleading to speak of “Raisi’s team”: There is no political platform or policy agenda that is associated with him. He consistently held high-ranking positions in the judiciary from 1980 to 2021 and rarely was involved in partisan politics before his first presidential bid in 2016. Even his two presidential campaigns represented the rhetoric of the supreme leader and his allies, which served to constrain the power of Khamenei’s perceived domestic rival, the moderate government of Hassan Rouhani. Put simply, the whole idea was that Rouhani’s pro-Western administration had exchanged a critical instrument of national security—that is, Iran’s nuclear program—for relief of economic sanctions which were subsequently reimposed by Trump in 2018. The narrative that has been constructed by the [supreme] leader since the U.S. abandoned the nuclear deal is that Rouhani tied Iranians’ livelihoods to engagement with the West. And the leader’s allies have exaggerated the possibility of reviving the economy based on domestic capacity, despite the sanctions. Raisi’s administration has extended this rhetoric throughout its first four months in office. It is difficult to identify any unifying principle behind the administration’s economic policies aside from the populist ideas intended to prove that people’s welfare can improve without Western engagement.

Cabinet seats and other key positions in the new administration have been distributed among different factions of Principlists (Iran’s conservative political camp), including members of the Islamic Revolutionary Guard Corps (IRGC) and cadres of the leader’s subordinate organizations (e.g., Execution of Imam Khomeini’s Order; Imam Sadiq University). There are rumors that the president plays a minimal role in picking individuals for high-ranking posts. Purportedly, a control room in the [supreme] leader’s office—which in the political language of Iran is sometimes called the “hidden government” of the “hard core of power”—that houses the intelligence division of the IRGC provides clearances and dictates appointments. Under Rouhani, this so-called hidden government primarily devoted itself to monitoring and constraining that administration. Its function now has switched to running the administration.

Nonetheless, despite the stalled negotiations regarding the U.S.’s return to the JCPOA, there are several reasons to believe that economic hardships might ease up in the short term. The first is the newfound unity among the branches of power in Iran. In the eight years of Rouhani’s presidency, a significant amount of the state’s money, energy, and time was wasted in the battle between fulfilling the campaign promises of his centrist/reformist administration and allied city councils, on the one hand, and, on the other, the constant efforts of Khamenei’s subordinates to thwart them. Under a now relatively homogenous government, even if economic decisions are not coherent, all parts of the government are unified in their implementation. A salient example of this is the determination and efficacy Raisi has shown in importing COVID vaccines. When Raisi took office in August, Iranians had received 22 million vaccine doses. This number rose to 100 million by mid-November. A second reason relates to the supreme leader’s trust in the government, which opens the administration’s hands to respond to crises. For example, a great deal of authority has been given to the government to make deals to swap oil for goods and services. Although this mechanism for circumventing the sanctions decreases transparency and creates opportunities for corruption, if it works in practice, it will help Raisi control inflation on essential goods (mostly food and medicine) and alleviate pressure on financially struggling households. This kind of authority to mitigate the effects of sanctions was never given to the previous administration due to mistrust among branches of government and the reluctance of the leader’s team to let Rouhani deliver any tangible results.

As you both mentioned, Iran faces many economic problems and the continued challenges of U.S. sanctions and the COVID-19 pandemic. In contrast to the structural economic reforms that Rouhani promised, members of Raisi’s cabinet propose a “resistance economy.” What does that mean in terms of policy? And can it address Iran’s most pressing economic problems?

Nader Habibi:
The concept of “resistance economy” was introduced several years ago by Ayatollah Khamenei, and it has been used frequently by various government officials as the broad framework for government economic policy. The key argument is that Iran has been a target of economic war (i.e., sanctions) that is likely to continue. The policy outcome of this ideology is self-reliance. Raisi and his economic team frequently use the phrase “resistance economy” and claim that their economic policies are derived from this concept. In this context, Raisi has announced four key targets for his economic program: a) a systematic fight against corruption and economic injustice; b) the creation of at least one million residential housing units per year over four years; c) the creation of one million jobs per year; and d) achieving price stability and a reduction of record high inflation rates.  With regard to international trade, Raisi has emphasized giving a high priority to trade with neighbors and Asian countries, particularly China. 

Achieving these goals will be very difficult as long as the country remains a target of U.S. unilateral and international sanctions. So far, Raisi is operating in a crisis management mode with regard to multiple challenges such as inflation and severe poverty. The more immediate challenge is the financing of the government’s main financial obligations, including wages and retirement benefits of government employees. Raisi has promised to increase the monthly income subsidy that most households receive. This monthly cash payment has lost much of its value in recent months because of high inflation, but it has not been adjusted because government revenues have diminished sharply due to sanctions disrupting crude oil exports.

