The Case of the Lost Euros in Aladdin Bazaar

Any visitor to Tehran’s Aladdin Bazaar immediately realizes that in Iran, mobile phones are more than just a commodity. They set and define one’s lifestyle, hobbies and social habits. And the mobile phone retail industry is a unique trade in Iran. Mobile phone merchants offer technical advice, install anti-filters to bypass the government’s filters and teach people how to use applications. Many of them offer to sell a package of applications along with the phones. They buy used phones and trade in accessories. And if one can say there is lifestyle centered around smartphones and mobile phones in Iran, then the volatility in Iran’s currency market has already begun to upset this lifestyle. As prices of phones and accessories began to rise sharply, crowds gathered in marketplaces like Aladdin to voice their worries and anger. 

When Iran’s rial (IRR) plummeted against the US dollar (USD), the price of an iPhone X in Tehran reached 90 million rials (over $2,000, based on official exchange rate), with some stores asking for 110 million rials for the Apple smartphone, which is priced $1,150 in the United States. And for some, the price of an iPhone X is equivalent of one-year's income. A retired civil servant in Iran has a pension of no more than 15 million rials per month. 

At the moment, the price of mobile phones is rising to match the falling value of the rial. Although officially the exchange rate is set at 42,000 IRR per USD, the consumer is paying a price based on an exchange rate that varies from 78,000 IRR per USD to 90,000 IRR per USD or 85,000 IRR per euro to 100,000 IRR per euro. And it’s puzzling that, according to Iran’s communications ministry, 220 million euros have been allocated to import mobile phones at the official rate of 49,000 IRR per euros. So why doesn’t the end price reflect the official exchange rate? 

Officials and importers offer two explanations. One is that importers have only used 75 million euros to import mobile phones, thus only a fraction of domestic demand is being supplied. There is a shortage in the market and the increase in prices reflects that shortage and not the market-based exchange rate. However, the prices are too closely correlated to the market-based exchange rate for the rial for anyone to believe this explanation. The fact of the matter is that there are all kinds of mobile phones and smart phones available for purchase, but their prices are simply too high. 

The second explanation, which is offered by importers who received the hard currency at the official exchange rate, is that some retailers profit from the volatility. According to Ebrahim Rasti, the head of the Mobile Phones and Audio Distributors Syndicate, whose company has received more than 25 million euros from the Central Bank of Iran, “It is not the importers’ fault if a shopkeeper raises his prices.” But even he admits that 145 million euros have simply disappeared into thin air — the missing amount has not been used by any importer to bring in any mobile phones. 

The blame game is on. The government blames the importers, the importers blame the distributors, the distributors blame the currency market. Iranians feel cheated, since prices have increased by more than 100 percent in less than three months. 

Many economists and analysts have expressed surprise that a government facing United States-imposed sanctions would give up its hard currency reserves so easily. They ask whether mobile phones are an essential necessity. They also point out that for every 1 million euros given to any importer at 49,000 rials per euro, there is a 20- to 40 billion-rial profit to be gained if the importer sells the allocated currency in the exchange market. Iran’s mobile phone market has become an environment where people profit from government exchange policies and subsidies, with importers resembling rent-seekers who use any excuse to receive government-subsidized hard currency. One wonders why President Rouhani’s administration played right into the hands of opportunistic rent-seekers, rewarding them with millions of euros and dollars. 

No one has any doubt that the Iranian markets are being prepared for underground activities, questionable financial transactions and smuggling. The mobile phone business provides ample evidence of the volume and the extent of smuggling activities in Iran. Officially, Apple products are not available to Iranians. Apple stores even refused to sell iPhones to Iran nationals in the United States as recently as 2017. However, the latest Apple products are available in Iran, with billboards advertising them across Tehran. Companies bearing names such as Apple Iran or Apple Store sell iPhones with warranties and Apple support in Iran. Lack of transparency means criminal activity is not uncovered and no one knows how money changes hands. 

Surprisingly, the administration and Iranian officials promise to lower prices and then use the country’s limited hard currency reserves to do so. One wonders who they expect to control a market where most activities are untraceable and most of the commodities are smuggled internationally so that they reach Iran’s borders. Profit-seeking tendencies and an insatiable demand keep the market going. Importers and distributors know many people in Iran will pay high prices to enjoy the latest technology. President Rouhani’s currency policy just added another motive: benefiting from the gap in the currency market. And no one expects to ever find the missing 145 million euros.