On Wednesday, the CEO of Tehran’s Stock Exchange Market resigned amidst a scandal involving cryptocurrency mining. The Iranian regime officially licensed the practice in 2019 after recognizing it as a potential means of circumventing US sanctions and acquiring global capital without the need for an exchange of physical goods to fund its illicit activities. Iranian cryptocurrency mining operations soon proliferated to the point at which they comprised an estimated 4.5 percent of all such operations in the world. However, many of these operations eschewed official licenses, although this did not represent a defiance of the Iranian government.
Quite to the contrary, many of the unlicensed operations were closely linked to regime institutions, particularly the Islamic Revolutionary Guard Corps (IRGC). The IRGC have developed a vast financial empire that accounts for more than half of Iran’s gross domestic product, and the unconstrained growth of its cryptocurrency mining operations represented an opportunity to further consolidate that control. In this sense, regulations on the practice served not to prevent negative externalities but rather to reduce competition from private sources.
Tehran’s mining of cryptocurrency, specifically the industry-leading Bitcoin, made headlines in May when it was revealed that the practice was a major contributing factor in blackouts that had repeatedly struck various areas of the country. At the time, it was estimated that the licensed and unlicensed operations were collectively consuming the equivalent of 10 million barrels of crude oil per year, on account of cryptocurrency mining being an extremely energy-intensive process involving chains of elaborate computer calculations running through numerous servers and terminals.
The blackouts in question grew much worse through the summer, leaving some areas without power for upwards of six hours at a time while temperatures rose beyond 110 degrees Fahrenheit. Long-term power cuts at hospitals not only interfered with patient care while Iran continued suffering the worst coronavirus outbreak in the Middle East but also resulted in entire supplies of vaccines spoiling when they could not be kept at suitably low storage temperatures. By July 3, the blackouts sparked large-scale protests, with participants taking aim at the regime’s policies and chanting slogans such as “death to Khamenei,” in reference to the regime’s supreme leader.
Tehran was soon compelled to take action, but the bulk of that action involved attempting to deflect responsibility for the worsening crisis. Many official narratives focused on natural phenomena and other factors ostensibly beyond the regime’s control, including the heatwave and associated droughts, which raised domestic demand for energy while reducing production from hydroelectric power plants. However, that reduction in output was part of a longstanding pattern, that poor water and land management was steadily contributing to the drying of essential waterways, regardless of total rainfall in any given year.
One particular culprit in that drying is the years-long proliferation of dams, many of which have been approved by government authorities without regard for environmental impact assessments. The rushed approach to those projects is attributable to the involvement of entities like Khatam al-Anbia Construction Headquarters, a conglomerate wholly owned and operated by the IRGC. This is to say that the loss of civilian access to water and the sharp recent reduction in hydroelectric power generation are both attributable, in large part, to the IRGC that is behind much of the cryptocurrency-related surge in energy demand.
Although some regime officials did acknowledge the energy-intensive features of cryptocurrency mining in the wake of protests, their statements universally disregarded the connections between that practice and state-affiliated institutions. The blame was instead placed on unspecified private entities, with the further implication being that their unlicensed operations would be shut down and the balance between energy output and energy demand would begin to rebalance. However, the announcement accompanying Wednesday’s resignation confirmed that this was not the case.
Ali Sahraei, the Stock Exchange Market CEO, described that resignation as being intended “to create an opportunity for further research on the issue of cryptocurrency mining in the Tehran Stock Exchange and to consolidate the capital market.” Demand for such “research” emerged from exposés on the presence of a cryptocurrency mining operation involving dozens of persons in the basement of the Stock Exchange building. The initial reports elicited denials from Iran’s electricity organization, Tavanir, but in the wake of Sahraei’s resignation, its strategy has changed to one of silence.
The energy consumption from cryptocurrency remains a concern. More broadly, the revelation of recent, state-linked mining operations brings renewed attention to the self-serving nature of the regime’s economic policies and the Stock Exchange’s practices.
Throughout much of 2020, regime authorities systematically promoted private investment in the stock market as a cure for financial ills. The resulting artificial growth resulted in Tehran’s stock exchange increase dramatically in volume while virtually all other such markets were contracting throughout the world.
Many economists warned about the prospect of this bubble bursting, which it ultimately did in early 2021. Millions of Iranians lost their life savings as a result of the scheme, while the regime’s entities and individuals were generally able to cash out with the public’s wealth.
Whereas protests over blackouts tapered off as the energy shortfalls eased, protests over financial losses have persisted for months and may now be reinvigorated by the newest scandal involving the Stock Exchange. The cryptocurrency operation potentially reflects efforts to re-invest the money that was pumped into the exchange by ordinary citizens, without any plan for disseminating the returns back to them or even acknowledging the investment. Meanwhile, those citizens continue to struggle through a worsening economic crisis, which has seen the prices of rice, meat, and poultry increase by around 50 percent over the past year.
This situation has turned Iranian society into a powder keg. In this regard, the regime’s former MP Soheila Jolodarzadeh said, “If [the regime does not] act or think about the situation, we will face popular protests… There is a limit to people’s patience in the face of difficulties.”