Iran Staggers as Sanctions Hit Economy

Y’all thought I was going to write about the government shutdown today, right? Nope. Waste of time, as nothing will change until someone at Treasury cuts off House of Representative members paychecks. Then we’ll see how pure their dogma remains!

Back to the point of this post: Iran. On October 5th, 2012, i.e. nearly one year ago, I wrote a blog post that I titled “Contrasts”. You can go to Site Admin and look for it. The contrasts I referred to were the difference between Europe and Japan’s efforts to avoid deflationary spirals with Iran’s inflationary problems due to the government’s move to exchange rials for hard currency for “essential items”. It was intended to stimulate Iran’s private sector to increase the flow of goods like meat and other items that were experiencing shortages. But the actual effect was a wholesale flight from the rial to other hard currencies, which pushed the value of the rial from the posted 12,800 to the dollar to about 38,000 to the dollar. The ‘new’ official listed exchange rate is 24,816 to the dollar, but good luck finding those terms if you’re a Tehran housewife trying to buy dinner. There was a slight improvement in the rate after Rouhani won the presidency, but – as the article above indicates – Iran is still in deep trouble. Which explains why Rouhani was in New York last week and talking on the phone to Obama. The writer, Rick Gladstone, uses a bus manufacturer as an example of the problems brought about when the monetary exchange called Swift was barred from doing business with anyone in Iran. The net result for this bus manufacturer was having to make cash transactions with help from relatives in Dubai to buy parts in China. Sometimes the money got there; sometimes it didn’t. If the parts were defective, he had no recourse to send them back in exchange for good parts. In other words, this previously successful businessman has burned through all his savings, and is now on the verge of bankruptcy. As is the country of Iran.

Ahmadinejad was never candid about the problems that existed in the country. He pointed out the high level of cash reserves the government possessed. But what he failed to mention was the inability of the government to access about 75% of those reserves, since they were frozen in bank accounts in the U.S. And they were barred from spending the other 25% anywhere other than the countries to which Iran sells oil, primarily China. This has effectively ruined the country’s economy, which some predict can only last a few more months. By the way, the caption in French above Mahmoud’s head is roughly translated to Iran has no reason to worry…

So Rouhani has no choice but to try to negotiate for an end to sanctions. He wasn’t shy about that when he came calling last week. But his time line and the rest of the civilized world’s time line may not be on par. But one has to wonder: if things get that bad in Iran, what could happen? Maybe three possible outcomes: revolt of the masses sick and tired of being sick and tired; capitulation on the part of the Iranian government on its nuclear program, and the lifting of the sanctions; or an invasion of a weakened Iran by Al Qaeda, with the express goal of transforming Iran from the primary, remaining Shia stronghold to another element of the purported Sunni caliphate. Wouldn’t that be a surprise, and a big ole’ kick in the head for the boys and girls at Foggy Bottom?

One last note – couldn’t resist this. Ryan Lizza’s piece about the events leading to the shutdown was entitled “Where the GOP’s Suicide Caucus Lives”. Another writer came up with a similar label about them: they’re “lemmings with suicide vests”…funny…hey, gotta see the humor in all this right?