Mehmet Ali writes from Tehran: The Iranian currency, the rial, is in free fall. It has lost 80 per cent of its value this year and was trading at 35,000 to one US dollar this week. The rate is now blanked out on Iran currency screens. Protests have broken out and the grocery bazaars were closed for a time.

So is Iran heading for a revolution that can topple the ayatollahs? Washington hopes it is.

The Iranian central bank committed a huge mistake when the Shah was deposed. It decided to enforce a fixed rate for the currency. Inevitably, this produced a currency black market. Those, who had plenty of rials, could purchase as many dollars as they liked, go abroad and enjoy themselves. And, naturally, those who did not have enough rials had pretty much nothing to celebrate.

The main reason for the fall of the Iranian currency is that US led sanctions are biting even deeper than expected. An average family cannot now buy a chicken, once a staple dish. Food prices have rocketed, as Iran is forced to pay in dollars and other hard currencies for its imports. Tehran admits that the economy has been mismanaged. No point in continuing to blame outside hostile forces for the crisis.

So why are the sanctions biting? Iranian banks have been frozen out of international financial markets. ‘Swift’ is the normal way of transferring currency but it is American. The country is being forced to engage in barter deals with India and China. One can presume that the price they are paying for oil is nowhere near the world price. India sends food in exchange for oil.

So what can the Iranian regime do? Its allies are Syria, Hamas in Lebanon and the Gaza strip administration. Have they large reserves of hard currency? No. It is believed that Iran has already sent $5 billion to Syria to pay government officials and the military. Hamas and Gaza are used to receiving subsidies from Tehran, not propping up the clerical regime there.

The key question is: how will the Iranian Revolutionary Guards react? They control a sizeable proportion of the wholesale trade in the country. Needless to say it is split just as are the government and clerics. There are those who regard saving Syria as their first priority. If Bashar Al Assad goes it will change completely the balance of power in the Middle East. On the other side are the pragmatists. They believe in putting national Iranian interests first. Saving their country from disaster should be the top priority.

The present crisis is economic. Revolutionary rhetoric will not solve it. Hard, practical measures are necessary. The first priority is to ensure that the ruling elites are well fed and looked after. They want to stay in power and if their living standards do not suffer there is no reason they should think of an alternative government. They can only stay in power if they can suppress the anger of the rest of the population. Watch out what happens when the next demonstrations against high food prices erupt. If the military and police are as brutal as in the past the regime will survive. But for how long? A constant stream of demonstrations will wear down the security forces. Attrition will then bring in doubt the loyalty of the Revolutionary Guards. They may conclude that the present regime has come to the end of its shelf life. Better to do a deal with those who look like taking over.

Iran is now at the crossroads. Food prices may now fatally weaken the power of the ayatollahs.

–End–

1 Comment

1. Lisa says:

   October 8, 2012 at 4:40 pm

   How lucky we are to be able to pop down the shops with a basket to get groceries. Concentration is needed in Iran when shopping too. It must be difficult carrying all the whole sale produce back home there in Iran. I hope everyone gets help with eating food. Perhaps this is one of the benefits of protesting, eating in numbers. Perhaps if they invested more in packed lunch boxes instead of stimulus black boxes everyone would have something better to say during these difficult times. I would just love to go down there, set up a stall and sell cheaply jerky chicken to all parties. Good luck Mehmet and well done these sanctions have been an interesting read. And I am more confident that the Ayatollah will look into these things too, any regime like this is not good and well these troubles have been going on for a long time now. Lets hope that everyone goes to sleep tonight with a belly full of food.