As demonstrators clashed with police outside the Tehran Bazaar on Wednesday,
analysts questioned whether the protests are just localized dissatisfaction over
the country’s crashing national currency or whether they are the first signs of
deeper unrest as sanctions bite harder, exacerbated by Iranian President Mahmoud
Ahmadinejad’s economic mismanagement.
“The free fall of the rial is due
to a combination of President Ahmadinejad’s economic mismanagement and the
international sanctions regime,” said Ali Alfoneh, an Iran expert at the
Washington-based American Enterprise Institute.
“However, the Iranian
public is first and foremost blaming the regime for economic
After all, the sanctions regime is the result of the regime’s
reckless foreign policy,” he added.
Iran’s official exchange rate has
remained at 12,260 rials to the dollar for years, but the exchange rate on the
black market – where most Iranians get their hard currency – is much higher and
has been growing rapidly as the rial collapses. On Monday that rate plummeted to
34,500 rials to the dollar, and the last rate posted on Tuesday pegged the rial
at 35,500 to the dollar.
Until now Iran has maintained a defiant front in
the face of increasing Western sanctions, vowing that the Islamic Republic would
never capitulate and give up its nuclear program.
While Iran’s leaders
have openly criticized US and EU banking, trade and oil sanctions, they have
maintained that they would fail because Iran’s “resistance economy” could
withstand the embargoes.
Although income from oil sales account for
almost 70 percent of Iran’s revenue, the regime said the country’s economy would
be able to ride out US and EU oil embargoes by selling to other markets like
India and China and by using billions of dollars in foreign currency
However, as the rial continues to fall and Iran’s economy
crumbles, Ahmadinejad has come under increasing pressure. In an extraordinary
attack on Tuesday, the Iranian president lashed out at the Islamic Revolutionary
Guard Corps (IRGC), the judiciary and lawmakers, saying they were largely to
blame for the crisis.
Ahmadinejad, who had promised to fix Iran’s economy
when he came to power in 2005, said his country’s national currency crisis was
due to a “psychological war” perpetrated by enemies at home as well as
Only Iran’s Supreme Leader, Ayatollah Ali Khamenei, escaped
direct criticism, although Ahmadinejad may have been hinting at Khamenei when he
said that his government was the “only institution in the country responsible to
Ahmadinejad also blamed sanctions for the crisis, but denied
that his own economic policies had anything to do with the situation.
a political battle played out in Iran’s conservative media, however, other
regime leaders, including Iran’s powerful Majlis (parliament) speaker Ali
Larijani, loudly denounced Ahmadinejad for causing the crisis.
daily Jomhouriye Eslami’s lead story on Wednesday cited Larijani as saying that
80% of the country’s economic problems were down to economic mismanagement,
while Tehran-e Emrooz, which backed Ahmadinejad’s rival Mohammad-Bagher Ghalibaf
in the 2009 presidential elections, accused Ahmadinejad of evading
responsibility for the crisis.
An editorial in Mashregh News, which is
affiliated with the IRGC, slammed the Ahmadinejad-led government for failing to
put any plan in place to deal with the effects of sanctions.
not something that the government was unable to predict,” an editorial on the
Mashregh site read. “But they have no systematic and effective program for
dealing with the consequences of sanctions. The most interesting part of this
has been their official public assurances that sanctions are
The editorial ended with a plea to the government to end
its “dangerous apathy” in the face of sanctions or face “terrible consequences,”
noting that Iran’s enemies are using the crisis to say that Iran is
Popular conservative news site Baztab, which is known for its
criticisms of Ahmadinejad and which is considered to have close ties to former
IRGC chief Mohsen Rezaei, suggested one reason why Ahmadinejad had lashed out at
the IRGC over the crisis.
Ahmadinejad blasted the IRGC as a”security
institution that involves itself in internal politics,” Baztab noted in an
attack that included the IRGC-linked media outlet Fars News as well as lawmakers
and the judiciary.
