The Iranian Currency Crisis: Three Possible Scenarios

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ATTA KENARE / AFP / Getty Images

Iranian President Mahmoud Ahmadinejad holds a press conference in Tehran on Oct. 2, 2012.

During my trip to Iran last month, the owner of a chicken shop in Shohada Square, a lower middle class neighborhood in southern Tehran not far from the bazaar, complained to me about the fluctuating price of chicken. “Yesterday, I had some orders from some regular customers. So I sold them chickens for 50,000 rials each,” he said. “But when I went to buy the chickens today, the price had spiked 5,000 rial overnight. I had to pay 55,000 rials for each chicken, so I lost some money. It would be fine if this was a one-time thing, but it keeps happening. The prices, they’ve fluctuated so much the last couple of months.”

The Shohada chicken-seller must have had quite the ride this week–as have consumers and merchants across Iran when the rial devalued suddenly and dramatically by 40%.  As a TIME reporter in Tehran notes, the bazaar closed on Wednesday in part because merchants no longer knew how to price their products in such an unstable market, and in part to protest President Mahmoud Ahmadinejad’s economic policies. There have been increasing labor strikes for months around Iran, but unrest in the bazaar is a dangerous indicator for the Iranian regime: It was striking bazaaris who began the successful take-down the shah in 1979.

Most experts see three possible outcomes – or a combination of these three steps:

1)            The regime falls.

There is a lot of anger at Ahmadinejad’s mismanagement of the economy, but there’s also not a lot of love for Supreme Leader Ayatollah Ali Hosseini Khamenei. When I was in Tehran last month there was much speculation on the street that Ahmadinejad was stepping back – he is a lame duck with his term expiring next summer — to allow Khamenei to take some of the bullets for once. And the frustration I heard was equally apportioned between the two men. “Khamenei, Ahmadinejad, they’re all the same,” one small business owner told me. “None of them care about the economy, it’s all ideology to them. Winning the argument.”

That said, many in Iran worry what would be on the other side of regime change. They fear Iran devolving into an Iraq, or Syria: a precarious state, plagued by sectarian violence. “Better the devil you know than the devils you don’t,” the small business owner said. “At least this is a system we know how to game.”

2)           The regime makes a run for a bomb. 

Most Iranians I met believed that Iran had a right to nuclear energy and, even, a nuclear bomb. “If Pakistan and India have them, if Israel has one, why not us?” asked a woman named Douri (not her real name). Douri did not believe a bomb to be worth the economic pain of the sanctions, but she said she would absolutely stand behind the regime if Iran were to be attacked.

Uniting the Iranian people behind an otherwise unpopular government wouldn’t be the only benefit of making a run for a bomb and provoking an attack by Israel and/or the United States. Such an attack would surely break the fragile coalition against Iran and gut the sanctions. Plus, as my colleague Tony Karon noted on Thursday, obtaining a bomb acts as a deterrent. “The regime is likely to pursue the nuclear bomb more energetically than before believing that the sanctions will be removed once Iran has become a nuclear power,” says Ali Alfoneh, an Iran expert at American Enterprise Institute in Washington.

3)           Economic but not political collapse.

Speaking of the fragile sanctions coalition, there is evidence that Iran could be getting some help from China and Russia. The Melal Hotel group is the largest private hotel chain in Iran. The sanctions have forced them to halt construction on new hotels – negotiations to buy elevators from the Swiss have fallen through and getting a hospitality partner has proven difficult. But business within the country is still booming, despite the disappearance of European travelers. “We have a lot of Russian and Chinese businessmen,” says Bamdad Faghihi, the hotel group’s Dubai representative. “Business with China is up day by day due to the sanctions.” China’s buying of Iranian oil hasn’t slowed in recent months despite the sanctions. In July they bought 20 million barrels, according to Bloomberg News.

