Iran’s Currency Crisis Worsens as Threat of Greater International Pressure Looms
Mahmoud Hakamian
The devaluation of Iran’s national currency continues to accelerate
in what could be a sign of the early effectiveness of the return of
American sanctions that had previously been suspended under the 2015
Iran nuclear deal. After President Donald Trump withdrew from that
agreement, it was announced that the sanctions would come back into
effect in two groups, following two consecutive 90-day waiting periods.
The first such period ended in August, bringing sanctions on various
Iranian import and export markets. The second group of sanctions are set
to return in early November, targeting the Iranian oil industry and
banking sector, as well as third parties that do business with the
Islamic Republic.
In late July, the imminent return of the first round of sanctions led
to the national currency, the rial, trading at more than 120,000 to the
dollar. This was reportedly the lowest rial value on record, and it
helped to spur protests focused on the economic situation, which began
on July 31 in Isfahan and continued for several days across
approximately a dozen cities. This and other instances of unrest also
prompted the Iranian parliament to take the nearly unprecedented action
of summoning President Hassan Rouhani so he could be grilled on his
administration’s record with regard to economics and other domestic
matters.
Despite such signs of government attention to the economic crisis,
the currency devaluation has continued, setting a new record low of
approximately 150,000 rials to the dollar on Wednesday, according to the
Associated Press.
This represents a loss of a quarter of the currency’s value over just
three days. And despite the prior publicity associated with Rouhani’s
appearance before parliament, there was no immediate acknowledgement of
the latest developments by the government.
Meanwhile, Almanitor is reporting upon some of the regime’s internal
responses to the worsening crisis, which include efforts to consolidate
the economic power of hardline institutions like the Iranian
Revolutionary Guard Corps. The relevant report notes that “corrupt
schemes” such as the provision of low-interest loans and
better-than-normal exchange rates to politically influential
individuals, “flourish in a society that is under economic duress.”
The report also indicates that numerous banks have defrauded ordinary
Iranians, as by accepting massive deposits to facilitate the purchase
of overvalued properties “while knowing that there was no financial
backbone to ever repay the principal.” Now, some of the banks involved
in such schemes are examining the prospect of merging, specifically
those that are owned by and represent the interests of the IRGC and
other military entities in the Islamic Republic.
Al Monitor explains: “The outcome of the merger would potentially
become the second-largest bank in Iran after the government-owned Bank
Melli Iran and would overshadow a number of other networks.” It would
also further isolate Iran from Western economies by making at least one
major bank susceptible to existing sanctions that target the IRGC and
the country’s support for international terrorism. The report goes on to
say that if the planned merger or something like it is successful, it
will likely set the stage for further consolidation, which would be
justified largely as a response to the economic crisis but would do
nothing to address the chronic mismanagement that many Iranian officials
have acknowledged as being at the root of the problem.
At least for the time being, the government’s response to the crisis
appears to be focused on airing grievances between the competing
factions of Iranian politics while expressing a mutual commitment to
defiance of Western demands and Western interests. In one example of the
latter trend, President Rouhani appeared on Iranian state television on
Tuesday in order to declare that the country will continue to both
produce and export crude oil at the highest possible level, regardless
of the US sanctions that are set to take effect in November.
The Associated Press quoted
him as saying, “We will continue by all means to both produce and
export. Oil is in the front line of confrontation and resistance.”
Additionally, Oil Price
gave some indication of what the Iranian president’s reference to “all
means” might signify. The report suggests that the Iranians may use
deceptive and outright illegal practices such as avoiding the
international reserve currency through barter, as well as the delivery
of oil and gas via tankers on which tracking has been disabled.
This conclusion was based in part on the fact that such methods had
been utilized during earlier periods of sanctions, resulting in
disparities between Iran’s reported and actual sales and thus
alleviating some of the pain of economic sanctions. But those sanctions
proved effective nonetheless, and it is widely expected that the
existing and forthcoming American measures will have a similar effect.
Indeed, the Oil Price report indicates that Iran’s oil exports already
fell by approximately 600,000 barrels per day between July and August,
as mutual trading partners of Iran and the US took early steps to comply
with the emerging sanctions.
What’s more, a report by Hellenic Shipping News
indicates that this compliance is being observed even among certain
nations, such as India, that had previously vowed to resist the
unilateral implementation of pressure by the United States. Meanwhile,
the US has retreated somewhat from its original commitment to reduce
Iranian oil exports to zero, offering instead to consider sanctions
waivers for some importers, provided that they demonstrated a good faith
commitment to reducing their intake of Iranian oil. But the
above-mentioned report notes that even a diminished goal for American
sanctions could be sufficient to create a global deficit in the oil
market, which other exporters such as Iran’s fellow OPEC members would
work to fill.
The report underscores the dubious nature of Iran’s declarations of
resistance, as by pointing out that the forthcoming sanctions will
affect every link in the supply chain, from distributors to shippers to
insurers, thereby presenting Iranian exporters with numerous obstacles
to overcome in order to get their products to foreign markets.
Nevertheless, past experience demonstrates that this is entirely
possible, even if on a limited scale. But the limitations are perhaps
less pronounced if there is not international support for the
American-led measures.
So far, the other signatories to the Joint Comprehensive Plan of
Action have been standing by the nuclear deal and attempting to provide
Iran with incentives to stay within it as well. But those same
countries, particularly the E3 – Germany, the United Kingdom, and France
– are under serious pressure from a White House that has been working
to step up pressure on the Islamic Republic virtually since day one.
This pressure may also be proving effective, while perhaps being
helped along by Iran’s persistent belligerence in the broader Middle
East and the world at large. This belligerence was on display this week
when Iranian Foreign Minister Javad Zarif advocated for an overwhelming
attack on the Syrian province of Idlib, aimed at stamping out some of
the last pockets of resistance to the Iran-backed dictatorship of Bashar
al-Assad. Al Jazeera quoted
Zarif as saying Idlib must be “cleaned out” while on a trip to Syria,
which followed close on the heels of a mutual cooperation agreement
between the Iranian and Syrian Defense Ministers. The same report notes
that the United Nations has warned of a potential “civilian bloodbath”
if the planned attack goes forward.
International wariness about such plans, and about the associated
danger of Iran’s further development of regional terrorist networks, may
help to motivate other countries, especially European countries, to
sever financial ties with the Islamic Republic out of fears regarding
how the money might be spent. This is certainly something that the US
has emphasized in dialogue with its allies as it seeks to secure broader
global participation in a campaign of sanctions and other forms of
pressure.
“Iran is the world’s leading state sponsor of terrorism. We must be
vigilant,” said Richard Grenell, the US ambassador to Germany after it
was announced that Iran was abandoning plans to transfer 300 million
euros that were being held in German banks. As the Algemeiner reported
on Wednesday, those plans were interrupted only after Grenell and other
Americans contacted German authorities to express their strong
opposition. The apparent effectiveness of that communication may bode
well for the prospect of farther-ranging US pressure producing more
comprehensive pressure on an Iranian economy that is already suffering
greatly under the strain of runaway inflation, government mismanagement,
and official denial.
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