On Tuesday, August 6th, the Middle East Institute hosted a virtual briefing titled "On the Edge: Israel-Iran Tension Post-Haniyeh Escalation," which explored the increasingly tense situation in the region as Tehran issued threats of retaliation.
Mohammad-Reza Bahonar, a member of the Expediency Discernment Council, has suggested a potential 25-fold increase in gasoline prices, while the deputy minister of Economy has urged that the price of bread needs to be raised.
Over the past three years, the Islamic Republic has sharply increased the prices of certain energy carriers and lifted price controls on flour used for non-traditional breads and pasta. Even the price of traditional bread, which is subsidized by the government, has been raised in two stages, amounting to an approximate 70% increase.
This week, the Court of Audit reported widespread government violations in subsidy allocations, specifically noting 730 trillion rials (approximately 1.2 billion USD), related to bread subsidies. Additionally, the government has forced the Central Bank to withdraw 315 trillion rials ($500 million) from the accounts of certain government agencies and illegally allocate it to partially settle the government’s debt to private wheat farmers.
Despite these extensive violations, the government still owes wheat farmers 1,160 trillion rials ($2 billion dollars) as the harvesting season has been completed and producers desperately need money.
Iran’s wheat market
According to The Food and Agriculture Organization of the United Nations (FAO) statistics, Iran consumes 16.5 million tons of wheat annually. Iranian state statistics also show that 10 million tons of this amount is supplied to traditional bakeries, while the rest is sold at free market prices to other consumer sectors, such as free market bread and pasta production units. Farmers sell an additional 3.5-4 million tons on the free market.
In traditional bakeries, 80% of the final bread price is covered by government subsidies, with the citizens paying 20% of the actual bread price.
Last year, Iran imported 2 million tons of wheat, and FAO forecasts this figure will rise to 3 million tons this year.
Over the years, Iranian wheat farmers have preferred to sell their wheat on the free market due to low government purchase prices and delays in settling their debts. Last year, one-quarter of their wheat production was sold on the free market, especially to poultry farms.
Last year, the government paid 130,000 rials per kilogram of wheat to domestic farmers, while the average global wheat price was around 34 cents, equivalent to 160,000 rials (based on last year's dollar rate). Due to sanctions and increased costs of purchasing and transporting wheat, Iranian government also spent 250,000 rials (50 cents) per kilogram for imported wheat, the Iran Custom statistics indicate.
This year, the government has increased the wheat price purchase from domestic farmers by 34% year-on-year, but Iranian rial also has lost 20% of its value comparing to last year. On the other hand, the costs for electricity, fuel, fertilizers, labor, and services in agriculture sector have also seen significant increases.
Islamic Republic officials have accused the public of wasting bread over the years, suggesting that increasing its price is necessary to reduce consumption.
The point is that although Iran's per capita wheat consumption is 2.5 times the global average, but only 60% of this wheat is supplied to traditional bakeries that use government subsidies.
Bread has always been an important staple in the Iranian diet. For context, Iran, Turkey, and Germany have similar populations, yet Iranians consume 27% less bread than Turks and 2.5 times more than Germans. When it comes to rice, Iranians consume nearly six times more than both Turks and Germans. However, Turks and Germans have a much higher intake of meat and dairy products—Turks consume more than twice as much meat and four times as much dairy as Iranians, while Germans consume twice as much meat and 13 times as much dairy.
Therefore, it's not accurate to say that Iranians waste bread; instead, the focus should be on addressing the low consumption of protein-rich foods among Iranians. This disparity is largely due to the decline in per capita income caused by the country's struggling economy.
Gasoline shortage crisis
Over the past three years, Iran has neither launched new refineries nor started building any. Meanwhile, nearly one million domestically manufactured vehicles, known for their low quality and efficiency, are sold to citizens each year. As a result, gasoline production at Iranian refineries last year was about 97 million liters per day (ml/d), while consumption peaked at 115 ml/d.
To address this deficit, the government blended 14 ml/d of additives, including 8 ml/d of non-standard petrochemical products, into the gasoline supply—a practice harmful to human health. This increased daily gasoline production to 111 million liters, with the remaining demand met through imports.
Statistics from the Oil Ministry for March 2024, the first month of the Iranian fiscal year, reveal that the government has increased the amount of additives in gasoline to 25 million liters per day, significantly endangering the health and safety of Iranian citizens. This measure comes in response to a 6% reduction in gasoline production at refineries and a 9% increase in gasoline consumption compared to the same month last year. The reasons for the decline in refinery production remain unclear, as does whether this trend has continued in subsequent months.
