During my trip to Iran last month, the owner of a chicken shop in Shohada Square, a lower middle class neighborhood in southern Tehran not far from the bazaar, complained to me about the fluctuating price of chicken. “Yesterday, I had some orders from some regular customers. So I sold them chickens for 50,000 rials each,” he said. “But when I went to buy the chickens today, the price had spiked 5,000 rial overnight. I had to pay 55,000 rials for each chicken, so I lost some money. It would be fine if this was a one-time thing, but it keeps happening. The prices, they’ve fluctuated so much the last couple of months.”
The Shohada chicken-seller must have had quite the ride this week–as have consumers and merchants across Iran when the rial devalued suddenly and dramatically by 40%. As a TIME reporter in Tehran notes, the bazaar closed on Wednesday in part because merchants no longer knew how to price their products in such an unstable market, and in part to protest President Mahmoud Ahmadinejad’s economic policies. There have been increasing labor strikes for months around Iran, but unrest in the bazaar is a dangerous indicator for the Iranian regime: It was striking bazaaris who began the successful take-down the shah in 1979.
Most experts see three possible outcomes – or a combination of these three steps:
1) The regime falls.
There is a lot of anger at Ahmadinejad’s mismanagement of the economy, but there’s also not a lot of love for Supreme Leader Ayatollah Ali Hosseini Khamenei. When I was in Tehran last month there was much speculation on the street that Ahmadinejad was stepping back – he is a lame duck with his term expiring next summer — to allow Khamenei to take some of the bullets for once. And the frustration I heard was equally apportioned between the two men. “Khamenei, Ahmadinejad, they’re all the same,” one small business owner told me. “None of them care about the economy, it’s all ideology to them. Winning the argument.”
That said, many in Iran worry what would be on the other side of regime change. They fear Iran devolving into an Iraq, or Syria: a precarious state, plagued by sectarian violence. “Better the devil you know than the devils you don’t,” the small business owner said. “At least this is a system we know how to game.”
2) The regime makes a run for a bomb.
Most Iranians I met believed that Iran had a right to nuclear energy and, even, a nuclear bomb. “If Pakistan and India have them, if Israel has one, why not us?” asked a woman named Douri (not her real name). Douri did not believe a bomb to be worth the economic pain of the sanctions, but she said she would absolutely stand behind the regime if Iran were to be attacked.
Uniting the Iranian people behind an otherwise unpopular government wouldn’t be the only benefit of making a run for a bomb and provoking an attack by Israel and/or the United States. Such an attack would surely break the fragile coalition against Iran and gut the sanctions. Plus, as my colleague Tony Karon noted on Thursday, obtaining a bomb acts as a deterrent. “The regime is likely to pursue the nuclear bomb more energetically than before believing that the sanctions will be removed once Iran has become a nuclear power,” says Ali Alfoneh, an Iran expert at American Enterprise Institute in Washington.
3) Economic but not political collapse.
Speaking of the fragile sanctions coalition, there is evidence that Iran could be getting some help from China and Russia. The Melal Hotel group is the largest private hotel chain in Iran. The sanctions have forced them to halt construction on new hotels – negotiations to buy elevators from the Swiss have fallen through and getting a hospitality partner has proven difficult. But business within the country is still booming, despite the disappearance of European travelers. “We have a lot of Russian and Chinese businessmen,” says Bamdad Faghihi, the hotel group’s Dubai representative. “Business with China is up day by day due to the sanctions.” China’s buying of Iranian oil hasn’t slowed in recent months despite the sanctions. In July they bought 20 million barrels, according to Bloomberg News.
Sanctions only work if there are no back doors. If China and others are buying Iranian crude on the sly and paying with gold, they are providing lifelines to Tehran’s economy and the regime. Because of this, Europe is considering a fresh wave of sanctions at their next ministerial meeting on Oct. 15 targeting loopholes where crude is leaking out of Iran. And the U.S. is also set to implement a new round off sanctions this fall. Are they looking to strike a deathblow to the Iranian economy? “I wouldn’t phrase it quite like that,” said on senior European diplomat, “but that is the intent, yes.”
One option is that Ahmadinejad gets thrown to the wolves and used as a scapegoat to appease the street. As he was speaking at the United Nations last week, one of his top allies was arrested for financial fraud. And Khamenei’s displeasure with Ahmadinejad has never been more evident. That said, the President is already a lame duck so making an example of him is an almost cosmetic fix. Speculation was rampant when I was there that Ahmadinejad would be the last president of Iran and that Khamenei would simply do away with the troublesome office when Ahmadinejad’s term expired. That day may come sooner than later. But even without Ahmadinejad, the Iranian regime has to find a way to stabilize the economy. “I suspect the regime will gain control of the street but long term there’s a problem of a people without political rights and economic options,” says Ray Takeyh, an Iran expert at the Council on Foreign Relations. “How they manage it remains to be seen.”