Iran’s Currency Woes

In the diplomatic battle between the United States and Iran, economic sanctions are a key US weapon.

But knowing if the sanctions are working is not an exact science.

Right now, though, there’s evidence that Iran could be feeling the financial heat from those sanctions.

The value of Iran’s currency has taken a steep drop, about 17 percent since Friday — hitting a new record low against the US dollar.

That could be because Iran’s hard currency reserves are low, as a result of sanctions and a weakening economy.

Nazila Fathi, a fellow at Harvard’s Belfer Center, says that sanctions are hitting Iran’s ability to export oil.

But it’s not enough to have eaten up Iran’s known currency reserves, Fathi says.

Those reserves stood at over $100 billion at the end of last year, according to the International Monetary Fund.

Fathi says critics within Iran are blaming the government’s mismanagement rather than sanctions.

What’s clear is that ordinary people are paying the price, says Fathi, in terms of price inflation on essential goods like food and gas.

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Marco Wermen: I’m Marco Werman. This is the world. In the diplomatic battle between the United States and Iran, economic sanctions are a key U.S. weapon, but knowing if the sanctions are working is not an exact science. Right now, though, there’s evidence that Iran could be feeling the financial heat from the sanctions. The value of Iran’s currency has taken a steep drop, hitting a new record low against the U.S. dollar. That could be because Iran’s hard currency reserves are too low, as a result of sanctions and a weakening economy. Nazila Fathi is Iranian and was a New York Times correspondent in Tehran for years before being forced out in 2009. She’s now a fellow at Harvard’s Belfer Center. So how serious is this currency crisis, Nazila? How empty are Iran’s currency reserves right now?

Nazila Fathi: Well, Marco, it is quite serious, and people have been very, very scared over what has been happening in the past year, and especially in the past few days, because the value of the Iranian currency has dropped in half in the past year, and then in the past three days about 17 percent, so it’s a very, very scary thing happening. People are waking up and what they have; their assets is just worth less and less every day.

Werman: So how much, then, are sanctions at the root of this, would you say?

Fathi: The sanctions are definitely hurting the economy and it has stirred a psychological warfare, because every time the value of Iranian Rial drops, people storm the market and they want to change their currency into a different currency. But this one seems to be more related to the internal rifts inside the country; corruption, mismanagement, and bad decisions that the government is making. The sanctions have specifically helped slip Iran’s rank as an oil producer from second to fourth as an OPEC member, so it’s income, oil revenue is dropping, but it hasn’t reached a point that it would drive the crisis to this point.

Werman: But it is getting harder and harder for Iran to sell that oil, because of sanctions, right?

Fathi: Very much, yeah, but still there is a six month waiver for about twenty countries to buy oil from Iran. They have to buy oil for a lesser amount, but they’re still buying.

Werman: Right, and alot of that oil is unrefined, so Iran typically has to buy fuel, gasoline back. How is that effecting inflation and the price of bread and gas, because you need gasoline to ship all that stuff.

Fathi: That is true, well, Iran lifted the subsidy over gasoline a long time ago, before the sanctions became so sever, but in addition to that, inflation on a daily basis is just crippling Iranian society. I mean, this is the only thing Iranians talk about these days. Whenever you talk to someone, they complain about the price of basic goods such as milk, yogurt, bread; just going up day after day.

Werman: Right, I mean, the movie A Speration deals with an Iranian family faced with an economically beset country. People there must be getting angry. Who do they blame?

Fathi: People are very angry and they first blame their own government. The sanctions are responsible for part of the problem and the government is trying to blame all the economic problems on the sanctions, but this is something that Iranians have been dealing with for over thirty years. They’ve seen their government make bad decisions, take the wrong steps at different points, and it has always burdened the society.

Werman: Now as a sign of perhaps just how big a concern the economy is to the Iranian government, there’s a report from one news agency that text messages containing words like dollar and euro, or even currency symbols were being blocked. Can you confirm that?

Fathi: Yes, I heard from people on the ground that messages that contain some of the words, as far as I knew, the dollar sign was still working, but maybe they have added that to the list that censors the messages. Apparently, people cannot send text messages that contain certain words related to the foreign currency, words like euro, dollar. We know that the government has the capability, the software, the will to do that. It has done it in the past. It did it last year in January, and it was doing it to political messages in 2009, so I wouldn’t be surprised if they were doing that again.

Werman: Nazila Fathi at Harvard’s Belfer Center, thank you very much.

Fathi: Thank you.

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