Subsidy Cuts Could Spur Unrest in Iran

Iranian President Mahmoud Ahmadinejad sent out an unusual message in a speech last week: time to tighten up your belts, or else. After months of wrangling between Ahmadinejad and the Parliament, or Majles, a sweeping five-year plan to cut government subsidies, valued at some $100 billion annually, is being put into effect. The subsidies cover a broad range of basic goods and services—from gasoline and electricity to sugar, rice, and flour—and most Iranians are likely to feel the pinch. The measure will help the economy absorb the effects of the latest round of sanctions, which have started to bite, and even Ahmadinejad’s opponents concede that the subsidies should be cut over a period of time.

But it’s going to be a bumpy road ahead. Ahmadinejad’s most outspoken critics, including opposition leader Mir Hossein Mousavi, contend that the government will badly mismanage the subsidy cuts, which they say could lead to sky-high inflation or even crash the economy. According to Iran’s central bank, inflation currently stands at about 9 percent, though some analysts estimate it could be twice as high. And that’s why Ahmadinejad, clearly aware of the potential pitfalls in the subsidy-cuts program, has started to flex his muscle. “Anyone who wants to abuse the situation will regret it forever,” Ahmadinejad said during his speech last week, a not-so-veiled threat to those who may protest the economic hardship. Interior Minister Mostafa Mohammad Najjar was even more explicit. “If a few people want to oppose the whole nation and seek to protest, [security forces] will firmly and legally deal with them,” he said.

They already have. Tehran’s police chief announced last week that some 100 “thugs and troublemakers” (a label usually reserved for activists of the opposition Green Movement) were rounded up last Monday night. Opposition activists say this is part of an intimidation campaign to silence the government’s critics. Thousands of police officers have been posted around Tehran in recent days, and the Revolutionary Guards commander for Tehran, Brig. Gen. Hussein Hamedani, announced that a special task force has been formed to deal with any economic protests. The local press has also been warned to steer clear of any controversial coverage of the subsidy cuts.

If protests do kick off, it wouldn’t be the first time that the subsidies have caused unrest. When fuel was rationed in 2007, enraged Tehran residents torched a number of gas stations across the city. This time, things could get messier: street demonstrations over the subsidy cuts could dovetail with the political protests over Ahmadinejad’s contested 2009 election. And it would take more than tough talk from the president to handle that.