Baztab suggested that Ahmadinejad’s attack was linked
to an arrest warrant issued against his chief deputy, Mohammedreza Rahimi, in
connection with a massive fraud case that allegedly involves the Tehran
At least two Iranian lawmakers, including prominent
conservative lawmaker Eliyas Naderan of the Principalist faction, have accused
Rahimi of being the head of a corruption group known as the Fatemi gang,
allegations Ahmadinejad has strongly rejected.
This week Naderan also
accused Ahmadinejad of economic mismanagement, saying the president had
deliberately kept the market agitated.
The Iranian government has made
some stopgap attempts to control the rial’s free-fall, but these have not been
In July, as the EU’s oil embargo went into force, Bank of
Iran governor Mahmoud Bahmani said that the country had built up $150 billion of
foreign currency reserves to combat the effects of sanctions.
September 24, as the rial continued to fall, Bahmani opened a new forex
transaction center in Tehran. The government plans to use revenues from
petrochemical sales and 14.5 percent of its oil sales to provide dollars for the
center, which will allow some importers to purchase dollars at 2 percent cheaper
than the street exchange rate, Bahmani said according to the
Reports in Iran’s state media on Monday quoted Bahmani as saying
the forex center would help Iran’s currency rise in value.
rate in the market will go down because some of the demand [for dollars] will be
met at this center,” Bahmani told Fars News.
However, other reports say
that the state-run center has not been able to cope with demand.
Wednesday, as reports emerged of clashes and spontaneous protests outside the
Tehran Bazaar, the Iranian authorities moved their focus to attempting to block
the spread of the unrest.
As news of the bazaar protests spread, Iranians
began to report that websites listing currency exchange rates had been filtered,
apparently because the Central Bank ordered them to stop posting the dollar-rial
rate. On Thursday, leading currency exchange websites, including Mesghal, were
still not reporting the exchange rate.
US-based Persian-language news
outlet Radio Farda reported that its broadcasts had once again been jammed in
Iran while state media reported on an alleged “cyber attack” against
infrastructure and communications companies, which Iran’s Supreme Council of
Cyberspace said forced a “limitation” of the Internet. BBC Persian also reported
that Iran had jammed its broadcasts on Thursday.
Also on Wednesday,
Iran’s police chief Esmail Ahmadi Moghadam announced that a new police unit
would be established to “fight currency speculators.”
These and other
attempts to deal with the crisis come as more reports of growing dissatisfaction
and anger with Ahmadinejad’s economic mismanagement continue to leak out of
Some analysts are cautiously optimistic that the Tehran protests
are signs that sanctions are working and that there could be deeper unrest to
come, which may force Iran to back down over its nuclear program.
recent report by international consultancy The Soufan Group warned that Iran is
not likely to agree to any compromise over its nuclear program in the short
term. However, the report predicted that by the second half of 2013, sanctions
are likely to cause economic collapse in Iran, giving Iran’s leaders little
option but to back down over their nuclear plans.
Iran expert Meir
Javedanfar, who lectures at the Interdisciplinary Center Herzliya, believes the
fact that Iran’s currency is folding fast is a “huge crisis” for Iran’s regime
and serves as clear evince that sanctions are causing significant damage to the
“Sanctions could turn into an existential threat for the
regime,” he told Bloomberg TV this week, adding that Ahmadinejad’s denials over
the issue will deepen the crisis of confidence among Iranian
Javedanfar said that while there is a risk that Iranians would
blame the West for their economic woes, it is more likely they would hold the
regime accountable because the 2009 election fraud that enabled Ahmadinejad to
return as president damaged the government’s credibility.
Enterprise Institute’s Alfoneh said the Iranian regime’s ability to deal with
the unfolding crisis depends on its ability to reestablish Iran-Iraq war era
rations to secure basic foodstuffs at subsidized prices to the urban middle
class and also to appeal to the solidarity of the public.
Whether or not
Iran will be able to prevent large-scale unrest also depends on whether the
Islamic Republic can win its race to a nuclear bomb, he added.
depends on] the regime’s ability to obtain the nuclear bomb sooner rather than
later, after which the sanctions would be removed. The first two factors seem
unlikely, but if the bomb is within reach, the regime may survive the economic
crisis and social unrest,” Alfoneh warned.