Economic Sanctions causes Collapse in Iranian Rial and Protests against Iranian Regime

Posted by PITHOCRATES - October 7th, 2012

Week in Review

The economic sanctions are making their mark in Iran.  The people are suffering the economic consequences.  But so far it doesn’t look like it’s encouraging any change in official Iranian position on their nuclear program.  At least, not yet.  For the Iranian regime is beating back the protestors (see Iranian discontent rises as riot police fight protesters by Robert Tait, David Blair posted 10/3/2012 on The Telegraph).

Security forces used tear gas and batons against demonstrators angered by a dramatic collapse in the national currency, the rial, which has lost about a third of its value against the US dollar since Sunday. The hour by hour decline of the currency provides vivid evidence of the damage wrought by international sanctions, which were imposed because of Iran’s nuclear ambitions.

There were voting irregularities in the 2009 Iranian elections.  Protests erupted throughout Iran.  And the Iranian regime suppressed them.  President Obama did not support the protesters.  Nor demand that President Mahmoud Ahmadinejad step down.  Even though the Iranian regime is an enemy of the United States.  They are an active sponsor of terrorism.  And a threat to regional peace.  But when the Arab Spring reached our ally, Hosni Mubarak in Egypt, President Obama demanded that he stepped down.  Even though he didn’t use his army to suppress his people.  Now the country is run by the Muslim Brotherhood.  And is moving closer to Iran.

With the invasion of Iraq Libya made peace with the United States.  They were no longer a threat to the United States.  Or regional peace.  Yet President Obama committed military force to support the opposition in their civil war.    When the Arab Spring moved on to Syria, an Iranian ally, supporter of terrorism, home of Hezbollah, President Obama made no move to support the opposition.  And Syria has degenerated into a bloody civil war.  Sending refugees across borders.  And causing cross-border incidents.  The very thing the Obama administration warned of in Libya.  And used to justify their support in that conflict.

American foreign policy these days may appear a bit confusing to our friends and allies.  The U.S. is supporting sanctions against Iran to get them to abandon their nuclear programs.  Which probably would not have advanced as far had the Iranian protests in 2009 led to a regime change.  But the U.S. did not support the protestors.  Unlike in Egypt and Libya.  Nations that weren’t enemies of the United States.  Like Iran is.  So it will be interesting to see where these new protests may lead to.  Hopefully they will end well for the Iranian people.

Behind the rial’s decline lies a precipitous fall in Iranian oil exports, which have dropped from about 2.5 million barrels per day last year to 1.1 million barrels in August, according to the International Energy Agency. This has deprived Iran of billions of dollars of revenues and exposed the regime’s failure to avoid the damage caused by sanctions.

The collapse of the currency reflects a general loss of public confidence. The anti-government website, Kalemeh, cited eyewitnesses accounts that demonstrators demanded the overthrow of President Mahmoud Ahmadinejad.

The collapse of the rial makes it far more expensive for Iranian companies to buy imported goods. Mr Kushner said the latest decline “means that most Iranian importers simply cannot afford to pay for goods if they must use the free market rate.”

Instead of trading with the West, Iran has tried to buy more goods from countries likes China, India and particularly Turkey. However, the fall in the currency raises the price of imports across the board, meaning that they could become unaffordable. “We will see a real financial crisis in the coming months because the economy cannot sustain this,” said Mr Kushner. “It is bad, but will become a lot worse.”

With the fall in oil revenues the state has to make up for that revenue by other means.  And it looks like they’ve depreciated their currency.  That is, they’ve printed rials.  Making them worth less.  Which can be hidden somewhat in a closed economy.  But not with international trade.  Because to buy foreign goods you first have to exchange your money for the foreign currency of your trading partner first.  And when your currency is greatly depreciated it doesn’t trade for much foreign currency.  Making those imports very, very expensive.  Taking more and more rials to buy them.  Putting them out of the reach of ordinary Iranians.  Hence the protests.  And the lack of public confidence.

The Iranian people are ready for change.  Will they get it?  Time will tell.  Unfortunately for the Iranians, time didn’t treat them well in 2009.

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