In 2022, before Iran faced gasoline shortages, only 5-6 million liters per day of additives were blended into the gasoline. Now, as the government becomes a gasoline importer for the second consecutive year, calls for price increases are growing louder. Mohammad-Reza Bahonar, a former parliament representative and member of the Expediency Discernment Council, has stated that if the gasoline imbalance continues, prices could rise to 500,000 rials (over 80 cents) per liter. Currently, subsidized gasoline in Iran is sold at 15,000 rials (2.5 cents) per liter, while non-subsidized gasoline is priced at double that amount.
Kiyani and Alizadeh, who secured bronze for her new country, Bulgaria, shared a long, warm embrace and posed for photos after receiving their medals. Kiyani was also seen kissing her former roommate and friend on the shoulder.
However, this emotional moment was omitted from Iran's state television coverage. The state-run sports commentator referred to Alizadeh only as "she" or "the rival" and described the match as "a historic revenge."
A video of the two old friends embracing, which moved many Iranian fans to tears, has since gone viral on social media.
Many Iranian social media users have condemned the “oppressive” policies of the Islamic Republic that forced Alizadeh and two dozen other athletes sports people leave their homeland and their teams behind to live in exile in recent years. Most female athletes who defect to other countries, including Alizadeh, speak against the Islamic Government's oppression.
Another emotional scene was created in Paris Thursday when Sabah Shariati, an Iranian wrestler who competed for Azerbaijan’s team, lost against Iran's bronze medalist Amin Mirzadeh. Mirzadeh lifted him on his shoulders as a sign of respect when he found out this was Shariati’s last match.
Supporters of the state laud Kiyani for not “turning her back on the motherland” and call Alizadeh a “traitor”.
Kiyani who remained in Iran, as her Instagram posts show, is not a conformist, either. She supported the Woman, Life, Freedom movement of 2022-23 and campaigned against capital punishment on social media. “My silence doesn’t mean I’m happy,” one of her Instagram stories read.
If not for the prospects of a medal, and consenting to wear the hijab, she would not have been allowed to compete in Paris or any other international competitions. She may even face repercussions for embracing her friend instead of turning her back on the “traitor’ in Paris Olympics.
Some others have urged authorities to allow her to return home and join her teammates.
“Iran is the home of all Iranians. I wish Kimia could return to Iran and to be a winner again,” former minister of communication Mohammad-Javad Azari-Jahromi, a close ally of the reform-oriented President Masoud Pezeshkian, posted on X Thursday.
Alizadeh was given a hero’s welcome by Iranian officials in 2016 for winning an Olympic bronze. She was showered with gifts and Supreme Leader Ali Khamenei lauded her for her victory which he said proved that hijab is no impediment to women’s success.
In 2020, however, Alizadeh defected to Germany to avoid competing for the Iranian Olympics team in protest to oppression of Iranian women and discarded her veil. She competed as a member of the refugee team in Tokyo Olympics where she and Kiyani had to face each other. Alizadeh won 3-0 but both were eventually eliminated.
“I’m one of the millions of oppressed women in Iran who they played in whatever manner they wished,” she said after her defection about being used for propaganda by the authorities when she was a member of the Iranian team such as obliging her to dedicate her 2016 medal to Supreme Leader Ali Khamenei and saying that wearing the hijab was created no obstacles to female athletes.
In the aftermath of the Woman, Life, Freedom protests, Alizadeh supported the leadership of Iran's exiled Prince Reza Pahlavi.
Iran's Supreme Leader has imposed a ban on Iranian athletes competing with Israelis. The ban forces athletes to forfeit matches or claim injury to avoid facing Israelis even at the cost of losing medals.
General Joseph Votel retired four-star US Army General and commander of US Centcom from March 2016 to 2019 and now Senior Fellow on National Security at MEI, and Firas Maksad Senior Director for Strategic Outreach and Senior Fellow, MEI were the speakers. They laid out the implications of the most recent rise in hostilities between Israel and Iran and its affiliated proxies. Also discussed were scenarios of Israel's strategic assessments, the risk of the US being drawn into a broader regional conflict, and the aftermath of Haniyeh's death on Hamas' future.
