Rouhani prepares for tough presidential election

Published in MEED, 2 January 2017

Hassan Rouhani is the favourite to win May’’s presidential elections, but there is still plenty of time for a more conservative, hardline rival to emerge

Iran faces a crucial presidential election in 2017, which will set the tone for its relations with the US and the rest of the world in the years ahead.

In July 2016, the Guardian Council announced the election would be held on 19 May and, since then, the incumbent Hassan Rouhani has been the clear favourite. However, the election of Donald Trump as the next US president has the potential to change the political calculus and it may be that a more hardline figure will emerge, offering to match the president-elect’s hostile rhetoric.

During his run for the White House, Trump promised to rip up the nuclear deal with Iran once in office. There are many who point out that it is a multilateral deal and US allies in Europe and Asia will be pressing Washington to stick to its terms. But if Trump does keep his promise it could “reignite a crisis that could dominate his presidency, deepen tensions in a tumultuous region and deal a hard-to-reverse blow to multilateral diplomacy,” according to the Brussels-based International Crisis Group.

Officials in Tehran appear to recognise the risk and have repeatedly insisted the US must abide by the terms of the deal and, if it does not, Iran will react accordingly. In June, Supreme Leader Ali Khamenei said: “Individuals who have run for the US presidency are constantly threatening that they will tear it up. Well, if they tear it up, we will set it on fire.”

More recently, Atomic Energy Organisation of Iran spokesman Behrooz Kamalvandi said the Joint Comprehensive Plan of Action “is an international agreement, which was approved by the UN Security Council and its implementation is obligatory for all sides”.

Opinion poll

For now, it is not clear who could successfully take on Rouhani in the election. An opinion poll published in July 2016 by for Maryland University’s Centre for International & Security Studies found that Rouhani had the highest approval rating of any leading political figure among the Iranian public, beating the likes of Quds Force Major General Qassim Soleimani, parliamentary speaker Ali Larijani and the mayor of Tehran Mohammad Bagher Ghalibaf.

One Iranian political observer says he is sure Rouhani will be re-elected. “The Iranian people made a mistake once before. They won’t do the same again,” he says, referring to the election of Rouhani’s predecessor, the populist Mahmoud Ahmadinejad. The latter has already effectively been forced out of the contest by Khamenei, when he said in a speech in September that “it would be to the benefit of both the person himself and the country” if Ahmadinejad stayed out of the race.

The identity of the next Iranian president will also have important ramifications for Tehran’s regional position. Tensions with Saudi Arabia and other Gulf states have increased in recent years, with Riyadh alarmed by Iran’s growing influence around the region, particularly in the conflicts in Iraq, Syria and Yemen.

The US will also play an important role in this dynamic. If Trump sticks to his previous statements and demands that America’s allies do more to ensure their own security, it could encourage a new arms race on either side of the Gulf and with it the risk of further conflict and instability.

Economic improvements

A key issue for any politician running in the presidential campaign will be the state of the Iranian economy, which has improved under Rouhani, although not as much as many had hoped.

Inflation has come down, interest rates are falling and the Central Bank of Iran has been managing the rial-dollar exchange rate to cancel out the difference between the black market and official rates. The Washington-based IMF is forecasting a growth rate of 4.1 per cent in 2017 and 2018 – higher than any GCC country, but still below the heightened expectations when sanctions were removed. Even so, the situation is an improving one and some investors are predicting the trend will continue.

“We have a GDP that was [shrinking] and now is [growing],” says Clemente Cappello, CEO of London-based Sturgeon Capital, which runs a fund investing in the Iranian stock market. “We’re looking at a complete overhaul of the banking sector that will be done jointly by the government and the central bank. Inflation was at 40 per cent a few years ago; it’s now at around 7 per cent. Interest rates are at 16 per cent and they will fall further to the high single digits.”

There are still some big economic problems though. The nuclear deal involved the lifting of many, but not all, international sanctions on Iran and those that remain – principally those imposed by the US – continue to cause difficulties. Most of the world’s large banks are still wary of getting involved for fear of attracting heavy fines from the US authorities. Some small and medium-sized European institutions have been re-engaging with their Iranian counterparts, but they are unable to handle the largest transactions.

Some big firms have pushed ahead. France’s Total was the first oil major to re-enter the market in the post-sanctions era, when it signed a heads of agreement with Tehran in November. Total has insisted the election of Trump will not make a difference to its approach to Iran. Others are likely to bide their time to see what policies emerge from the White House and the reaction from Tehran before committing to the country.