Thursday, December 22, 2011

Declining Rial, Symptom of Bigger Problem

By Nader Uskowi

The rapid decline of Iran’s currency rial continued today when it hit yet another historic low of 15,570 rials per US dollar. Last Thursday, the rial was trading at 13,850 per dollar, a drop of 13% in just one week.

The heightened tensions between Iran and the UAE over the trans-shipment of goods at Dubai ports destined for Iran seem to have caused panic in the country’s foreign currency market this time. But the decline of rial has been steady and without break during the Ahmadinejad’s presidency, and especially this year. In 2011 alone, the value of rial has plummeted by 45% (in December 2010, the rial was trading at 10,850). Since 2006, the rial has lost 71% of its value (from 9,200 at the beginning of Ahmadinad’s presidency).

The reason I look at the relationship between the value of the country’s currency and Ahmadinejad’s presidency should be obvious: the hardline policies of this president on the nuclear issue are increasingly pushing Iran toward isolation. In an age of global economy, the country’s ties to the world, to its financial and banking system, to its transportation system and now to its system of free flow of goods have increasingly weakened. The rapid drop in the value of rial should not have come as a surprise to the government. Even if the Central Bank of Iran intervenes aggressively in the currency market during the coming days, a recovery will be temporary in nature, controlling the current level of panic in the market, but would not resolve the long-term decline due to the underlying causes.

What does the country get as the results of these hardline policies? Tons of enriched uranium. But for the people of the country, whose purchasing power is rapidly declining due to high inflation, partly as a result of the currency’s declining value, more enriched uranium does not prevent increasing economic hardship. Look at Pakistan! Many, many bombs, probably more than some Western powers have in their inventories, and an economy is state of ruins. The rising price of oil gives Iran the luxury of coping with many issues Pakistan is unable to cope, but any serious disruption to the oil export will have adverse effects for the country, and would make its problems pale in comparison to Pakistan’s.

There must be a way out of the current impasse. Cooler heads must prevail. Iran should declare victory over its stated goal of the ability to enrich uranium, that’s done and nothing else could be achieved by enriching more, at least for the foreseeable future when the country does not even have any nuclear reactors that can use a fraction of the fuel already inventoried. A moratorium in enrichment makes perfect sense and can be the basis of a serious negotiation with international organizations to end the impasse and the sanctions. That’s where this government should go.

Unless the government is bent on making as many bombs as Pakistan has. Then they might create a real disaster. And the question is why? Often the answer given by some readers of this blog is that the bomb would prevent the US and Israel from attacking Iran. My argument has always been that having no bomb and no program to make the bomb is the most efficient way of preventing an attack on Iran.

Unless the worries are not the attack on the country, but having the bomb to prevent a type of attack that would result in a regime change, as in Libya. Bombs for preserving the regime! But the price would be so high, most probably in the form of a total oil embargo, that the regime might fall on its own weight faster than anyone could pronounce the word attack. This would be having the bomb for the wrong reason.

Cooler heads must prevail. There is still time for diplomacy. The government should, and has declared victory over its enrichment program. Nothing more could be achieved by following the policy of the past six years. And as a result, a disaster could be prevented. And the regime would continue on as long as the people accept it.


Anonymous said...

I agree; lets hope that cooler heads can succeed to demilitarize the iranian foreign policy; if they want to become a 'superpower' they should try it in economic terms ....

Mark Pyruz said...

Nader there was an interesting discussion over at Arms Control Wonk last month, where a number of informed commenters were at a loss on exactly how the Iranians could steer toward a retraction of U.S. directed economic sanctions--short of regime change.

It's a cold war. And the U.S. is seeking a surrender.

Sacrifices are expected during periods of war, even cold ones. The British people sacrificed during the first half of the 1940s. Time will tell if the Iranian people are up to it during the first half of the 2010s.

Nader Uskowi said...


The discussions of the emerging one-track US approach cannot be held in vacuum. Iran has steadfastly followed a one-track approach for the past six years, namely enriching uranium, and much more than it has any use for it. It’s like they do not want to hear anything else, or do anything else, but to keep enriching, to a point of obsession. They have no use for this much fuel. They should call it a victory, which is readily accepted by all, and that was what they wanted, and limit further losses in future.

There is a possibility that they might not be telling us the truth and are indeed after making bombs. In the post I was arguing that would be a disaster, for the regime too. As soon as the world realizes that they are making the bomb, a total oil embargo (this time with Russian and Chines tacit support) will be imposed. The Iranian economy is not like North Korea. It’s too big to afford an oil embargo. And if the government believes having a bomb would prevent a regime change, they are mistaken. The regime would fall on its own weight faster than they dream.