The sanctions and COVID pandemic have pushed the economy into a severe recession over the past three years, and many Iranians have lost their jobs or businesses.  According to the Ministry of Welfare, more than one third of Iranian households are living in absolute poverty. The sharp decline in oil revenues since 2018 has led to a large increase in the budget deficit: The average budget deficit was around 6.5% of GDP from 2007 to 2017, but it has increased to 30% of GDP in 2020. This means the government has had to borrow a lot more, and most of this borrowing has been financed directly or indirectly by the central bank (causing a rapid increase in the money supply and inflation).

As long as Iran does not resolve its disputes with the international community, it will be a target of both coordinated and unilateral economic sanctions and the government will only have partial success—at best—in its efforts to improve the economy. Furthermore, the sanctions and other hostile actions against Iran by the U.S. and Israel are dynamic: As Iran tries to find effective mechanisms to evade the sanctions, these adversaries find new ways to increase the pressure. Contrary to expectations, the Biden administration has not eased the unilateral sanctions that President Trump introduced, and, in the coming weeks, the U.S. government might take additional steps against Iran if an agreement is not reached. These new steps, whether they are additional sanctions or targeted military actions, can put additional pressure on the Iranian economy.

How much power does President Raisi actually have within the Iranian system? He is frequently mentioned as a possible successor to Ayatollah Ali Khamenei, Iran’s 82-year-old supreme leader. Does being a potential successor to Khamenei give him more or less leeway to lead?

Amir Mahdavi:
The fact that Raisi was made president through the first uncompetitive election in Iran in a quarter of a century gives us sufficient reason to believe that he is highly likely to be the successor of Ayatollah Khamenei. Since the second bid by the late Hashemi Rafsanjani in 1993, every presidential election had been a contest between the two major coalitions: reformists (centrists) versus conservatives (Principlists). The election of 2021, with an obvious predetermined winner, was a major shift. Securing Raisi’s presidency after his loss in 2017 resulted in the lowest-ever turnout and highest-ever ratio of voided ballots in the history of the Islamic Republic. This result could be interpreted as an indicator of Raisi’s value for the regime.

In addition to the exceptional election, there are other factors that situate Raisi as first in the line of hopefuls to become the third supreme leader of the Islamic Republic. He is an ayatollah with experience running two branches of government: the judiciary and executive. Raisi is a member and deputy chairman of the Assembly of Experts, the constitutional body in charge of selecting [supreme] leaders. Furthermore, Raisi is the most trusted politician in the eyes of the supreme leader and his second son, Mojtaba Khamenei, who oversees the office of his elderly father. Although he was chosen with the support of only 30 percent of eligible voters, Raisi did secure more than 18 million votes in the election, giving him the most legitimacy among clergymen within the inner circle of power.

However, the presidency comes with burdens. Becoming president at this critical juncture may present some impediments to Raisi’s seemingly paved path toward succeeding the supreme leader. The Islamic Republic’s highest-ever inflation rate is now associated with his name. The prospect of lifting sanctions is quite blurred, and the budget deficit is over 50 percent (worse than during the worst year of the Iran-Iraq war). Raisi became president at a time when two major sources of the Islamic Republic’s legitimacy were deteriorating—its performance and representation—and he has not enacted significant change to counter those trends during his first four months in office. Furthermore, unlike every former president, Raisi has been unable to present an economic agenda to satisfy the political bloc that supported him in the election. The fall of the stock market, rising inflation, and the exchange rate against the dollar led to pushback in parliament, which was interpreted as an early sign of having failed to create a unified government. Therefore, there is a chance that the economy will raise his unpopularity to a level that makes it impossible for the core of power to pull his name from the box of succession. There is a pattern in Iran of sacrificing presidents in response to governance crises: All four of Raisi’s immediate predecessors (Rafsanjani, Khatami, Ahmadinejad, and Rouhani) left office at the nadir of their popularity. Thus, it is imaginable that, if the economic indexes continue their current trends, Raisi will drop from the short list and a less-tarnished name will pass him. Finally, although the succession of Ayatollah Khamenei by his son would be an audacious move toward a patrimonial state and seems unlikely, the core of power may—in some circumstances—see Mojtaba as a safer choice than Raisi, an infamous president whose brand has been associated with increased poverty and hunger.

Iranians have engaged in a series of protests and strikes in recent years, some of which have been violently suppressed. Raisi is often described as an enforcer for the Islamic Republic and is known to have played a role in the state-sponsored execution of political prisoners in the late 1980s. Is the frequency and nature of social unrest under Raisi likely to be different than in the recent past? Is the Iranian government now more likely to violently suppress demonstrations?

