Many were surprised when Iran accepted China’s mediation and appeared to seek peace and reconciliation with Saudi Arabia. Without discounting China’s diplomatic achievement, Iran had its own reasons.

At the start of 2023, Iran’s economic outlook appeared bleak, with widespread protests at home and growing isolation abroad. While its neighbors were growing rapidly, Iran had stagnated. The failure to revive the nuclear deal meant there was no relief in sight from US sanctions; on the contrary, more sanctions were piling up as a result of Iran’s intervention in the Ukraine war. That there were no prospects for regional peace meant that foreign investment was not forthcoming. The government was out of tricks to deal with popular discontent and policymakers at the highest levels knew that.

Iran was on track for stagflation — minimal to no real growth combined with high unemployment and high inflation of about 50 percent. More than half of Iranians were living below the poverty line, according to official figures. The rial was trading at more than 420,000 to the dollar, hitting a record low of 447,000 on Jan. 21. By comparison, it traded at 70 to the dollar prior to the 1979 revolution.

On Jan. 30, Iran’s Supreme Leader Ali Khamenei addressed the nation and criticized his government’s failed policies. He admitted in a televised speech that Iran’s economy was “a decade behind,” saying that the economy stagnated between 2011 and 2021, referring to “many negative indicators showing this.” Borrowing some of the opposition phraseology, he added: “These are reliable indicators from official organizations and are not just empty claims.” He called the high unemployment among young professionals a “disgrace,” blaming it for their high rate of emigration.

He attributed the sluggishness to exogenous factors, such as sanctions and fluctuating oil prices, but admitted that poor government management and overregulation were to blame. Surprisingly, he cited the over-focus on the nuclear program as one of the contributing factors to Iran’s poor performance.

On youth unemployment, Khamenei said that the country can no longer take pride in the growing numbers of university graduates because it cannot provide them with jobs, making it a disgrace instead of an honor.

He lambasted government red tape and the “arbitrary interventions of regulatory and non-regulatory institutions.” Khamenei called for sustained economic growth over the medium and long terms. “We must concentrate our efforts for at least seven, eight or 10 years,” he said, with a focus on knowledge-based companies and job creation.

Interventions in Iraq, Syria, Lebanon and Yemen have been devastating to those countries but also costly to Iran.

Dr. Abdel Aziz Aluwaisheg

The unusual public rebuke of the government was likely meant to deflect criticism directed at the government by protesters. Khamenei’s choice of 2011 as the starting date of Iran’s malaise was interesting because it coincided with the change in Iran’s regional policies following the so-called Arab Spring. It may indicate a long-overdue reckoning about the devastating effects at home of Tehran’s overreach in neighboring countries since 2011.

Interventions in Iraq, Syria, Lebanon and Yemen have been devastating to those countries but also costly to Iran. Instead of adding to its prestige, they have lowered Iran’s international standing and soured its relations with the Arab world. More importantly for a domestic audience, they have deprived the Iranian people of the resources they need to have a decent standard of living.

Instead of growing as their neighbors have, Iranians have seen their standard of living stagnate. Post COVID-19, the Gulf has been the fastest-growing region in the world, while Iran bucked that trend. In 2022, the GCC countries grew at a clip rate of 6.4 percent on average and saw their combined gross domestic product exceed $2 trillion for the first time. Iran, by contrast, struggled to return to pre-pandemic levels of growth, with its nominal GDP registering a mere $407 billion in 2022, according to the World Bank, or 20 percent of that of the GCC. The per capita comparison is even bleaker. With a population of 84 million, per capita GDP in Iran was $4,809 in 2022, less than 15 percent of the average per capita income in the GCC states.

The little growth that Iran managed post-COVID-19, aided by rising oil prices, was nearly wiped out by the high inflation rate of about 50 percent, compared to an average of 3.7 percent in the GCC countries, and by currency depreciation, which made imports more expensive. Labor participation rates have declined and unemployment among university graduates has risen, especially among women, whose unemployment rate exceeded 25 percent, no doubt contributing to the intensity of the women-led protests that have engulfed the country since last September.

While the protests in Iran have their roots in other issues, such as undue restrictions on women, economic discontent certainly plays a role. Khamenei mentioned some of the sources of that dissatisfaction and there are many more. Led by the so-called Generation Z, or Zoomers, the protesters have frequently cited failed government economic and social policies and bemoaned Iran’s falling behind compared to its neighbors and the rest of the world.

While Iran’s apparent change in regional policy is welcome, it has to go beyond tactics or the resumption of diplomatic ties with Saudi Arabia. For Iran to return to the fold and benefit from the synergies of regional integration, the changes have to go further. One of the main issues for the region and the rest of the world is the commitments Tehran made in the joint statements it issued with Saudi Arabia in Beijing on March 10 and again on April 6, including respect for the rules of conduct between states, namely respect for international law and the UN Charter.

The people of the Middle East, including Iranians, will reap the benefits of detente and de-escalation, if not peace and integration, when the nations of this region focus their energies on making peace and achieving prosperity, instead of the endless and nihilistic wars waged for the past four decades, which have drained their resources and sown enmity and hate between their peoples.

• Dr. Abdel Aziz Aluwaisheg is the Gulf Cooperation Council assistant secretary-general for political affairs and negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent GCC views.

Twitter: @abuhamad1