Hyperinflation in Iran; The Warfare of Economic Sanctions
October 5, 2012 · Posted in Global Economics
Western sanctions, in particular the COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY, AND DIVESTMENT ACT OF 2010 have sent Iran’s rial into a tailspin and the dire consequences of this warfare are coming full circle now:
Hundreds of demonstrators in the Iranian capital clashed with riot police on Wednesday, during protests against the crisis over the country’s currency. Police used batons and teargas to try to disperse the crowds.
The day after President Mahmoud Ahmadinejad appealed to the market to restore calm, the Grand Bazaar – the heartbeat of Tehran’s economy – went on strike, with various businesses shutting down and owners gathering in scattered groups chanting anti-government slogans in reaction to the plummeting value of the rial, which has hit an all-time low this week.
The devaluation of the rial and soaring prices of staple goods are the latest signs that western sanctions – targeting the regime’s nuclear programme – and government mismanagement are compounding the country’s economic woes.
On Wednesday, many foreign exchange dealers and bureaux across the country refused to trade dollars and some currency-monitoring websites refused to announce exchange rates
The government has failed to bring the rial under control despite several attempts. It has lost 57% of its value in the past three months and 75% in comparison with the end of last year. The dollar is now three times stronger than early last year. The economy minister, Shamseddin Hosseini, said the government planned to “gather up” the unofficial currency market in the latest desperate ditch to curb the crisis.
Iran is one of the world’s largest oil producers and relies on crude sales as the main source of its the foreign currency reserves. The latest US and EU embargo on the imports of Iranian oil has affected that reserve, sending the rial tailspinning and making the dollar hard to come by.
Here is a chart depicting the black market exchange rate of the Rial:
I actually remember how the Rial experienced its first significant drop in December 2011 which was around the time the stricter oil sanctions were put in place.
The causality chain works as follows: Iranian sellers of oil can’t sell to as many US buyers as before any longer > this means they hold fewer US dollars > this means there are fewer dollars used to buy rials on the exchange market > this means the dollar “price” for the rial drops. (Bear in mind that oil exports are a hugely important part of the Iranian economy.)
I’d say you can even blame your higher prices at the pump these days on this policy.
Of course Hillary Clinton was promptly ready to take no responsibility for the plight that her and other western governments’ actions are causing:
They have made their own government decisions – having nothing to do with the sanctions – that have had an impact on the economic conditions inside of the country.
Sanctions are an act of war. They involve governments threatening its citizens, in particular its businessmen, with prison or other aggression or theft if they dare to sell to or buy from individuals in some proclaimed enemy territory.
But, as we all should know by now, there is no need to look across the pond for the enemy.