Iran’s ‘Resistance Economy’ Debate

In the wake of the Iran nuclear deal, debate has revived in the regime over how far to open up to outside trade and finance. It has become a struggle over Iran’s identity.

April 07, 2016

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In recent weeks, a debate has intensified in the Islamic Republic about the nuclear agreement, the Joint Comprehensive Plan of Action (JCPOA). Supreme Leader Ali Khamenei has disparaged the purported benefits of the accord while President Hassan Rouhani continues to defend the deal negotiated by his administration. In reality, this debate is not about the nuclear agreement but Iran’s economy, if not its identity. And it is a debate as old as the Islamic Republic itself. At its core, the question that divides Iran today is whether integration into the global economy endangers the revolution or ensures the survival of the state.

Since the inception of the theocratic regime in 1979, clerical rulers have been divided on basic economic issues. The hard-liners support private property and commerce, but are concerned that reliance on exports and foreign creditors will diminish Iran’s independence. In their view, the more Iran becomes entangled in the global economy, the less it may be willing to challenge the West. They call for development of Iran’s internal markets and cultivating economic ties with neighboring states such as Iraq and Afghanistan. Yet the pragmatist wing of Iranian politics considers such prescriptions inadequate for a country that relies on oil exports for a substantial portion of its income. Given the nature of Iran’s economy and its citizens’ demands for Western products, they see no way out for the regime other than selling oil and relying on global financial institutions.

A money changer in Tehran poses with a U.S hundred dollar bill and the amount being given when converting it into Iranian rials.
A money changer in Tehran poses with a U.S hundred dollar bill and the amount being given when converting it into Iranian rials. (Raheb Homavandi/TIMA/Reuters)

A China Model?

China looms large in this debate. The pragmatists in Iran led by former President Hashemi Rafsanjani have long applauded the so-called China model, in which an autocratic state ensures high levels of economic growth. In their minds, China has proved that autocracy can coexist with market economics. For hard-liners such as Khamenei, China is a model to avoid. In their telling, China traded its ideological fidelity for the sake of financial reward. After all, this position holds, today there is nothing particularly communist about Communist China. Moreover, the hard-liners argue, trade with the West cannot be compartmentalized and will inevitably lead to cultural contamination. While Iran’s pragmatists may see booming commercial centers in cities like Shanghai, hard-liners see only signs of cultural decadence. To preserve its ideological identity, hard-liners say Iran has to abjure the temptations of the West, both its money and culture.

"To preserve its ideological identity, hardliners say Iran has to abjure the temptations of the West, both its money and culture."

Now as the Iranian government attempts to reintegrate into global trade and financial networks under the terms of the nuclear deal, the country’s ability to balance these competing economic visions will be put to the test. Throughout the negotiations over the nuclear issue, Khamenei remained on the sidelines, refusing to embrace the agreement while steadily criticizing those who believed that Iran’s salvation lies in mending fences with the international community.  In his annual address on the Persian New Year, March 21, Khamenei criticized the nuclear agreement and decried what he said were ongoing U.S. moves to obstruct Iran’s trade. “The Americans have said that they would lift sanctions and they have actually done so on paper, but through other ways and methods, they are acting in a way that the result of sanctions repeal will not be witnessed at all,” he said.

Khamenei then quickly pivoted away from the nuclear agreement and focused on what he calls the “resistance economy.” As defined by the Supreme Leader, it is an economy that weans itself off oil exports, seeks to safeguard domestic industries from foreign competition, eschews trade in favor of local markets, and keeps its money out of international banks. Should the regime to do so, it can “immunize the country so that we will no longer tremble in face of sanctions and the possibility of sanctions. If the economy becomes resistant, the enemy sanctions will not exert a noticeable impact,” he said.

The lesson that Khamenei has taken from the nuclear issue is that Iran’s excessive reliance on oil sales and international financial institutions made it vulnerable to pressure from America. To be truly independent, he believes, Iran must be isolated from the West and estranged from global markets. Only then can the Islamic Republic sustain its revolutionary values and stand up to the United States. National poverty may be a price that Iran has to pay for such autonomy.

The Case for ‘Constructive Engagement’

Rouhani and his allies do not reject the notion of the resistance economy; they merely cast it in a different light. For them, foreign investments and increased oil sales will ensure economic growth and placate a restive population. Moreover, attracting multiple foreign investors and foreign capital may be an effective way of derailing potential sanctions from the United States. The more European and Asian states invest in Iran and the more they purchase its oil, the less likely they are to heed U.S. calls for sanctioning Iran on the grounds of terrorism or human rights abuses.

Yet Rouhani, a disciple of the Rafsanjani school, sees the global economy and foreign investments through a different lens. The task at hand for Rouhani is to sustain the Islamic Republic’s authoritarian structure, and this requires a measure of economic growth. Along these lines, Rouhani stressed in March 2016 that “one important part and an emphasis of the policies of economic resistance is constructive engagement with the world, and the path of our administration has been economic resistance.”

"The task at hand for Rouhani is to sustain the Islamic Republic’s authoritarian structure, and this requires a measure of economic growth."

In the end, the debate that has once more surfaced in Iran is not about the nuclear agreement, economic planning, or even factional rivalry. It is about the Islamic Republic’s identity. Rouhani appreciates that his political fortunes rest on the economy. The controversial arms control agreement that he negotiated was designed to generate foreign investment that would revive the economy. Beyond such immediate political horizons, the pragmatic actors in Iran appreciate that the Islamic Republic has to meet some of the economic expectations of its youthful constituency. In the absence of such opportunities, the population may yet grow weary of not just Rouhani’s administration but the Islamic Republic as a whole.

Identity Crisis?

For Khamenei and the hard-liners, it is the ideological values of the regime that require preservation. A prosperous Islamic Republic that has forfeited its revolutionary values, as post-Mao China has, is a dim prospect for Iran’s ideologues. Always suspicious of foreigners, particularly Westerners, the hard-liners see the global economy as a trap that would engulf the regime and soon change its complexion. In their telling, the revolution can only survive in isolation.

This debate, as with so many others in Iran, is likely to remain unresolved for some time. The different factions and institutions of the Islamic Republic will continue to work at cross-purposes. Rouhani will seek to tempt foreign investors, while Khamenei will rail against them. Khamenei will argue against trade, while Rouhani will call for more commerce. Khamenei will continue to distance himself from the nuclear accord that Rouhani has no choice but to defend. In the midst of all this wrangling, many other states are left unsure about whether to invest in a turbulent Iran. 

All this makes Iran’s 2017 presidential election a particularly consequential one. It will be at that time that the Islamic Republic will have its reckoning with its identity crisis. 

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