The American Interest
Analysis by Walter Russell Mead & Staff
Iran Nearing Economic Collapse?

Is economic pressure driving Iran into national bankruptcy?

Israel’s finance minister Yuval Steinatz seems to think so, claiming that sanctions could push Iran of an economic cliff by next summer.

He’s got some evidence to which he can point: Iran’s currency, the rial, has plummeted by almost 57 percent since June. Last week alone, it lost more than a quarter of its value against the dollar.

While Iran is a net exporter of energy, it imports many of the staples which its citizens rely on for survivalā€”things like chicken feed, the scarcity of which caused the price of chickens to skyrocket. Even the mullahs are feeling the pinch, with the prices of textile for their turbans having risenĀ 15 percent in three months.

An attempt to calm market fears by subsidizing importers with foreign currencies actually worsened conditions and heightened anxiety, since the government was only able to supply a very limited amount of dollars.

As the situation worsens, criticism of Ahmadinejad is increasing even from within the government. Reuters:

“The president has deliberately kept the market agitated,” Elias Naderan, who sits on parliament’s economic committee, said on Sunday, according to Mehr.

“I really don’t know what Mr. Ahmadinejad is thinking. What plan does he have, what is his expectation of the system, and how does he plan to manage this disorder?”

The crisis has also prompted criticism of the central bank and authorities by private businessmen.

The sharpening criticism of Ahmadinejad from regime insiders looks more tactical than serious. At one point Ahmadinejad’s populist street cred seemed to threaten the Supreme Leader’s power, but economic failure and the bitter aftertaste of the controversy over his “re-election” have dulled his appeal. At this point his greatest use to the real power centers in Iran is probably as a scapegoat: if stoning adultresses and persecuting minorities hasn’t made the country rich yet, the ruling mullahs can throw all the blame on the relatively powerless president. The Supreme Leader is blameless as ever; it’s the bumbling president who made everybody poor.

But the economic troubles are real. Some with an inside view of the situation seem to think the time to jump ship has come. Ahmadinejad’s personal cameraman defected to the U.S. during his visit to the United Nations in New York City.

There are, unfortunately, no signs yet that economic pressure on the regime has produced the kind of rethink that could head off the looming U.S.-Iranian military conflict. As in its war against Iraq, Iran’s revolutionary leadership is willing to see the population undergo extreme suffering in the service of the regime’s ambitions. If, however, Yuval Steinatz and other Israelis are right and the regime tumbles into a full economic crisis as oil revenues continue to fall, new leadership in Iran might see the wisdom of a different approach to the nuclear file.

We hope so; a peaceful ending to this crisis serves everybody’s interests. And in the meantime, the Israeli officials who think sanctions might yet force policy changes in Tehran appear to be arguing in Jerusalem against immediate military action. For now, intensifying the economic pressure on Iran even as events in Syria weaken Iranian hard and soft power across the region seems like a workable approach — especially if the penetration of Iran’s nuclear program by Israeli and other agents is as good as is we are led to believe.

Developing and maintaining an effective sanctions program against a major oil exporter with powerful great power friends is a significant diplomatic accomplishment; resolving the Iranian nuclear issue without war and without an Iranian bomb would be a historic feat. Our fingers are crossed.

Published on October 1, 2012 7:00 pm