Nader Habibi:
In my opinion, the government will try to avoid violent responses to protests as much as possible. Yet, at the same time, it appears that the regime is anticipating and preparing for urban riots and anti-regime protests that might be triggered by worsening economic conditions. The appointment of so many former IRGC affiliates to key government positions in Raisi’s government is a central component of this preparation.

Security forces killed more than 1500 protesters during the political unrest triggered by economic hardship two years ago, in November 2019. Economic conditions have deteriorated further since then, and thousands of additional households have fallen into poverty. As a result, the pent-up popular anger and potential for another round of uncoordinated urban unrest remain strong. Such an eruption could be triggered if the government attempts to increase the price of an essential good, such as gasoline.

The government, however, is concerned about the consequences of a massive and brutal response to any such unrest. In recent months, we have witnessed selective prosecution of domestic dissidents and opponents. It seems that the government’s strategy is to deliberately keep its response unpredictable. Some dissidents go unpunished, even when they openly question the legitimacy of Khamenei’s role as the supreme leader, while others are suddenly arrested and sentenced to severe punishment and even death for a similar or less significant criticism. The regime has also shown that in some cases it is sensitive to the public’s reaction when the arrest or sentencing of a political activist goes viral on social media. For example, the rapper Toomaj Salehi was arrested in early September after releasing a controversial political song, called “The Rat Hole,” in which he shames the regime’s leaders and people who support them for oppression and corruption: He tells them to go find rat holes to hide from the people’s rage. When protests on social media against his arrest went viral and attracted international attention, the government released him after only two weeks.

In his position as head of the executive branch, Raisi is no longer directly involved in the prosecution of regime opponents. Although as president he takes part in high-ranking policy circles that manage the government’s security and surveillance policies, Raisi seems more concerned with addressing the multiple economic crises, such as the severe decline in people’s purchasing power. Accordingly, he has adopted a series of populist policies that are intended to increase his popularity and reduce discontent. For example, Raisi frequently visits less-developed provinces and meets with residents to hear their grievances. In the past three months, he has already made two trips to the Khuzestan Province, which experienced massive protests last summer because of a severe water shortage.

Amir Mahdavi: Unlike what might be expected from an administration led by a former prosecutor and dominated by the IRGC, I also would not be surprised if the level of mass suppression declines under Raisi. It is obvious that the unprecedented number of IRGC members appointed to governor, minister, and deputy minister positions is a shift toward a military authoritarianism (like the Ba‘th government of Syria), under which civil administration and armed forces are merged. One characteristic of such regimes is their resilience against uprisings and their high capacity for repression. Nevertheless, unlike in previous presidential terms, the executive branch cannot be blamed as the only culprit for governance flaws.

The distinction between state and government in Iran has always provided space for the [supreme] leader to maneuver politically. Until recently, Ayatollah Khamenei was able to either advance his desired policies or prevent undesired ones while simultaneously avoiding taking responsibility for the consequences of his and his subordinate institutions’ actions. The elected executive and legislative branches functioned as an integral buffer zone behind which the leader can publicly distance himself from unintended consequences of policies and on which he can place responsibility and, ultimately, blame. Now, this equilibrium has changed.

Today, the heads of all executive branches and the policies they pursue are seen as the choices of Khamenei himself. Therefore, the security and coercive apparatuses, as well as the economic bureaus, of Iran have a shared interest in deterring any kind of civilian unrest. The nationwide unrest that occurred in 2017 and 2019 was perceived by hardliners as an opportunity to overthrow—or at least harm—the president’s public image. Since August, however, those same hardliners govern the bureaus whose performance may cause unrest. Therefore, my prediction is that all parts of the Islamic Republic will work to prevent public dissatisfaction from rising to a level that triggers unrest.

The budget—severely hampered by economic sanctions, the pandemic, and gross mismanagement—limits the ability of the administration to fulfill its promised spending. To deter potential social unrest, Raisi’s government will attempt to extract ever more natural resources, increase borrowing by issuing government bonds, and hope for sanctions relief. We have seen several examples of such sacrificing of national and nonrenewable resources in the past four months. For example, the Ministry of Tourism agreed to allow the lands around the Tomb of Cyrus to be used for agricultural purposes. The Ministry of Urban Planning plans to commit public lands on the outskirts of cities to affordable mass housing projects. And the Ministry of Oil pledged to offer highly-subsidized gas quotas to every vehicle owner in compensation for the one-day shutdown of the country’s fuel system due to the cyberattack mentioned previously by Nader. Having said all this, overall political freedom—or, rather, the suppression of political activists and journalists—is expected to be worse than during the previous administration.

The opinions and findings expressed in this Conversation belong to the authors exclusively and do not reflect those of the Crown Center or Brandeis University.