“This is the Year of Economic Jihad” declared Iran’s Supreme leader Ayatollah Khamenei last spring at the beginning of the Persian year. The New Year’s announcement was meant to encourage the Iranian people to increase their efforts and jumpstart an economic boom, but with the year not yet over, Iran’s economy is “booming” in a very different way. Less than a month after American sanctions targeted Iran’s Central Bank and financial sector, Iran’s economy is crumbling.
On Monday, January 23, the European Union agreed to ban new contracts on the import, purchase, and transport of Iranian crude oil. The Europeans also decided to freeze assets of Iran’s central bank. The next day, Australia’s foreign minister announced that “Australia will follow the European Union’s lead in banning oil imports” and that it will be “imposing a range of other sanctions” as well.
The European and Australian announcements came only a week after Reuters reported on January 19 that Akihiko Tembo, President of the Petroleum Association of Japan, declared that “Japan’s oil industry is likely to reduce its purchases of Iranian crude oil in about three months time.”
In the span of one week, Iran lost two of its largest oil consumers. Together, Europe and Japan consume 29 percent of Iranian oil exports.
These moves did not go unnoticed in Iran. Iranian currency, the Rial, which had been steadily declining, sank to unprecedented lows. At the beginning of the Persian year, the U.S. dollar was equivalent to about 11,000 Rial. After the EU announcement, it was worth 21,000 Rial. In contrast, the price of gold rose as Iranian citizens scrambled to convert their increasingly worthless Rials. Gold coin prices sky rocketed from 4,350,000 Rial to more than 10,500,000 Rial in three weeks.
In an effort to reverse the decline, Mahmoud Bahmani, the head of Iran’s Central Bank, announced that there is no shortage of foreign currency and injected more than 200 million dollars into Tehran’s market at a discounted rate. While his move failed to bolster the falling Rial, it did stop rising inflation. Official accounts place the country’s inflation at 21%, but more realistic figures point to an increase of over 50% in the price of many basic products.
Failing to stabilize the Rial, the government announced plans to restrict currency trade. The regime even started to threaten small currency dealers and sent police and security forces to arrest them. But to no avail.
Assadollah Asgharoladi, one of the most prominent businessmen in Iran and the head of the Iran-China Chamber of Commerce, said that with an exchange rate of 16,000 Rial to the Dollar, the country will soon witness a significant wave of domestic bankruptcies. Manufactures and business owners who have to pay off debts in foreign currencies will not stand a chance. Since his remarks two weeks ago, the dollar has reached new heights and the Rial has fallen another 35 percent. Many fear that it will decline even more.
Iran’s Central Bank and the Ahmadinejad government are running out of ways to deal with the crisis. Faced with the harsh reality of macroeconomic, President Ahmadinejad agreed to raise interest rates. At the same time, the Central Bank announced that it will unify the exchange rates at 12,600 Rials per dollar, a 10% official devaluation. But, as Iranian economist Dr. Djavad Salehi-Isfahani predicts, these changes will not be enough to prevent the currency’s downward spiral and a sharp decrease in the country’s standard of living.
The rampant stagflation that has gripped Iran’s economy is nothing new. But the combination of new sanctions together with the elimination of government subsidies (which, until last year covered a range of basic products) is a very different ball game. Thirty million people, 37 percent of Iran’s population, are officially classified as poor. Many more poor are unreported.
Anger and frustration are rising as fast as Iran’s currency is falling. This poses a real threat to the Iranian regime, particularly following a year of regional revolutions that were triggered by similar economic realities. If the trend continues, soon the Supreme Leader may witness a different kind of Jihad than the one he advocated for on the Persian new year, a Jihad targeted against his own regime. An economic uprising against the destructive Iranian regime should be welcomed with open arms. And this time, some more help would be appreciated as well.
Nir Boms is a co-founder of CyberDissidensts.org. Nir co-wrote this piece with Shayan Arya, an Iranian activist and a member of the Constitutionalist Party of Iran (Liberal Democrat).