As Iran faces economic unrest, discussion is intensifying over the impact sanctions are having on Iran’s economy.
But experts doubt that the current situation portends the end of the Iranian regime or Iranian capitulation to Israeli and Western-led demands that it change its nuclear stance.
“You have now a market [...]]]>
As Iran faces economic unrest, discussion is intensifying over the impact sanctions are having on Iran’s economy.
But experts doubt that the current situation portends the end of the Iranian regime or Iranian capitulation to Israeli and Western-led demands that it change its nuclear stance.
“You have now a market that is under a lot of tension” which has “created a big economic crisis for the government”, said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech, during a meeting here Wednesday at the Wilson Center.
But Salehi-Isfahani added that there is a “lot of misunderstanding about the currency system in Iran”, noting that people are confusing it with huge devaluations that occurred in East Asian countries and Zimbabwe.
“Iran is nothing like that,” he said.
While expressing varying views about the severity of Iran’s economic problems, the Wilson Center’s panelists agreed that it’s still able to manage its ailing economy and the resulting unrest.
“Iran has a lot of experience with sanctions. In fact, what they did immediately is open up the books from the 1980s about how to deal with a currency crisis,” he said.
Demonstrators clashed with police outside Tehran’s central bazaar on Wednesday during protests about the Iranian currency’s declining value. The rial has lost an estimated 80 percent of its value against the U.S. dollar in the last year.
Ali Vaez, a senior Iran analyst at the International Crisis Group, told IPS that “the regime is likely to nip it in the bud to prevent (the protests) from snowballing.”
“Although it’s not clear if there will be more protests, one thing is certain: Iran will experience a much more securitised environment in the run-up to the 2013 presidential elections,” he said.
Iranians are also struggling with rising inflation and unemployment amid escalating U.S.-led sanctions linked to the Islamic Republic’s controversial nuclear programme.
Iran maintains that its nuclear programme is entirely peaceful but Western countries led by the U.S. claim that Iran is working towards achieving nuclear weapon-making capability.
Israel has been pushing the Barack Obama administration to move its previously stated “red line” on Iran, a nuclear weapon, to preventing Iran from obtaining nuclear weapons capability, something which Israel claims would seriously endanger its existence and the stability of the surrounding region.
“I’ve been speaking about the need to prevent Iran from developing nuclear weapons for over 15 years…I speak about it now because the hour is getting late, very late,” said Israeli Prime Minister Benjamin Netanyahu during his speech at the 67th annual U.N. General Assembly meeting last week.
Already under six rounds of sanctions imposed by the United Nations Security Council, Iran saw Western sanctions tighten markedly this year with an EU ban on Iranian crude oil purchases going into effect in July.
U.S. sanctions are also increasingly targeting banks that deal with Iran’s central bank, thereby seriously impeding Iran’s ability to conduct international transactions and trade.
Sanctions have not yielded tangible progress toward a diplomatic solution over Iran’s alleged nuclear ambitions, but the protests Wednesday and protests in July in the northeastern city of Nishapur over the rising price of chicken – a main food staple for the Iranian working class – indicate that segments of Iranian society will express their dissatisfaction when faced with serious pressure.
“The chicken prices got the government’s attention,” said Salehi-Isfahani, adding that the “government made a wise move in trying to stabilise the chicken market and not worry about the dollar.”
“The aim of sanctions is to raise pressure against the regime in order to solve the nuclear crisis in a peaceful manner,” Alireza Nader, a senior international policy analyst at the RAND Corporation, told IPS.
“But as we’ve seen, sanctions are also leading to major unrest in Iran and weakening the regime at home and abroad,” he said.
Bijan Khajehpour, an Iranian businessman and specialist on the Iranian economy, explained during the Wilson Center event that a number of factors have been harming Iran’s economy.
“It’s not just the sanctions…Iran’s economic developments have been undermined by sanctions, subsidy reforms, mismanagement and corruption,” he said.
“The degree of instability has reminded many citizens of the days of the Iraq-Iran war” and “public anger is reflecting itself in sporadic unrest, strikes, blogosphere protests and critical comments by artists,” he said.
But Khajehpour disagrees with reports suggesting that the Iranian economy is collapsing. “The current deterioration of the Iranian economy is less a period of economic collapse and more a period of economics adjustment,” he said.
“The citizens are suffering, but the macro economy could potentially benefit,” said Khajehpour, noting that sanctions which have impeded Iran’s ability to purchase the equipment it needs to develop key industries have forced it to produce them itself.
Khajepour added that, “The future story of Iran is in (its gas industry),” which is projected to grow over the next five years despite sanctions.
“The additional gas capacity will generate the potential of investments in gas-based industries with export potential,” said Khajehpour.
Suzanne Maloney, another panelist and Iran analyst at the Brookings Institute, said it’s “incredible and tragic” that “Iran’s economic horizons are more limited today than the last 50 years.
