Martin McCauley writes from Tehran: President Mahmoud Ahmadinejad is on a love in in Central and South America. First he went to Caracas to have a schmooze with that Marxist American hater, Hugo Cháves. Fine words were exchanged but not even the loquacious Cháves would lend support to Iran in its fight with the US. Why not? America buys most of Venezuela’s oil. President Obama has Cháves where he wants him: under his foot. Another point. Venezuela is an oil exporting country and has no need of Iranian oil. Ahmadinejad is making for Cuba to have a pow wow with Raul Castro and his doddering brother, Fidel. Can Cuba put a spoke in America’s wheel? Hardly. Cuba is almost broke and cannot afford to give the ayatollahs much help. Then the Iranian President makes for Nicaragua and Ecuador – another two America hating countries. They can offer only words in support of Tehran. Why bother to peregrinate around the Spanish speaking world at this tense time in US-Iranian relations? To show the world that Tehran has friends. Observers have noted that the big hitters in Latin America: Brazil and Argentina are not on his itinerary.
President Obama has signed a bill which will punish banks and financial institutions which engage in transactions with the Central Bank of Iran. This will have an effect because 60 per cent of payments for oil exports go through the Central Bank. Iran exports about 2.5 million barrels of oil a day. China takes 22 per cent of it and Japan also about a fifth. If Tim Geithner, the US Treasury Secretary, can convince Beijing and Tokyo to cut back their imports drastically, Iran will find it hard to find alternative buyers quickly. China has already announced that it is reducing its imports over the next two months. The European Union would like Greece (22 per cent of its oil imports are from Iran) and Italy to find alternative sources of supply. Saudi Arabia has offered to make up the deficit.
Sanctions are biting. Iran needs to import machinery, infrastructure, petrol and other items to keep its economy moving. Foreign companies are now demanding cash up front before they will deliver goods. Letters of credit have to be in the local currency. Iran has therefore to exchange its money into other currencies. The exchange costs can be as high as 20 per cent.
Iran has threatened to close the Strait of Hormuz to international shipping. That would send oil prices through the roof. Experts do not think that Iran has the military might to do this. Tehran accepts that if it did close the Strait it would be an indirect way of declaring war on the United States. Inflation is running at about 40 per cent and unemployment is rising. Oil revenues bring in about 80 per cent of the country’s foreign currency. Cut that in half and the economy is facing ruin.
How desperate is Tehran? At what point will it have to decide on a war with the US or a humiliating back down? The key is the economy. Will the population revolt? Is an Iranian Spring in the offing? Tense but exciting days are in store for everyone.