Iran Featured Question: Is the Currency in Free Fall?

Claimed footage of Iranians seeking foreign currency in front of Bank Melli in Tehran on Monday

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We will keep an eye on the story of the European Union sanctions, to be formally announced today after they were adopted by Foreign Ministers on Monday, but that tale --- while headlining in the international media --- is a supporting actor for the main event. 

By the time the EU's cut-off of Tehran's oil imports comes into place on 1 July, and even before its new measures on links with Iran's Central Bank takes full effect, we are likely to see significant --- if not climactic --- changes in Iran's economy.

Indeed, we could be in the midst of them. On Monday the Iranian Rial, now artificially propped up by no more than a meaningless "ordered" open-market rate, the threat of arrests, and temporary blackouts in news, fell another 15% vs. the US dollar to 23000:1. The Rial is now almost 80% weaker than it was in September and 30% weaker than its level in the last "crisis" of mid-December.

With little faith in the Rial and difficulties getting foreign currency, Iranians are seeking gold, which is sending its price to new records. It is now 30% more expensive than it was last Thursday, standing at more than 1,020,000 Toman (10,200,000 Rials or about $490).

Observers committed to the immediate tale of the US trying --- but failing --- to take down the Islamic Republic may proclaim, as Pepe Escobar does this week, "Iranian economists have more than welcomed [this process]. After all, it will boost Iran's non-oil exports and help local industry in competition with cheap Chinese imports. In sum: a devalued rial stands a reasonable chance of actually reducing unemployment in Iran."

And defenders of the regime, in this case well outside Iran rather than within it, will still preach: "The Iranian economy is humming along nicely at near full employment, no debt, and enough gold and Forex reserves to last her 15 years, all this inspite of this evil seige warfare that the West has imposed upon her."

However, almost all the signs in Iran --- among the mainstream press who dare to mention the economy, amongst politicians and analysts criticising the Ahmadinejad Government, among businessmen and importers, among currency traders, and among EA sources in the country who are feeling the effect of the situation --- point to concern with more than hints of desperation.

Some may cling, in theory, to a horizon of a Tehran going from strength-to-strength with a devalued Rial and exports --- traded for rupees and rubles, rather than dollars --- taking over the world. I think, however, that reality is leaving theory behind --- and it is doing so on a daily, rather than a long-term, basis.