The new president received the Supreme Leader’s blessing and was sworn in following the result of the election earlier in July. Conservatives in the military, political and economic realms have provided public advice to him throughout the month. Of these, the most predictable are the IRGC’s warnings to avoid seeking a return to negotiations on sanctions relief; more interesting are those on the economic front, which we examine in more detail in this report. President Macron of France is also keen to proffer advice to his new counterpart. In other news, the Islamic Republic emulates the United States in suffering from a stifling heatwave, seeing a populist former president the target of forces seeking to do him harm, and getting agitated by a VP pick.
Presidential Inauguration. On 30th July moderate (relative) president Masoud Pezeshkian was sworn in as the Islamic Republic’s ninth president in front of the Majilis and foreign dignitaries from Armenia, Tajikistan, Egypt, Sudan, Iraq, Turkey, Saudi Arabia, Azerbaijan, Cuba and Brazil. Enrique Mora, the EU’s envoy, Hamas leader Ismail Haniyeh (who was later assassinated in Tehran early morning Wednesday 31st July), and Hezbollah’s deputy secretary general Naim Qassem also attended. The ceremony came two days after Iran’s supreme leader Ayatollah Ali Khamenei officially endorsed Pezeshkian and gave him presidential powers. Speaking at the swearing-in, Pezeshkian said “My government will never succumb to bullying… the Iranian people should be spoken to with respect. I will not stop trying to remove the oppressive sanctions. I am optimistic about the future.”
VP Pick. Pezeshkian moved quickly to appoint Mohammad-Reza Aref, a reformist known for his reserved demeanour as a legislator, as his Vice President, contrary to speculation that prominent economist Ali Tayyebnia (see more below) would be chosen. Aref led the reformist caucus in parliament from 2016 to 2020 and was heavily criticised by progressives for his underwhelming response to national crises, and failure to rally reformists against the suppression of anti-regime protests during that period. Pezeshkian is expected to unveil the rest of his government by mid-August.
IRGC-Pezeshkian Advice. As Masoud Pezeshkian prepared to take over the executive branch, the IRGC publicly signalled its foreign policy preferences. Writing mid-month in the weekly Sobh-e Sadeq newsletter, editorial board member Aziz Ghazanfari wrote:
“The coming and going of cabinets in the Islamic Republic, and their position concerning the sanctions and negotiations… should never change the fundamental understanding and calculus of Iranian statesmen: Iranian politicians may well consider the [JCPOA] an instrument to untie the knot of the sanctions, but [US] sanctions were imposed not only to control an atomic Iran but to contain other sources of Iran’s national power, such as its missile capabilities and regional presence. The idea of negotiations with the West as a way of getting sanctions relief led to the most traumatic events … What we can hope for is that Dr Pezeshkian has learned his lessons from what the Iranian nation has endured. ‘Diversification’ and ‘balancing’ Iran’s foreign policy ought to mean not putting all the eggs in the basket of negotiations with the West.”
This is a clear statement of intent, approved by IRGC leadership, that the organisation will resist attempts at returning to negotiations with the US and its allies. The IRGC are warning Pezeshkian to stay in his swim lane.
Warning on Ukraine. French President Macron issued his own advice to President Pezeshkian in a call on 29th July. Macron warned his counterpart against continuing support for Russia’s war in Ukraine, emphasised Iran’s obligation to avoid escalation on Israel’s northern border and warned Pezeshkian against acceleration of its nuclear program. Macron also called for the release of three French citizens being held in. Media in Iran reported that the Pezeshkian expressed concern over tensions between Hezbollah and Israel, warning that any Israeli attack “would have heavy consequences”. We assert that Macron was speaking to the wrong party, for Pezeshkian will have little opportunity to exert influence over any of these issues.
Elections Interference. The US Office of the Director of National Intelligence alleges that Iran is trying to undermine Donald Trump’s election bid with “covert social media accounts and related activity”. The DNI statement said that the Iran wants to “avoid an outcome they perceive would increase tensions”. This comes on top of warnings issued in May by Director Avril Haines herself around election-related cyber and influence activities.
Heat Shutdown. A heatwave forced authorities to cut operating hours at banks, offices, and public buildings this month, and order all government and commercial institutions to close on July 28th when temperatures in Tehran hit 42ᶜ, and 45ᶜ in ten provinces nationwide.
Rial. Probably resulting from marginally improved sentiment on the election of, and assumption of office by, the new president, the rial strengthened to end the month at 594,500 IRR on the black market.
Economic Warnings to Pezeshkian. Prominent Iranian economists are warning Masoud Pezeshkian that rushing plans to liberalize the economy, including closing the gap between the official and market currency rates, will cause a sudden economic shock. The multi-rate currency system, with the government offering cheaper dollars to some importers, has primarily benefited a small group of merchants with political connections, fostering massive corruption. Iran’s currency has steadily declined since the overthrow of monarchy in 1979, has experienced particularly sharp falls since the 2018 US withdrawal from the JCPOA and reimposition of oil export sanctions. The government, trying to prevent massive price hikes for imports, decided to offer cheap dollars to importers, indirectly subsidizing food, medicines, and animal feed. However, influential insiders took advantage of the cheaper currency system to line their pockets with fake imports and still high prices for consumers. Pezeshkian and his economic team led by Ali Tayyebnia, a prominent economist and former economy minister under Hassan Rouhani, have vowed to eliminate the various rates to prevent corruption and stop the government’s manipulation of the currency market. But prominent conservative politician and economist Ahmad Tavakkoli, when interviewed on national TV, insisted that eliminating different currency rates would be “deadly”, with the likely outcome being further devaluation of the rial and higher inflation.
Separately, in a letter addressed to Pezeshkian and made public, Farshad Momeni and Hossein Raghfar, two other prominent economists, warned the new government about the consequences of plans that would “shock” the economy and put more pressure on the livelihood of the lower-income Iranians. Momeni and Raghfar argue in the letter that the new government must instead reduce its own unnecessary expenditures and avoid policies that contribute to higher inflation, unemployment, and a higher income gap, or that encourage profiteering and corruption.
Pezeshkian has repeatedly vowed to end the government’s extensive intervention in the economy including strict price controls on various products that range from food and fuel to domestically produced cars and construction material, and to allow the “real private sector” to own most major companies. Tinkering with food and fuel subsidies has previously led to civil unrest.
Pezeshkian also insists that the eight% economic growth prescribed by the country’s development plan is not achievable without foreign investment and has promised to try to solve the problem of paralyzing sanctions through engagement with the West and accession to the conventions of the Financial Action Task Force (FATF), one of the keys to unlocking the banking sector to foreign cooperation.
Oil Tanker Seizure. The IRGC said that a previously captured tanker owned by an Iraqi resident of Dubai was seized for smuggling oil. The Togo-flagged oil tanker ‘Pearl G’ was confiscated by Iranian forces while it was being loaded with smuggled oil from Iranian launches, the IRGC said. The vessel had nine Indian crew members on board when it was seized on 26th July.
Former President Attempted Assassination. Former president Mahmoud Ahmadinejad was the target of a suspected unsuccessful assassination attempt this month, as the vehicle he was supposed to be travelling in spun off the road with steering and brake failure. Ahmadinejad had switched vehicles at short notice due to faulty air conditioning.
Pezeshkian maintains a positive outlook on his ability to make change in the coming months; however, as with Rouhani in 2015, prominent individuals and institutions are staking their claims to know better. In most cases, their advice aligns with their economic or power interests, so is to be expected, but is also an indicator of where resistance to Pezeshkian’s plans will come from.