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As Sanctions Take Effect, Iranian Economy Starts to Collapse, Fueling Unrest

Reports indicate fresh clashes with riot police inside Tehran, Iran today, but they do not have necessarily the same rationale as the Arab uprising. These stem from the collapse of the Iranian currency, a direct result of international sanctions on the Islamic Republic over their nuclear program.

Clashes erupted in the center of the Iranian capital on Wednesday between money changers and security forces after riot police on motorcycles used batons and tear gas to shut down a long-tolerated black-market for foreign currency, witnesses reported.

It was the first instance of a violent intervention over the money-changing business in Tehran since the national currency, the rial, which has been gradually losing value in recent years, dropped drastically over the past week, losing 40 percent of its worth against the dollar, to a record low. Economists have called the rial’s plunge a stark reflection of the economic pain in Iran caused in part by the Western sanctions on Iran’s disputed nuclear program […]

The violence came a day after President Mahmoud Ahmadinejad, in a nationally televised news conference, asked Iranian citizens not to sell their rials for other currencies, suggesting the problem had been caused in part by speculators.

This is largely spin by Ahmadinejad. In another venue he acknowledged the impact of the sanctions as playing a major role. “They [western governments] have succeeded in decreasing our oil sales but, God willing, we will compensate for it,” he said in a press conference on Tuesday.

CommunityThe Bullpen

As Sanctions Take Effect, Iranian Economy Starts to Collapse, Fueling Unrest

Reports indicate fresh clashes with riot police inside Tehran, Iran today, but they do not have necessarily the same rationale as the Arab uprising. These stem from the collapse of the Iranian currency, a direct result of international sanctions on the Islamic Republic over their nuclear program.

Clashes erupted in the center of the Iranian capital on Wednesday between money changers and security forces after riot police on motorcycles used batons and tear gas to shut down a long-tolerated black-market for foreign currency, witnesses reported.

It was the first instance of a violent intervention over the money-changing business in Tehran since the national currency, the rial, which has been gradually losing value in recent years, dropped drastically over the past week, losing 40 percent of its worth against the dollar, to a record low. Economists have called the rial’s plunge a stark reflection of the economic pain in Iran caused in part by the Western sanctions on Iran’s disputed nuclear program […]

The violence came a day after President Mahmoud Ahmadinejad, in a nationally televised news conference, asked Iranian citizens not to sell their rials for other currencies, suggesting the problem had been caused in part by speculators.

This is largely spin by Ahmadinejad. In another venue he acknowledged the impact of the sanctions as playing a major role. “They [western governments] have succeeded in decreasing our oil sales but, God willing, we will compensate for it,” he said in a press conference on Tuesday.

Joe Weisenthal has a chart showing the hyper-inflationary spiral Iran is plagued with at the moment.

If Iran cannot sell their oil on the open market, which the cascade of international sanctions seeks to prevent, and if they cannot transfer their revenues from the oil they do sell into their country, which the banking sanctions seek to prevent, then the Iranian economy suffers markedly. The hyper-inflation from the fall in the value of the currency is largely a by-product of that. The more firms refuse to do business with Iran, the more worthless the rial becomes.

There’s an open question on who actually suffers from crippling sanctions like this. Ahmadinejad didn’t look gaunt in his press conference, or underfed, and I assume you can say that of the supreme leadership as well. The ordinary masses of Iran, on the other hand, bear the brunt of the pain of a collapsing economy. This generates social unrest and potentially a change in behavior from the leadership, to save their domestic political skins (the Presidency is up next year and Ahmadinejad is termed out, but that’s largely a show position). But it’s predicated on making life unbearable inside Iran, mostly for ordinary people who made no decision on a nuclear program.

When Ahmadinejad calls this a “hidden war,” he isn’t totally wrong. However, government mismanagement has played a serious role in the falling economy as well. The sanctions just pushed it over the tipping point.

Some will see this as a preferable alternative to military action against Iran over their nuclear program. Considering that the consensus opinion of the US intelligence community is that Iran has no nuclear weapons program, I would argue that this is a false choice. I would hope that negotiation would prevail, but in the meantime we shouldn’t lose sight of what sanctions really mean for millions of Iranians, who have nothing to with the geopolitical circumstances behind their suffering.

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David Dayen

David Dayen