Sanctions only work if there are no back doors. If China and others are buying Iranian crude on the sly and paying with gold, they are providing lifelines to Tehran’s economy and the regime. Because of this, Europe is considering a fresh wave of sanctions at their next ministerial meeting on Oct. 15 targeting loopholes where crude is leaking out of Iran. And the U.S. is also set to implement a new round off sanctions this fall. Are they looking to strike a deathblow to the Iranian economy? “I wouldn’t phrase it quite like that,” said on senior European diplomat, “but that is the intent, yes.”

One option is that Ahmadinejad gets thrown to the wolves and used as a scapegoat to appease the street. As he was speaking at the United Nations last week, one of his top allies was arrested for financial fraud. And Khamenei’s displeasure with Ahmadinejad has never been more evident.  That said, the President is already a lame duck so making an example of him is an almost cosmetic fix. Speculation was rampant when I was there that Ahmadinejad would be the last president of Iran and that Khamenei would simply do away with the troublesome office when Ahmadinejad’s term expired. That day may come sooner than later. But even without Ahmadinejad, the Iranian regime has to find a way to stabilize the economy.  “I suspect the regime will gain control of the street but long term there’s a problem of a people without political rights and economic options,” says Ray Takeyh, an Iran expert at the Council on Foreign Relations. “How they manage it remains to be seen.”

67 comments
Phaerisee
Phaerisee

Abu, now hug Ibrahim. Ibrahim, hug Abu. Was that so bad?

ahandout
ahandout

 Is Obama a terrorist?  Americans say that he is.

http://www.breitbart.com/Big-P...

mantisdragon91
mantisdragon91

 No crazy conservatives who represent the fringes of society say that. On the other hand most of the real domestic terrorists such as the guy who shot up the Sikh Temple in Wisconsin a couple of months back tend to be Right Wingers.

ahandout
ahandout

Ahmadinejad, wants world chaos.  It's part of the return of the 12th Imam.  Why would he care about a little currency crisis, when he wants to wipe Israel off the map? 

Ahmadinejad hailed the imminent arrival of an "Ultimate Savior."

"God Almighty has promised us a man of kindness," the Iranian leader told world leaders.

Ahmadinejad said the savior is "a man who loves people and loves absolute justice, a

man who is a perfect human being and is named Imam Al-Mahdi, a man who

will come in the company of Jesus Christ and the righteous."

As a Shiite Muslim, Ahmadinejad reveres Islam's twelfth imam, Muhammad

Al-Mahdi, who disappeared from the earth in the tenth century and is

said to be due to return, accompanied by Jesus, to save mankind.

http://www.middle-east-online....

mantisdragon91
mantisdragon91

 And he is so different form the Republican Evangelicals who want War in The Middle East in the hope of bringing on The Rapture how?

ahandout
ahandout

No, MD.  There are no evangelicals that fit your description with their hand on the nuke button, but keep fantasizing.  

mantisdragon91
mantisdragon91

 And I don't want to see any evangelicals in that position. I also don't want to see the former Bishop of a Cult that baptizes dead Jews against the will of their families with his hand on the nuke button either.

ahandout
ahandout

 Shia are in control in Iran.  Easy question.

mantisdragon91
mantisdragon91

 Ahh... I see so as long as it is a Christian pursuing policies that will lead to mass destruction everything is hunky dory.

ahandout
ahandout

There are no evangelicals that fit your description anywhere near the nuclear button.  The Shites are in charge of Iran.

Tero1
Tero1

derp derp derp

ahandout
ahandout

The most intelligent thing you have said to date.

SmilingSmartBlonde
SmilingSmartBlonde

Jay Newton-Small

Like Sacredh, I feel empathy for  the people of Iran, especially the women, who must truly feel victimized from oppression.

All three possible outcomes you offer surely have ramifications for the USA. All possible paths are filled with delicate nuances. Slippery slopes, potential landmines, dangerous traps lie ahead.

A question for USAVoters:  Do we want an elected leader to have the same foreign advisors as the architects of the Iraq War? Are they skilled in the necessary nuances?

