Iran’s foreign money was already tumbling − after which information of Trump’s victory broke

Because the world absorbed information of Donald Trump’s comeback victory within the 2024 U.S. presidential race, concern in Iran turned to the impression of the election by itself economic system amid escalating regional tensions.

Iran’s foreign money, the rial, fell to an all-time low on Nov. 6. 2024 – buying and selling at above 700,000 rials to the greenback.

However how are Trump’s win and Iran’s financial woes associated? The Dialog U.S. turned to Nader Habibi, an knowledgeable on the Iranian economic system at Brandeis College, to clarify.

What has occurred to Iran’s foreign money?

The rial fell to a contemporary file low as Donald Trump was claiming victory – buying and selling above the symbolic marker of 700,000 rials to the greenback, based on merchants in Tehran, simply as outcomes of the U.S. election had been coming in.

However you will need to be aware that Iran’s foreign money has been dropping worth steadily in latest months. This has primarily been due to excessive inflation within the nation, which all through 2024 has been above 30% on a year-to-year foundation, and since the federal government has needed to run massive finances deficits. It has additionally been brought on by the latest escalation of tensions – and a contemporary spherical of missile exchanges – between Iran and Israel.

Because of these considerations, Iranians have more and more been changing most of their financial savings into U.S. {dollars} or gold. This, in flip, has led to a depreciation of the rial.

So this pattern predated Trump’s win?

Sure. The Iranian economic system was already in a dangerous state due largely to the continuing impression of U.S.-led sanctions on Tehran and ongoing anxiousness over the battle within the Center East. In reality, the rial hit an earlier low a number of days earlier than the election.

As well as, Iran’s leaders have been directing an increasing number of of the nation’s oil income towards protection. They just lately introduced a deliberate enhance in navy expenditure of 200%, and a few members of the ruling elite have referred to as for setting the protection finances as a set share of gross home product to make sure satisfactory funding for navy priorities. This proposal has added to the personal sector’s anxiousness concerning the finances deficit for different authorities expenditures, which can lead to extra inflation.

How did Trump’s victory additional this foreign money tumble?

Geopolitical specialists anticipate {that a} second Trump administration would possibly result in a shift in U.S. coverage on Iran and a return to a “most strain” technique that included punishing financial sanctions and threats of navy motion to pressure Iran to desert its nuclear ambitions.

Whereas the Biden administration actually stored the sanctions positioned on Iran underneath Trump – and have even added to them – Washington additionally engaged in back-channel negotiations with Tehran, which pointed to a diplomatic answer and doubtlessly an settlement that will, someday, ease these sanctions.

And although the sanctions have remained in place, the Biden administration partially rolled again the enforcement of a few of these prohibitions as an incentive for Iran throughout these back-channel negotiations. Washington, for instance, has not prevented Iran’s ongoing oblique oil exports to China lately.

Biden’s looser strategy to sanction enforcement noticed Iranian oil exports enhance to 2 million barrels a day, with most of that oil going to China. Below Trump’s “most strain” coverage, Iranian oil exports had been all the way down to 100,000-150,000 barrels a day.

How does Trump’s relationship with Israel think about?

Iranians are divided on how the second Trump presidency will have an effect on the Iran-Israel battle. Some are fearful that it’s going to calm down any strain the U.S. has on Israel in making an attempt to include the present battle within the Center East.

The priority is that with out this strain from Washington, Israel will perform extra navy operation in Iran. As well as, many Iranians are fearful that Trump might give Israel a inexperienced gentle to assault oil property and Iranian infrastructure – and that will be much more expensive to Iran’s economic system.

These fears had been heightened by the truth that Israel’s prime minister, Benjamin Netanyahu, was among the many first world leaders to congratulate Trump, noting that the victory represented “a robust recommitment to the nice alliance between Israel and America.”

Many Iranians are additionally fearful that Trump’s victory might worsen relations between Washington and Tehran. Whereas the U.S. and Iran don’t have direct diplomatic ties, it has been broadly reported that underneath Biden there have been oblique and secret negotiations. The priority is that Trump, who’s perceived in Tehran as extra unpredictable than Biden, won’t pursue the identical technique.

On the similar time, some Iranians consider that Trump would possibly attempt to de-escalate the warfare in Gaza, and this will even scale back tensions between Iran and Israel. This group factors to Trump’s repeated expressions of curiosity in ending each the Ukraine warfare and the Center East battle. If the emotions of this group of Iranians prevail, the anxiousness that has triggered a brand new decline within the rial’s worth is likely to be momentary.

What has Tehran mentioned about Trump’s victory?

Iran has downplayed any impression of the U.S. election on its economic system. Fatemeh Mohajerani, a spokeswoman for Iranian President Masoud Pezeshkian’s administration, mentioned on Nov. 6, 2024, that the election of a U.S. president “doesn’t have something particularly to do with us,” including that the “main insurance policies of America and the Islamic Republic are fastened, and so they received’t closely change by folks changing others.”

However this seems to be posturing by Iran’s leaders. They wish to reduce the impression that Trump’s victory might have on their economic system and are attempting to reassure the home market.

However this may not show efficient – and we would see much more devaluation of Iranian foreign money within the coming weeks.