But let’s give them the benefit of the doubt and assume they are not after building a nuclear weapon. Then their continued defiance of the international calls to stop the process is childish and an obsession (one-track, if you will). They have only one nuclear reactor, which the Russians are providing the fuel for, and even if the Russians stop delivering the fuel, there are already much, much more fuel in their inventory to run that reactor. What is the big deal then to call the moratorium, or some form of Russian/Turkish proposed compromise? No one can say they did not achieve what they began to do, in the face of international pressure and sanctions. The time has come to put the enrichment process in the victory column and make a compromise.

Mark, we cannot compare the sacrifice the British people endured to save their country, and indeed the world, from the menace of fascism and German occupation, with the hardship imposed on the Iranian people as a result of a wrong-headed policy of their government. The Britts were defending a nation; the Iranian need not suffer defending the wrong policy of a government in power. No Iranian sacrifice, in blood and treasure, is worth defending a wrong policy.

Mark Pyruz said...

Nader, the Japanese have a stockpile of plutonium beyond their nuclear energy needs. Still, they are within the bounds of the NPT. They consider this a national security measure. Perhaps the Iranians consider their stockpile (which is considerably smaller than that accumulated by the Japanese) the same..

Regarding the British 1940 analogy, it's a matter of perspective isn't it? Iranian leaders and much of the populace (according to multiple polls) perceive the U.S. as a global hemegon intent on taking away key elements of their sovereignty (as took place in 1953). Furthermore, they see the U.S. as the enabler of an apartheid regime in Palestine, with Quisling-like puppets in Jordan, Kuwait, KSA, etc. Some of us here in the U.S. might take exception to this, but this is how they feel. And the siege in which they find themselves is in some ways like that of Britain in 1940 (if we remove the romantic narratives popularly associated with this). Actually, Germany offered Britain peace terms in 1940 that were quite generous but the British PM rejected them out of hand, resulting in Britain becoming a second rate power after the war. Returning to the present, the Iranians have never been presented with peace terms anywhere near what Germany offered Britain in 1940, even when Khatami attempted to surrender in 2003. So from the Iranian perspective, it appears their only recourse is to hunker down or accept regime change and submit to a (another) surrendering of their hard won sovereignty.

Anonymous said...

Every little bit helps in the destruction of this Islamist regime !

Nader Uskowi said...

But a callous policy does not safeguard hard-won sovereignty; on the contrary it will destroy it. This is not a zero sum game, uranium or destruction. There is ample room for compromise without surrendering the country’s sovereignty. Yes, it could be a matter of perspective, but one needs to be extra careful when prescribing solutions that might affect the future of a country and its people.

masoud said...

dear Mr. Paul , this is masoud , I'm very if I offended the good people here. But no apologies at all to zionist here. saying zionist is not a curse word or racist, so I don't know why anyone would want to ban me based on saying that word. In fact zionism, is itself racism. No one can dispute that , not even they themselves.
Now, they disperged me here by saying I'm racist for calling a spade, an spade. And don't you zionist, go and bring in the fine Jewish people of iran into this, because they obviously rejected zionism by not moving into other people land that some people currently call israHell. Iranian jews are fine people and I'm very proud of them. And I will always thank them for the sacrifices they are making for iran. So you guys stop going there, by trying to seprate us, because they are us, we are them and we all support iran.
You know what I don't understand from you zionist? I don't get why you want fan the flame of Muslim, Jewish fire? I mean after all jews and Muslim have always lived togther and have never had problems until recently when zionism came around. zionism and jews have had holocaust at the hand of European Christians. Why do you want to harm us? At the end of this self-inflected fire who will lose? 6 million people or 1.3 billion Muslims. Are you guys sure you want to go there? So why don't you zionist put away your daggers, guns, propganda, and start embracing the Muslim world , because you surly need to live again amoung us, next time you are facing the next Hitler.

Anonymous said...

Anon 3:51 PM

Oh, please keep dreaming!

Anonymous said...

Mr Uskowi the answer is very simple the Symptom is the Islamic regime and the cure is for the Iranian people to dispose of it.
Simple solutions can solve complex problems.

Mark Pyruz said...

Nader, as you well know the Iranians suspended enrichment in 2003 and temporarily accepted the AP, and more. They got nothing out of it.

They attempted to surrender the nuclear program and retract support toward Hezbollah and Hamas, in exchange for a security guarantee. They got nothing out of it.

The Iranians have already tried what you are advocating. It doesn't work. The U.S. is intent on regime change, and it appears nothing will alter that determination.

Perhaps your sense of advocacy would be better directed toward endorsing Ron Paul for President of the United States. Then maybe we'll get to where you're seeking. :)

Nader Uskowi said...

