iran's currency crisis

There is an even better video report here on the effect of the devaluation of the rial on ordinary citizens:

http://edition.cnn.com/video/

(You have to scroll down to find the report titled "Iran's currency crisis" and the image you click on looks like:



The reporter discusses the price of rice, chicken and cooking oil in Iran.

Charles Robertson's comments on political risk are interesting: "autocracies are at threat of being overthrown, even oil producing ones, if they don't produce too much oil per capita (if thy are extremely wealthy like the Gulf States that does not apply). [In] Iran that is not true: Iran does not have enough oil per capita to make everybody happy and especially not after what has happened in the last few months. ...The Iranian Central Bank has been pumping out cash. Some of the GDP figures I've seen suggested a 50% rise in nominal GDP but only a 3% real rise. That suggests a 47% rise in inflation and it is coming from money printing and now we are seeing the impact on the currency. It makes political unrest that much more likely. ...5% to 15% chance a year (inaudible) (in Tunisia it was 6% ahead of their revolution)."

..."Iran could be another Mexico or Indonesia" [if its economy worked properly]

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Below is an editorial from a right wing paper here:

http://www.telegraph.co.uk/comment/telegraph-view/9584242/Irans-self-destruction.html


Anyone who questioned whether sanctions would trouble Iran’s leaders should ponder the unrest on the streets of Tehran. Thanks to an ever-tightening web of restrictions, ranging from a European Union oil embargo to the country’s near exclusion from the global financial system, Iran has been cast into its own version of Black Wednesday. Its currency lost about a third of its value against the US dollar in just 72 hours this week; whenever trading takes place in the Grand Bazaar in Tehran, the rial suffers precipitous decline.

Those transactions were abruptly halted by street protests yesterday. Most significantly, the demonstrators’ fury was apparently directed at President Mahmoud Ahmadinejad, who stands accused of leading Iran into a cul-de-sac of isolation and economic collapse. Incredibly, one of the world’s biggest oil producers now endures unprecedented hardship at a time when Brent crude sells for $111 per barrel. A stark fact tells its own story: Iran’s oil exports – 1.1 million barrels per day in August – are running at less than half last year’s total, thus depriving the regime of tens of billions of dollars.

Sanctions are not, of course, an end in themselves. The goal is to compel an intransigent regime to obey six United Nations resolutions and stop enriching uranium. Ayatollah Ali Khamenei, the obscurantist Supreme Leader, cares little for the interests of his people. If he values his regime’s survival, however, he must see that perpetual economic collapse will eventually destroy the Islamic Republic. As he considers this dilemma, the onset of Israeli air strikes on Iranian nuclear facilities would, paradoxically, ease the pressure and allow him to rally his people against a foreign enemy. The most sensible course is to let the full weight of sanctions take their inexorable toll.

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Conclusion: there should be no rush to reach any new agreements on Mehdiabad: they've messed us about for 6 years, so a few more months should not make much difference if we can get a better deal from a successor regime, IMO. In the meantime we've got Sandpiper to get on with.