How Politics Nuked Iran’s Economy
Image Credit: Office of the President: Iran

How Politics Nuked Iran’s Economy

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Iran is facing a threat even more severe than the Stuxnet computer virus, a sophisticated line of code which was reportedly sponsored by the U.S. and Israel, and which destroyed some of Iran’s uranium centrifuges in 2010. In Persian, this affliction is called Siyasat Bazee – in English, playing politics.

The precipitous fall of the Iranian rial against the U.S. Dollar, which has depreciated by more than 40% in the past week and by 75% since the end of last year, points to the perils of Iran’s leaders using economic policy to suit their own political interests. The collapse of the currency ignited protests on the streets of Tehran on Wednesday and some pundits are wondering whether inflation will spell the end of the regime.

Iran is facing increasingly tough economic sanctions with potentially ruinous results for the regime. Over the summer, the EU began an embargo on imports of Iranian oil; it is now looking to clamp down on Iran’s central bank. The U.S. has already been pressuring purchasers to stop buying Iranian oil by threatening to block access to the American financial system to entities who deal with Iran’s central bank, which is Iran’s primary mechanism for processing oil sales.

One reason the rial has depreciated so much in such a short span of time is because sanctions have choked off the sale of oil. Oil exports are Iran’s biggest source of hard currency, so fewer sales equate to a reduced availability of dollars. Scarcity has therefore pushed up their value relative to the rial, with too many rials chasing too few dollars. This is only set to get worse: the International Energy Agency estimated that Iran exported 1.1 million barrels of oil per day in August, a 56% drop compared with December of last year. Meanwhile, those countries that are still purchasing Iran’s oil are finding it extremely difficult to transfer foreign currency payments.

At moments of uncertainty, the Iranian government needs to present a united and decisive front. It needs to show that it has a clear economic prescription to cure the country’s current economic crisis in order to bolster consumer confidence and arrest the rial’s freefall.

Instead, Siyasat Bazee has made the situation worse. Iranian consumers are confronted with the spectacle of petty factionalism and political haymaking. The powerful Islamic Revolutionary Guards Corps is exploiting the current crisis to settle scores with President Ahmadinejad by publishing articles and caricatures on its affiliated news sites. Meanwhile, the president and his parliamentary rival, speaker Ali Larijani, are each using the crisis to publicly criticize one another.

Ahmadinejad has defended his record from claims of economic mismanagement and blamed Western sanctions for the fall of the rial. Yet the president has undoubtedly contributed to the country’s problems. Since 2005, his frequent, populist cash-handouts have increased the money supply by nearly 500% and pushed up inflation with a flood of cheap rials.

Ahmadinejad is not the only person at fault.

Supreme Leader Ayatollah Ali Khamenei has played politics too, perhaps more so than anybody else. Part of the strength of his leadership is based on keeping different political factions divided, so that they don’t become strong enough to challenge him. This has encouraged intense infighting, where each faction tries to outmaneuver the other with Siyasat Bazee instead of working together collectively to tackle Iran’s problems.

In fact, it is Khamenei’s politicization of the nuclear program which has hurt his regime the most. He does not permit deviation from, or open debate about, the official line on the direction of the program. Khamenei has taken what is essentially a nationalistic project that enjoyed widespread consensus and turned it into a divisive issue. Khamenei’s Siyasat Bazee with the nuclear program has weakened the regime and crippled its performance in the face of economic challenges.

What makes Siyasat Bazee even more dangerous than Stuxnet is that it feeds on Iran’s abundant supply of internal divisions. That is basically its code. Until such time as Khamenei decides to work on creating consensus within his regime, the West can rely on one of the world’s oldest political ailments to cripple Iran more effectively than its enemies intervention ever could.

Comments
12

[...] talk of ever more crippling sanctions and the always supposedly imminent collapse of the Iranian economy (or not), something often gets overlooked: the people of Iran [...]

November 18, 2012 at 20:38

Iran is no issue but only the point to distract the world attention from Israel!

ripproar
October 10, 2012 at 10:02

Why can,t Iran go on the gold standard for oil sales and any other commodity. Even though oil is pegged to the dollar. who turns down gold for transactions 

virus
October 7, 2012 at 18:43

this sort of news item is simply bullshit propaganda.although i am not an iranain but i know they are very cohesive nation with strong agricultural base with enough food stuffs .Yes only international trade can suffer a lot but will not crush a country which is well sufficient in fuel energy and food .Yes had it been some other country things would have been worse.But still when Iraq was under sanctions and crippled by war still therewas not so called chaos or something which would have pleased western morons , of course 2.5 million children died for want of food and medicine.

U_Jackwagon
October 6, 2012 at 07:23

There are times (like this) that I am grateful that certain regimes are crippled with division and infighting. Iran and the Obama administration are great examples.

pat
October 6, 2012 at 06:56

Its a good thing Washington is too smart to print dollar bills for cheap political gain, like these fools. Oh wait.

Hepcat
October 6, 2012 at 06:37

You're wrong.  The street protests this week are anti-government not anti-US or Anti-West.

http://www.bbc.co.uk/news/world-middle-east-19812482

"Tear gas was used to disperse the demonstrators, some of whom were setting fire to tyres and rubbish bins. There were many arrests, reports say.
Eyewitnesses told the BBC that scores of people gathered outside the central bank, calling for the governor to stand down, chanting anti-government slogans.
… The protests were clearly targeting President Ahmadinejad's government, accusing it of mismanagement and inefficiency in curtailing Iran's currency crisis, says BBC Persian's Amir Paivar.
One woman in the city of Malayer told the BBC that Iranians were "very angry with the regime".
"The situation is becoming worse and worse every day," she said.
"I work in the main hospital in the city and we are encountering some serious problems. We can't buy necessary medication because prices go up by 70% a day."
President Ahmadinejad has blamed Western sanctions for the fall in the rial, saying they amounted to an economic war.
However, many Iranians accuse him of financial mismanagement…"
More at the link.

Lawrence
October 6, 2012 at 06:15

These Iranian poliics brining down Iran from the inside.  Western embargoes and politics just help it along. Very simiilar to Obama's divisivness here in the U.S.  With Reid's support in keeping the Senate totally ineffective it makes all of congress ineffective, and leaves Obama less government challenges to his agendas.  But this kind of divisiveness doesn't really work the way the power hungry leaders intend, here in the US nor in Iran.  Kind of sad, really. 
 

Ky
October 6, 2012 at 03:16

This will just push the Iranian people away from the US and the West.  When they feel they are being antagonized by the West they rally behind their leaders.  These western policies are counter-productive.

Zach Feinberg
October 6, 2012 at 00:30

Complete regime collapse seems like it would be messy and potentially dangerous, especially with a government that has nearly enough material to assemble a nuclear weapon (regardless of whether it intends to or not). Knowing what I do about the current regime in Iran–which admittedly is not as much as I should–I would sincerely hope that this crisis deals a blow to their legitimacy and forces them back to the negotiating table. Time will tell what the result of this will be, but one thing's for sure, the wheels are turning over there. 

whydtinogo
October 5, 2012 at 23:22

Why's Ringo Starr in the picture?

Tim
October 5, 2012 at 15:15

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