Previous Quarterly Editions
Expropriation Risk: 73 73 75 75 ►Political Violence Risk:68 68 68 68 ►Terrorism Risk:48 50 50 48 ►Exchange Transfer and Trade Sanction Risk: 73 73 82 82 ►Sovereign Default Risk:75 74 82 82 ►
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Medium MediumAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: MediumFood/fuel policy protests: High
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
In September 2022, a new protest movement began, sparked by the death of a young Kurdish woman Mahsa Jina Amini while in police custody and becoming the most significant since the 1979 revolution. Amini was arrested for allegedly wearing her headscarf incorrectly. The protests grew over several weeks, involving thousands of people and spreading to most cities in the country.
The widespread nature of the protests was a notable difference from many previous movements, cutting across social divisions, uniting Iranians of different ethnicities, religions, generations, and classes in calling for an end to the regime. The protests were most intense during late September, throughout October and early November, but the brutal government crackdown eventually diminished their scale. However, many Iranians and observers report the movement is not over, as individuals and smaller protests continue to defy the regime. More broadly, many Iranians have lost faith in the government and the Islamic Republic regime itself.
The ‘Woman, Life, Freedom’ protests of late 2022 were highly unusual in their scale, geographic spread, and overtly political nature. However, they did not occur in a vacuum. Protests occur regularly but are often confined to one or a few cities or provinces or are focused on specific issues, such as economic or environmental grievances.
In 2022, years of intensifying grievances and a perception of the government’s inability or unwillingness to help snowballed into the national movement. The protests draw on many related grievances including environmental issues, women’s rights, the treatment of minority groups, and political oppression. Economic concerns also have long played important roles. Lack of development, especially in more peripheral areas with large ethnic minority populations, is a common cause of protest. Strikes and protests over the rates of pay for groups such as teachers and factory workers are common. Unemployment, especially among younger Iranians, is an ongoing grievance contributing to unrest.
In recent years, Iran’s economy has suffered dramatically under a combination of external sanctions and internal corruption and mismanagement, worsened by the COVID-19 pandemic. The government has implemented some measures to manage its fiscal problems without prompting significant unrest. However, in May 2022, when the government ended a food import subsidy, protests broke out after food prices spiked. In the wake of the latest protest movement, the government introduced a budget including steps to help Iranians cope with the economic situation, but these are unlikely to keep up with inflation.
Furthermore, inflation is soaring and the currency has been in crisis. Iranians have experienced inflation above 40% for four years. The last year was particularly bad, with inflation peaking above 50%. Furthermore, prices for crucial items, particularly food, hit even higher levels of inflation, reflecting the end of the food import subsidy, drought, currency depreciation that increased the costs of imports, and the Russian/Ukraine crisis. The World Bank has said inflation will likely remain high before gradually declining.
Despite some improvement in the last two years, Iran’s overall economic performance remains poor, with the IMF projecting 2% GDP growth in 2023. Unemployment is high; the World Bank placed it at nearly 11% in 2021, with youth unemployment in particular at around 25%. Poverty has increased in recent years, with recent government data reporting that more than 50% of Iranians are now below the poverty line. Many middle-class Iranians have fallen into poverty, while the most impoverished increasingly have struggled.
The combinations of high inflation, high unemployment, low economic growth, and subsidy reforms have made life very difficult for many Iranians from both the lower and middle classes. Many Iranians today struggle to meet basic needs, let alone small luxuries. Hope sanctions might be lifted through negotiations on a new multilateral nuclear deal – the 2015 iteration came with sanctions relief – has faded. While some mild improvement might be in sight, Iran’s economy faces many long-term headwinds, including the impacts of climate change. Many Iranians face the very real prospect of little improvement or opportunity.
The latest protest movement suggests that the Iranian population has moved beyond frustration with economic issues to a deeper rejection of the Iranian regime. While it is important to recognise the political nature of the recent protest movement and the likely political nature of future instability, an economy in shambles is a major contributing factor.