In his opening comments Firas Maksad said: “Israel has successfully gained escalation dominance in this conflict; essentially projecting out to the world and warring parties that it is ready to take the next step up the escalatory ladder, should it come to it. Iran and Hezbollah have lost quite a bit of their deterrence, as their response on April 13th was not enough to pause,” he added: “I think in fact the Israeli Prime Minister Benjamin Netanyahu has been quite successful in putting both Iran and Hezbollah in a Catch 22 type situation. A policy dilemma.”
Maksad described the closing ring on fire that Iran and its proxies have established around Israel and that it is very real. This is a strategic argument that can be made for a war by Israel. Politically, Netanyahu is embattled, his political future hangs in the balance and many in Israel will say that [Netanyahu] doesn’t have much of an interest in reaching a ceasefire with Hamas in Gaza and he is at odd with most of his intelligence and security chiefs who believe that a deal can be had.” He added: “The answer to the million-dollar question as to whether Netanyahu is looking for a broader war; there are many reasons and justifications as to why the answer to that might be yes.”
He outlined three potential scenarios:
1. Limited Response: The least likely scenario involves a coordinated but fairly limited response from Iran and Hezbollah. Back-channel diplomacy, such as efforts by the Jordanian prime minister, has emphasized de-escalation and warned Tehran that Jordan would prohibit the passage of Iranian missiles and drones through its airspace. Saudi Arabia has reportedly conveyed a similar message to Iran.
2. Escalated Conflict from Lebanon: The second scenario, which may be the most likely, involves increased missile fire from Lebanon. Given Lebanon's proximity to Israel, this incoming fire would be harder to block. Hezbollah possesses over 1,000 missiles, many equipped with precision-guided kits, and the US and its allies might not have the same advance warning as they did on April 13. In this case, Israel would likely retaliate strongly, potentially launching a major operation into Lebanon.
3. Wider Regional Conflict: The third and most catastrophic scenario involves Iran following through on its repeated promises to defend Hezbollah if Israel launches a major offensive. Hezbollah is Iran’s most significant foreign investment, with over 40 years and billions of dollars spent on arming, training, and equipping what is considered the most formidable non-state military actor in the world. As Hezbollah serves as a first line of defense for Iran's nuclear program, this scenario could lead to a much broader and more devastating conflict.
In his opening comments Votel pointed out that US influence in the region has diminished which is not unexpected. He explained: “Our desire to put more focus on the Pacific and to reduce our presence in the Middle East which was done to large extent through cessation of operations in Afghanistan, Iraq and Syria, though there are still 2500 troops on in the region.”
He emphasized that Iran’s response will not be limited to actions in the Levant and that the IRGC’s global network can exact costs in other parts of the world.
Maksad argued that Hezbollah does not want to see an escalation of the conflict. Given the events of the last week, Lebanon is no longer a secondary front and in danger of becoming the primary front. He explained that there are many reasons why Hezbollah does not want to fight a head on war with Israel. The most important reason being that Hezbollah’s primary sponsor does not want to see it spent in such a war and wants to keep that power in case of any potential Israeli attack on Iran proper. Lebanon is still staggering from the financial collapse of 2019 and the Shia community in Lebanon does not want to see a war that could be devastating for Beirut being fought for Palestinians and Hamas.
A viewer asked: What are the chances and the consequences of the war spreading to the entire region and the GCC, impacting energy flow through the strait of Hormuz. Votel replied saying that it will certainly impact shipping, market and insurance prices and will have an overall decrease of the movement of goods out of the region.
Maksad and Votel who have recently returned from touring countries in the region, including the CENTCOM facilities in the area. Maksad argued that it is unescapable for the GCC countries not to be impacted. According to Maksad, Saudi Arabia is laser focused on Yemen, the Houthis and their participation in any forthcoming escalation. The regional countries have done their utmost to sit this war out which is very difficult for them. The Red Sea is vital and so much of what the Crown Prince Mohammad Bin Salman, envisioned, into turning the country into a logistical trade hub by 2030 whose logistical trade is around the Red Sea through which 15% of the global commerce goes through. The UAE, Qatar, Saudi Arabia are firm US partners and allies, but they cannot continue to hedge if the issue expands into the Persian Gulf as well.
Maksad argued that if the reports of the their readiness of providing Iran with a significant air defense as possible, such as the S400 to help defend against incoming Israeli attacks, will underscore what many including Maksad and Votel have said all along to the Biden administration which is it is not possible to push back against Russia and the rise of China and not be involved in the Middle East. Russia is stepping back in in a significant way and this will give credence to not only the Israeli argument but other American allies in the region, that America needs to be more involved.
