The above video shows unrest in Tehran as demonstrators call for
bazaris and shopkeepers to join them in a general strike.
As I pointed out
about four years ago, Iran has been an economic basket case for some time.
As with most Islamic regimes, Iran has discouraged capital investment. Inflation has always flirted with double digits, and unemployment is rampant,particularly among what I call the cannon fodder ages of 18-29 at around 30%
The regime was able to stave off a second Iranian revolution for some time by using part of its oil profits to provide subsidies on food, cooking oil and other staples but once Iran became a net importer in 2009 and began spending increasing amounts on its nuclear and imperial adventures, the subsidies became impossible over time.
The Iranian rial, always a bastard child among the world's currencies has fallen through the floor as Iran is now
experiencing hyperinflation:
Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.
When President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July 2010, the official Iranian rial-U.S. dollar exchange rate was very close to the black-market rate. But, as the accompanying chart shows, the official and black-market rates have increasingly diverged since July 2010. This decline began to accelerate last month, when Iranians witnessed a dramatic 9.65% drop in the value of the rial, over the course of a single weekend (8-10 September 2012). The free-fall has continued since then. On 2 October 2012, the black-market exchange rate reached 35,000 IRR/USD – a rate which reflects a 65% decline in the rial, relative to the U.S. dollar.
I would take issue with the above only in its implying that this is all due to western sanctions, since countries like Russia, China and Turkey are openly violating the sanctions and the Obama Administration has literally given waivers on following the sanctions to moist of Iran's major trading partners and anyone else who's asked.
This is a deep seated problem based on the skyrocketing cost of food staples and other items versus a static Islamic economy.
Since most westerners ( except perhaps those who came of age in the old Soviet Empire) are unaccustomed to a black market in currencies, here's an explanation. the Iranian regime has an official, fantasy 'official' exchange rate with other currencies that vastly over-inflates its value. Since Iran's exports are mainly oil, which is traded in dollars, the official rate of the rial isn't particularly a factor there. But when Iran
imports anything and attempts to pay in rials, the price is increased dramatically.
This especially effects merchants dealing in foodstuffs and other staples who use private money lenders in the sort of primitive export and exchange system used in the region. Want to import rice from Armenia? Forget about the official rate when there are money lenders in Tehran or Shiraz who will trade you rials for dollars at the black market rate, in spite of the regime's attempts to clamp down. This also leads to hoarding, as 10 kilos of rice bought today will fetch a far better price in a month or so. If the rice is priced in dollars and paid for in rials, these price increases are simply passed down to the customers who buy it. With the rial now buying less than half of what it once did and heading south, you can imagine what this is doing to the average Persian.
And that is not good news for the Iranian regime.For all the threats and bellicose language, Iran is simply unable to fight a war at this time financially.As such, the Obama Administration, if it actually had a coherent Middle East policy could do far worse than reaching out to the Iranian dissidents and assisting them in a covert fashion.
In fact, if the trend continued, Iran's financial woes could even lead to Iran being convinced to give up its nuclear weapons program in exchange for some realistic assistance on its economy.It might even lead to regime change.The west might be able to capitalize on this and call Iran's bluff at favorable terms.
On the other hand, knowing this as the Iranian leaders do and in reality, not particularly caring about the people they rule, this might entice the mullahs to take a long shot and risk everything on one violent throw of the dice, perhaps against some of the oil-rich kingdoms in the region.As I've observed before, we're not dealing with rational actors here.