Few concepts in Iran’s political discourse carry as much rhetorical weight with the public as “economic justice,” and none is so profoundly misrepresented. The principle is often reduced to a narrow state mandate: the direct government-led distribution of subsidized goods, cheap credit and public resources. In this context, any attempt at reform of these supportive allocations or rationalization of directed lending or consolidation of the preferential exchange rate is immediately viewed as an attack on the public welfare. But in this kind of reasoning, the most fundamental point is missed.
When policies aimed at protecting low-income households cause inflation and distortions in the allocation of resources, the short-term benefit is quickly offset by structural and long-term costs. The irony is that the greatest harm is inflicted on the very people for whom these policies were originally intended to protect.
Directed Lending: Welfare or Money Creation?
Credit expansion financed by central bank overdrafts is the result of governments forcing banks to meet credit targets regardless of their balance sheets or financial capacity. Without a credible nominal anchor, this expansion is directly translated into higher inflation.
However, supportive policies like mandated marriage and child-bearing loans are not aligned with the balance sheet realities of the banking system. This disparity is evident from the forced injection of 182 trillion tomans of directed lending into the banking network in just the first eight months of the Iranian year 1404 (March 21–November 21, 2025). The direct result of this imbalance was pressure on the monetary base, which led to 470 trillion tomans of bank overdraft from the central bank by the late 1403 (early 2025). This financing model imposes an implicit inflation tax that effectively cancels out its own support effect.
Meanwhile, the Supreme Audit Court of Iran has said that the remaining balance of bank overdrafts from the central bank has reached 798 trillion tomans by the end of 1404 (about $4.2 billion), warning against the continuation of liquidity imbalances in the banking network and its consequences for meeting inflation control objective.
Price Controls and Preferential Exchange Rates: Who Gains the Most?
Lowering the exchange rate generates artificial demand, harms domestic producers, and worsens the shortage of foreign exchange reserves. Most of the subsidy is captured by intermediaries through under-invoicing exports or over-invoicing imports at customs, smuggling and leakages in the distribution network before it has reached the final consumer. The real justice is the unification of the rate, which kills these opportunities for rent-seeking.
The Energy Crisis: Decayed Infrastructure vs. Subsidized Consumption
The same mistaken definition of justice, which equates low prices with public welfare, is at the heart of Iran's worsening energy crisis. For years, the domestic prices of energy carriers have been kept artificially low in the name of helping the poor. In practice, however, this policy is a huge regressive subsidy, favoring high-income households that consume the most energy, and starving the energy sector of critical investment capital.
During the summer peak of 1403 (June 22–September 22, 2024), the grid’s electricity deficit was around 20,000 megawatts, and is expected to increase to 25,000 megawatts in 1404 (March 2025–March 2026). Similarly, daily gas shortages of more than 300 million cubic meters in winter regularly cause industrial shutdowns. Daily gasoline consumption periodically surpasses 130 million liters, compelling the government to tap into foreign reserves to import fuel. This model, in which short-term price stability is prioritized over market-clearing pricing and infrastructure reinvestment, has produced the opposite of justice: it has eroded industrial productivity, caused rolling blackouts, and brought about serious environmental degradation. Subsidized pricing, it turns out, ultimately reveals itself as physical scarcity.
Fiscal Imbalances: The Populist Mandate and the Lure of Deficits
The promise of extending the state’s welfare blanket without reforming the tax system or cutting ineffective outlays has led to chronic fiscal deficits. Governments often impose unfunded mandates on the public budget and pension funds in the name of social justice, such as early retirement schemes for specific groups or pricing public services below cost.
If the government has a structural deficit, it issues debt, carries out quasi-fiscal operations or borrows from the banking system. This hidden fiscal expansion is finally a main driver of inflation. True redistribution cannot be achieved through the deficit-financed generosity of the state but through a transparent budget, fiscal discipline and a tax system that does not penalize production.
What Is Economic Justice, Really?
Two pillars underpin a coherent and sustainable framework for economic justice:
First, macroeconomic stability. It protects real wages, reduces economic uncertainty, and allows families to plan for the future.
Secondly, equality of opportunity; This would mean lowering barriers to market entry, stopping the arbitrary allocation of resources, strengthening competition policies, and investing in quality education and productive employment, instead of relying on unsustainable, short-term safety nets.
Policies that are labelled as “justice-oriented” too often turn into populism, policies that give short-term political benefits but impose long-term costs of inflation and structural distortions. The real issue is not one of compassion versus discipline, but of how to create targeted safety nets without undermining the macroeconomic basis.
Breaking out of this inflationary trap requires institutional credibility: fiscal discipline, a commitment to central bank independence and a shift to market-based pricing. It is a difficult path that offers few rewards to those who benefit from the current distortions. But it is the only way in which we can have real economic stability and lasting social justice.