“There are huge constraints on Iran’s growth and development and that presents tremendous political vulnerabilities,” she said.
“Sanctions are working, but we’re not getting anywhere on the nuclear programme and that cannot be lost on anyone,” she said.
Michael Singh, the managing director of the Washington Institute, echoed the consensus among a number of well-known neoconservative analysts Wednesday by writing that more aggressive pressure and punitive measures are needed to change Iran’s nuclear calculus.
“Rather than hoping that giving current sanctions “time to work” will force Iran back to the negotiating table, the United States and our allies should add further pressure to the regime and the elites who comprise it, including through additional targeted economic sanctions, diplomatic isolation, bolstering the credibility of our military threat to the regime, and support for the Iranian opposition,” he wrote in an op-ed for Foreign Policy.
According to Trita Parsi, the president of the National Iranian American Council, more pressure alone will not bring about favourable results. “I don’t find it likely that the regime will capitulate due to the sanctions as long as sanctions relief is not part of the mix,” he said.
“The possibility that sanctions will lead to general regime change exists, but the question is what type of regime change would the devastation of the Iranian economy generate?” Parsi asked.
]]>The Iranian rial has been in free fall for the last few days. Inflation has been ramping up for the last few months as the rial has lost more than 50 percent of its value over the last year. Unemployment is up to maybe 25 percent plus, and quite a [...]]]>
The Iranian rial has been in free fall for the last few days. Inflation has been ramping up for the last few months as the rial has lost more than 50 percent of its value over the last year. Unemployment is up to maybe 25 percent plus, and quite a bit higher in some of the poorer parts of the country.
Iran’s oil exports have been slammed by sanctions. Even with Iran’s attempts to sneak some out in various ways, such as registering tankers in Mongolia of all places; the sanctions hunters found out about that one fairly quickly and shut it down with some diplomatic moves in Ulan Baator.
Then there is the purchase of 2 million barrels of stranded oil in Sid Krir in Egypt that the Egyptian government wants to purchase. US-Egyptian relations are not exactly the best these days and President Morsi visited Tehran recently. He might have embarrassed his host by mentioning his views on Syria, but he still went. Egypt also looks like it might be working towards improving relations with Iran. Turkey may be buying some oil from Iran with gold or other barter methods. Other states may be setting grain and goods for oil barter arrangements.
The financial system of Iran has been hit hard with the sanctions. The closing down of Iran’s access to the SWIFT system was significant. This may have done more damage to Iran’s ability to do business internationally than many of the other sanctions combined. The sanctions focused on persons and banks are good politics, but have historically not been that effective. Closing the country from a major clearing house is like slamming a large financial door in their faces.
Indeed, Iran is in a tight spot. I would expect runs on banks to follow on to this if the government cannot stem the flow of the psychology of financial contagion that seems to be sweeping the country. The government is clearly in a panic. They are blaming the usual “outside forces” and “22 conspirators” who of course were arrested quite publicly today. Then they blamed the black market money changers in the bazaars of Tehran for the collapse. This last one makes less than no sense. The bazaaris do not exchange enough money to make this sort of a dent in the US dollar-Iranian rial exchange rate. The currency drop has a lot more to do with hyper-expansive monetary policy pushing inflation. There is clearly a sense that there are way too many rials chasing at a faster velocity the goods that are in stock and are flowing into Iran. See this article for some supporting monetary and other data.
The huge rise in the stock market of Tehran is also due to nominal reasons, as we economists would like to say in such circumstances. The money flowing into the economy via the policies of the Central Bank of Iran has pumped up not only the prices of goods, but also stocks. This huge increase in money supply has also pumped up the price of land and housing in Iran. Also driving the stock, land and housing costs is the shortage of alternative investments. Sanctions have taken a bit out of the Iranian economy on that account.
Iran’s economic policies have actually magnified, not countered, the effects of the sanctions. One of the major culprits was expanding the broad money supply by 100 percent in the last 5 years.
This said, what is happening now shows not only the results of sanctions but counterproductive economic policies and more. The current economic status of Iran also shows how the credibility of the regime is weakening.
I am certain that there are many people in Iran who are questioning the worth of the country’s nuclear program and especially the leadership’s global defiance on this issue in light of the growing resulting problems they’re facing.
Developing about 90 percent of the entire nuclear fuel cycle is very expensive. This could have been costing Iran about 10 percent or more of its GDP for many years. That is 10 percent that could have been invested in industries that produce jobs, agriculture, education, and more.
Expansive nuclear infrastructure development is not necessary given the existence of global trade in low enriched uranium for nuclear plants. It is also unnecessary given the small amount of raw uranium that exists in Iran. This is also counter-intuitive given that Iran flares off the equivalent of four nuclear power plants of 1200 MW each of natural gas.
There are many reasons why Iran’s government should focus on its economy and its people, rather than on defiant nuclear brinksmanship.
The Iranian leadership may find that their brinkmanship is about to bring their country to the brink.
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