Ron Paul is a nice fellow. But the chances of him being elected are probably less than those of Ayatollah Khamenie resigning, citing that he has been in office long enough and it’s high time to have a different person running the country!

Anonymous said...

Nader, with all due respect, are you living in a dream world?

Iran tried what you are suggesting in 2003 and what happened? Iran got labeled as an axis of evil. Since then, the game has changed. America has always used the nuclear issue to put pressure on Iran and in 2005, Iran decided that it will negotiate from strength as weakness got them nothing in 2003.

Iran has a long history and Iranians have a long memory, given the choice, they would rather endure short term hardship for long term prosperity. They've endured 33 years of it, why not wait that little longer.

In two years time, Iran will have enough enriched uranium for nuclear bombs and then they can sit down and talk about stopping nuclear enrichment...

Anonymous said...

If the declining dollar led to the disintegration of the US empire.. Then Rials decline would do the same to Iran.

It has its reasons, I wont tell you why.:)

Anonymous said...

The dollar is seen as a safe haven to invest in although with small returns.
Now I say this to those people who say the US is bankrupt.
Go and invest your money in the Islamic regimes rial and see where it gets you !
Now who lives in cloud cuckoo land ?

Anonymous said...

Anon 5:55 PM

My dreams are your nightmares ! :)

Anonymous said...

It is obvious since a few years ago Mr. Khamenie has surrounded himself with people, advisers who do not care much for anything than their own power and money. The evidence is the purge, removal and resignation of so many who left the circles of power with some ending up in jail for speaking their minds in private and giving advice and opinion. History is full of failed leaders who stay too long in power, and cannot withstand different opinions, Mr. Khamenie's fate is clear to most students of history...

Anonymous said...

Anon 12:37 PM

Fortunately, my nightmares will not become a reality and neither will your dreams.

Steve said...

A decline of the Iranian Rial against the US dollar doesn't mean very much, as the traded volume of this currency pair has gotten extremely low in recent years.
Much more interesting are the currency pairs CNY-IRR, RUB-IRR, BRL-IRR, EUR-IRR, CHF-IRR, INR-IRR, HKD-IRR, ARS-IRR, AUD-IRR and GBP-IRR, which cover most of the currency trade with Iran.

Anonymous said...

Anon 6:36 PM

Speak for yourself.

Anonymous said...

Anon 8:13 PM

No, anon, speak for yourself. I'm a realist and unlike you, realists don't dream.

Anonymous said...

Anon 1:39 AM

Time will tell who the realist is. Lets just keep it like that.

Anonymous said...

Sanctions hit Iranian grain market

Wheat supply 'complicated' after sanctions

"This situation is associated with the effects of the U.S. and international sanctions against the Islamic republic. As a result, the U.S. dollar, the main currency of payment at the grain trade, in relation to the national currency - Iranian Rial - has grown over night at 20%", reported specialists of "KazakhZerno" JSC to New Europe.

As grain traders say, now Iranian partners refuse to supply grain, referring to the disadvantage of transactions conducted in the U.S. currency. As a consequence, the market is in a critical situation at the moment. Barley export to this country has almost stopped. When the situation will be clear is unknown.

Although the imposed sanctions do not directly prohibit the export of agricultural products into Iran, however, experts say, many banks are refusing to work with clients who have business with Iran. This is due to the fear of banks to get into the so-called "black list" of the U.S. Treasury

As specialists explained, by virtue of the existing infrastructure of the global financial system, where the main currency of payment is the U.S. dollar, the U.S. government can track virtually any payment in the world done through the banks. Therefore, prohibited transactions are detected in seconds. In turn, all the world's largest banks adhere to the rules imposed by the United States.

Anonymous said...

Regime change wont alter the situation one bit, unless the new regime follows US orders and institutes neoliberal policies which means plunder of irans resources by foreign corporations like in the good old days.

Anonymous said...

Anon 5;30 PM

You joker the countries resources are already being plundered and given away to China and Turkey and god knows where.
What do you know about the good old days you hypocrite except the garbage propaganda you were told at school.

Anonymous said...

The Dollar is king and will remain so for decades to come.

Anonymous said...

Anon 7:23 PM

Sorry, but I agree with Anon 5:30 PM and before you dismiss me as another joker, my grandfather once lived through the good old days and in those days, he recounted the misdeeds perpetrated by the West against Iran. So spare me the nonsense "the garbage propaganda you were told at school."

Anonymous said...

Anon 5:25 PM

And when the time comes, I'll be accepting your apology.

Anonymous said...

Anon 5:34 PM

When the time comes,I will accept your apology as well.