The Holy Qu’ran has many merits, but if it contains an infallible guide to currency policy, the mullahs of Iran have failed to find it. During the past two days, increased sanctions have caused the Iranian rial, to collapse against the dollar prompting confusion even among the country’s highest officials. The NYT reports:
The rial’s value has been weakening for months, but the traumatic drop on Tuesday reflected what Iranian economists called a new level of economic anxiety in the country, exacerbated by conflicting information coming out of the Tehran hierarchy that reinforced a sense of indecision and confusion.A report in Iran’s state-run news media that the government had decided to suspend trading relations with the United Arab Emirates in retaliation for that country’s support of American sanctions on Iran — denied later by Iran’s vice president — apparently contributed to a rush by Iranian merchants and trading companies to sell their rials for other currencies. The United Arab Emirates is a major gateway for Iran’s exports.“This is the most serious financial crisis they’ve faced, with multiple things coming to a head,” said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech and an authority on Iran’s economy. “I have the feeling that really nobody is in charge of economic policy, nobody who can quickly think on their feet.”
It looks like America’s strategy is working. Iran is isolated and, with a second explosion at a nuclear facility, the mullahs’ nuclear program keeps encountering vexing difficulties. The economic noose continues to tighten. According to the NYT article, 10 companies in Malta have already been blacklisted for fronting for the Islamic Republic. Don’t be surprised to see scarcities and price controls follow.Much to the mullahcracy’s dismay, Islamic custom makes it difficult for the country’s banks to tackle inflation: the various jiggles and twists that allow Islamic banks to avoid prohibitions on interest while providing commercial finance make it hard to manage interest rates as non-Islamic central banks can easily do. Also, as a military strike becomes more likely and economic conditions worsen, foreign investors and partners who aren’t deterred by sanctions will pull out of Iran because the mix of high risk and low return isn’t attractive.Hopefully, these developments will make the mullahs rethink their nuclear ambitions. While the US and others are increasingly ready for military action, the clear goal of the Obama administration and its allies, including Israel, remains a peaceful settlement of this dispute. Via Meadia hopes they succeed: the choice between an Iranian nuclear weapon and a war with Iran offers no good options to the US.