Is Iran On The Verge of Collapse?
A dangerous situation is forming
For over a year, I’ve been discussing the worsening plight of Iran. This is not just about Iran’s loss of proxies or humiliating defeat by Israel, where the Israeli air force literally took control of the skies over Tehran. Within Iran, the situation is growing more dire by the day. Here is an excerpt from an insight in June, days before the Israel-Iran war started:
Inflation is at over 30%, the rial (the national currency) has lost 90% of its value since sanctions were imposed in 2018 during Trump’s first term, and over 30% of the country, around 26 million people, are now living below the poverty line and struggling with food insecurity.
…Rolling blackouts are becoming the norm, with some lasting 3-4 hours, as Iran struggles with limited electricity supplies… The country now faces a 20% electricity deficit (there is a 20% gap between electricity’ consumption and supply).
New unrest is emerging as the government is compelled to raise prices to offset the effects of san.tions, such as the ongoing truckers’ protests that have spread to over 130 Iranian cities, resulting in shortages of goods. Truckers are fuming at a massive proposed increase in fuel prices from 4 cents a litre today to 50 cents a litre by the end of June.
Economic Squeeze
The 12-day Israel-Iran war overshadowed much of the internal strife, especially as Iran warned it was about to begin mining the Strait of Hormuz. But now, even as Tel Aviv and Tehran prepare for a new faceoff, and Iran reportedly ramps up missile production to launch 2,000 ballistic missiles in a single volley if needed, the crisis in Iranian society is escalating.
Alongside the UN reimposing sanctions, further restricting Iranian oil exports, which supply up to 40% of the government’s revenue, the rial is effectively collapsing in real time, reaching a new rate of 1.3 million rial (to the dollar), just two weeks after it slid to 1.2 million rial. Iran is in a financial crisis of monstrous proportions, squeezed by more Western red tape, declining oil revenue, and hesitation from close partners like China and Russia to dole out more cash. This last part is particularly important, as China has been buying close to 90% of Iran’s oil exports. This is starting to reverse, as firms in both China and Russia adapt to US sanctions and US President Donald Trump’s rhetoric.
Added to this, the latest tanker seizure in the Caribbean is part of a shadow fleet, controlled by Viktor Artemov, a Ukrainian businessman, that moves sanctioned oil from Venezuela and Iran to global markets. As the US prepares to seize more tankers, one of Iran’s main ways of evading US sanctions (and getting revenue) could disappear.
Except, this is only the tip of the iceberg as to Iran’s plight.
Dual Crisis
The country’s fresh water supply is rapidly deteriorating as 10% of the nation’s dams run dry. These dams supply the fresh water to cities, which house 70% of the nation’s 90 million people. In one city in the northeast, Mashhad, water levels have dipped to below 3% of capacity. Meanwhile, in the capital, Tehran, the five dams that supply the drinking water have reached “critical levels.” One of them is empty, and the other is at 8% of its storage capacity. Once again, inefficient government planning and lack of state investment are to blame, as 90% of the country’s fresh water is consumed by agriculture - a sector that only employs 14% of the population and accounts for just 12% of the GDP.
Add in the energy situation, where cities across the country are now facing permanent rolling blackouts as the country struggles to supply the demand. The stories will make many in the West squirm: apartments facing 40-degree Celsius temperatures, water rationing as residential supplies are cut, and rampant smog as the government burns mazut (heavy oil) instead of natural gas, sparking an air pollution crisis amongst the many other crises the nation is battling. The energy situation has become so bad that in August, 16 out of 31 of Iran’s provinces were completely turned off - schools and office buildings closed and street lights turned off.
The culprit is natural gas, which supplies 81% of the country’s electricity. Except, the nation’s infrastructure needs investments, including $20 billion in the South Pars field, which supplies 70% of Iran’s gas. But, even if Iran had the cash, it could not import the required components due to US sanctions, and it does not have the expertise to build the new infrastructure.
Collapse or Craziness?
All of this together has culminated in Iran’s government studying options for moving the capital to its southern Makran coast, closer to the sea, reducing trade costs and boosting regional connectivity, although the relocation project is expected to cost upwards of $100 billion.
What Iran is experiencing is not sustainable. On the most critical fronts - water, energy, infrastructure, and social stability - the situation is worsening. The question in front of Iran is threefold.
First, at what point will the demands of Iranian society completely oustrip what the government can do? While Iran is locked in winter, spring and summer will soon arrive. This will once again strain systems. The next summer, will certain infrastructure completely break down?
Second, what is the economic toll of the current energy and water scarcity? For instance, if offices are closed and economic activity slows, many companies could begin layoffs, end projects, or shut down altogether. This only adds to the economic strain on the government if tens of thousands join the existing jobless pool and need support.
Third, how does the government protect itself and maintain control of the country? The Iranian regime is weaker than it has ever been. If major protests begin against blackouts, water rationing, or lack of jobs, Iran’s government could respond in a brutal way. Facing internal revolt, the state could take unprecedented action to protect itself and stop social explosions.
And all of this could take place before or during a second flare-up between Israel and Iran, which will only make matters worse.
What is on the horizon is one of two possibilities.
Either the world is watching the countdown of Iran’s government moving closer and closer to collapse. Or the world is watching the countdown of Iran’s government responding to its crises in the most shocking ways. Either way, the Iran of just a year ago is gone. What is forming now is a new Iran, more pressured, more cornered, and more desperate than ever before.
ABISHUR PRAKASH AKA. MR. GEOPOLITICS
Mr. Geopolitics is the property of Abishur Prakash/The Geopolitical Business, Inc., and is protected under Canadian Copyright Law. This includes, but is not limited to: ideas, perspectives, expressions, concepts, etc. Any use of the insights, including sharing or interpretation, partly or wholly, requires explicit written permission.