Rouhani’s abysmal economic record and the West’s dilemma

Iranian President Hassan Rouhani recently called last summer’s nuclear deal a “shining sun” for the Islamic Republic.

If so, that sun has not yet shone on ordinary Iranians. The Statistical Center of Iran just announced that economic growth between March and December 2015 reached just 0.7 percent.

Stagnant growth combined with increased inequality means that three years after his election on promises of economic growth, Rouhani has failed to deliver on his pledge.

Rouhani’s abysmal economic record dims his chance of re-election. To reverse course, he needs an inflow of cash and foreign direct investment. Given the existing complex international sanctions regime, this requires special assistance from the US and Europe, whose leaders are invested in the nuclear deal and in Rouhani’s success.

Aware of this, the radicals in Iran are challenging the West by increasing their support for terrorism and efforts to develop ballistic missiles. Western leaders face a dilemma: punish Iran for its rogue behavior, or overlook it and encourage companies to invest in Tehran’s floundering economy.

The sanction relief Iran has received since the November 2013 has not translated into steady growth and prosperity. Of all of his economic promises, Rouhani only succeeded in curbing the inflation rate, bringing it down from 40 to 11 percent – still far higher than the rate required for a healthy economy.

In 15 months, Rouhani will try to seek re-election, but his economic record puts him on shaky ground, particularly if his rivals unite around a populist figure who can exploit the discontent of the lower and middle classes.

Given last year’s slow growth, it should not be difficult for Iran to experience 3-5 percent growth this year, but that does not mean ordinary Iranians will feel a positive change in their day-to-day lives.

To overcome this problem, Rouhani needs a significant increase in oil revenue (as through higher prices or higher exports), increased foreign investment, and a faster return to the world economy.

Washington and its European allies prefer Rouhani to his more radical rivals, and have been willing to turn a blind eye to Iran’s continuing destabilizing regional activities to help him win domestic political battles. This has provided Iran’s security establishment the opportunity to double down on support for terrorism and the Syrian regime, to intensify efforts to develop long-range ballistic missiles, and to step up human rights violations.

Under Rouhani, the number of executions last year reached its peak since 1989, when Iran executed thousands of political prisoners. Over the next 15 months, this trend will only intensify as Iran knows the US and its Western allies will not put pressure on the regime lest it risk Tehran walking away from the deal.

The Revolutionary Guard will test more ballistic missiles and be more aggressive in pursuing its destabilizing regional goals. Iran’s security and judiciary establishment will continue its spate of executions and will not shy away from cracking down on dissidents and religious minorities.

It is crucial that the US Congress and presidential candidates counter this trend – the former by introducing new sanctions, the latter by laying out a clear plan to punish the regime’s unacceptable behavior after the election.

The United States should aggressively target the sectors, entities, and individuals connected to terrorism, the ballistic missiles program, and human rights violations. Put simply, Washington has to send a message to Iran that appeasement is no longer on the menu.

Saeed Ghasseminejad is an Associate Fellow at the Foundation for Defense of Democracies and its Center on Sanctions and Illicit Finance. He teaches finance at the City University of New York. Follow him on Twitter @SGhasseminejad