Klein's Commentary

Go beyond the headlines

Iran’s Economy at the Edge

(UPDATE: 10/3/12 – BBC reporting protests in Tehran.)

Months of tightening U.S. sanctions appear to be taking their toll on Iran’s economy. The rial plunged against the dollar (losing 25% in street value in the past week and down some 80% since 2011). Imports, paid for in dollars, have become increasingly expensive. Inflation approached 24% in August alone. Oil exports, a major revenue earner for the regime have plummeted as well. Shrinking dollar reserves make financing whatever remaining trade even more difficult.

These extensive sanctions include all imports, exports and financial transactions with U.S. entities. With Europe’s participation Iran can now barely function in the international banking system.

The main goal, however remain stopping Iran’s nuclear enrichment activities, not destroying the livelihoods of the general population.

Here’s the gambit: Ratchet up non-lethal economic force on Iran while avoiding a military conflict (including keeping Israeli jets on the ground and averting a regional war). This in turn should cause a political crisis that either forces Ahmadinejad to capitulate or a new leader to replace him ready to negotiate. Regime change a la an “Iranian Autumn” of popular discontent might follow, but seems unlikely at the moment and has not been a core objective. Then again stranger things have happened in the Middle East since 2011.

Iran’s nominally “elected” ruler, Ahmadinejad would carry the full blame of his country’s increasing isolation, not the behind-the-scenes clerics who really run the country. His decidedly more sedate tone in a recent UN speech (no tirades against the U.S. and calls for the end of Israel) suggest his popularity has taken a hit. With barely nine months left in his final term of office he might be more ready to negotiate. The deal on the table before this latest round of provocation still gave Iran access to nuclear material for fuel and medical-grade uses.

Unintended consequences in international affairs are a constant risk. Influencing extremely complicated systems, including tens of millions of people reacting to sudden economic hardship and political machinations of theocratic leaders chief among them.

The flip-side of this strategy could include a backlash against the West for causing economic harm, a more radicalized government, and nuclear enrichment accelerating as a result. No one said this was going to be easy. Still since Iran’s economy already faces home-grown problems from years of serious mismanagement current troubles probably won’t radicalize secular Iranians while hard-liners gain one more reason to run riot.

Either way results should be in soon. Israeli Prime Minister Netanyahu, complete with an almost comical bomb illustration during his UN speech, continued to warn of a point of no return and Israel’s readiness to strike. The U.S. meanwhile re-affirmed its commitment to never allow Iran to possess a nuclear bomb, which could take less than a year once a decision to pursue weaponizing had been made. Iran’s economy gets closer to breaking point by the day and sanctions won’t be lifted without a deal while its nuclear race continues. The specter of destruction (economic, political or military) is coming to head in the not-so-distant future. Let’s hope the sanctions gambit pays off.

 

Photo: Wikimedia Commons

 

 

 

 

 

 

 

Brian • October 2, 2012


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