Meanwhile, the government has increased restrictions on the internet, both in reaction to the protest movement and in broader regulations it began pursuing before September. Iranians have reported slower internet connections and more disruptions, creating problems for companies relying on regular internet access.
Most Western companies affected by the sanctions on Iran have left the country, thereby making the overall risk of expropriation of assets far less relevant than it might have been. The effect of this has been to make Tehran increasingly reliant on China for investment and oil exports. Given this reliance on Beijing, Tehran is extremely unlikely to take actions that would alienate Chinese investors and importers.
As seen above, Iran experiences regular protests that are typically small and contained. However, the large-scale protests that erupted in September have had a different quality, embracing overt political messages and calling for an end to the current regime. These characteristics, plus the size of protests, made the movement unique in Iranian history and posed a serious threat to political stability.
Authorities responded with violent force and shut down internet services in many areas. While the exact numbers are uncertain, reports from human rights groups have found that more than 20,000 people were arrested and more than 500 killed in the protests. At least four men have been executed in relation to the protests, with more sentenced to death.
Significant and widespread protests continued from September through to the end of the year. The brutal government response appears to have quelled large-scale, organised opposition for now, and the movement lacks a clear leader. However, the protests highlighted and reinforced widespread dissatisfaction with the government, and a nationwide lack of confidence in the regime. Individual actions and smaller-scale protests continue to take place, and broader protests could easily emerge again.
TREND ▲
Terrorist attacks in Iran remain relatively rare; the 2017 Islamic State attack was the first significant terrorist incident in the capital for years and has not been repeated. However, Iran experiences regular low-level violence involving separatists and other groups in areas with large ethnic minorities – primarily, Kurdish, Balochi, and Arab groups. Ethnic minorities have played an unusually significant role in the recent nationwide protest movement, which has increased violent incidents in some border provinces.
The future of sanctions on Iran depends on the multilateral nuclear deal negotiations. After talks stalled in September 2022, the protest movement in Iran presented additional challenges for Western leaders, who did not want to indicate acceptance of the regime in the face of mass protests and brutal crackdowns. The deal remains stalled, and Iran’s government increasingly has shifted towards Russia and China and away from hopes of reviving economic relations with the West.
Meanwhile, the U.S., Canada, and European countries imposed new sanctions in response to the government’s actions against the protestors, as well as sanctions to demonstrate their opposition to Iran providing attack drones to Russia to use in Ukraine.
Inflation spiked above 50% in the last few months. Iran also struggles with currency depreciation; in late February, the rial reached a record low against the U.S. dollar. Currency problems predated the latest protest movement, but the rial reportedly lost half of its value between the beginning of protests in mid-September 2022 to late February 2023. In February, the government imposed new restrictions on sales of foreign currency to try to arrest the rial’s fall. The head of Iran’s central bank resigned in December, replaced by Mohammad Reza Farzin.
In March, China brokered an agreement between Riyadh and Tehran to resume diplomatic relations. The deal is a potential boon to regional security. The deal’s economic impact is limited, but the struggling rial rose following the news.
In January, Iran’s parliament approved President Ebrahim Raisi’s proposed budget for the new fiscal year, starting in March 2023. While Iran is already struggling with fiscal deficits, Raisi’s budget – reportedly at about 21,640 trillion rials – is an enormous increase over the previous year, potentially representing an increase in spending of 40-60% over the previous year’s budget. In April, the World Bank forecast Iran’s fiscal balance, as a percent of GDP, at -2.5 for 2023.
Budget priorities include addressing inflation and increasing spending on security. The budget is widely seen as an attempt to respond to last year’s unrest, both through bolstering the regime’s security and information branches and by attempting to provide some economic relief to Iranians. However, with inflation likely to remain over 40%, steps such as increasing government employees’ salaries will still fail to prevent further erosion of Iranians’ purchasing power.
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