Jay Newton-Small
Jay Newton-Small

SmilingSmartBlonde,

To your point, I'll give you an anecdote: Barack Obama is beloved on the streets of Tehran, though I'd guess his campaign wouldn't want that advertised, despite the fact that he's managed to put in place harsher sanctions than any other president in U.S. history. Why? Because he doesn't threaten to bomb the Iranian people every five minutes, ala George W. Bush. His messages always distinguish between the Iranian people, whom he he praises, and their leaders, whom he reviles. The Iranian people generally share that sentiment. 

JNS

LookBehindTheSpin
LookBehindTheSpin

I agree with JNS completely.

I've spent time in Iran as well. Mixing with ordinary people and businessmen. Persians feel a great affinity to the west and feel that we have more in common than we have differences. The vast majority of people that I met were very well informed and, because they have to work hard to interpret both the news they are spoon fed and the news that they are able to access from western sources, they were much more perceptive than a similar cross section of Americans (or brits for that matter).Political opinion in Iran (when people have the confidence to express their views to you) is every bit as nuanced as you would expect from western political discussions.I found Persians to be deeply proud of their country, their culture and their history. But that didn't stop them expressing disgust at their political and religious ruling class. Equally while expressing admiration for most of what the west stands for, they would point to the US lack of real censure of Israel over the Palestinian question as the issue at the very heart of all difficult relationships with the west.Considering the way that the US and UK interfered in Iranian politics throughout the 20th century, and that educated Iranians are well aware of the facts, the warmth and generosity towards westerners of goodwill is astounding.When it comes to the issue of women's rights, I was astonished by the differences in the way women behaved in public and in private. Whatever political regime we live under, human beings always find a "work around".It takes education and intellect to solve the issues that we face with the Iranian regime, not hyperbole and sabre rattling.......

SmilingSmartBlonde
SmilingSmartBlonde

Thank you for your reply and for your courage to visit dangerous lands for the sake of reporting. Safe travels to you.

ahandout
ahandout

 Also Jay FYI, Obama not only threatens to bomb Muslims; he does bomb them.  He's not beloved according to this:

http://www.pewglobal.org/2012/...

"In predominantly Muslim nations, American anti-terrorism efforts are

still widely unpopular. And in nearly all countries, there is

considerable opposition to a major component of the Obama

administration’s anti-terrorism policy: drone strikes. In 17 of 20

countries, more than half disapprove of U.S. drone attacks targeting

extremist leaders and groups in nations such as Pakistan, Yemen and

Somalia."

sacredh
sacredh

JNS was there. She reported on what she saw and heard. Is the only thing you'd believe was if they said they hoped and prayed that we'd get a president that would be the lap dog of israel like Mitt would?

.

BS.

ahandout
ahandout

OK, she interviewed the man on the street in Iran and they told her that G. Bush threatened to bomb them "every five minutes."  OK, sure.

BS.

sacredh
sacredh

She interviewed Iranian people.

ahandout
ahandout

 Sacredh, I realize that.  I don't froth at the mouth and call Obama a war criminal, like some did to Bush.  I am simply pointing out that Obama is not beloved because a biased Time "opinion columnist" posing as a reporter states her opinion. 

sacredh
sacredh

But he is going after the TERRORISTS, not innocent civilians. The terrorists are the targets, not some guy in a market selling food. There is collateral damage, more frequently than anyone wants.

ahandout
ahandout

Sacredh, to my point:  When I read statements such as, " Because he doesn't threaten to bomb the Iranian people every five minutes, ala George W. Bush."  All credibility of the so called reporter goes out the window.  Then she expects me to believe her opinion on how the people in the street love, love, love Obama.  Her intense bias negates anything she states.

There are studies of Muslim countries that show that they don't like us. 

http://www.pewglobal.org/2012/...

sacredh
sacredh

"There are studies of Muslim countries that show that they don't like us."

.

This is Iran in particular and I think it's important to differentiate between them not liking our government and not liking us as people. It would be the same as me lumping the people of Florida with Lurch. He's their governor, but is he the people of Florida? It would be the same for you with Montana. Montana is a very conservative state. They have a democratic governor. Do you hate a conservative state because they elected a democrat?

.

You're also exaggerating JNS's words. JNS says beloved and you turn it into "love, love ,love". It's the same as if my wife said the sex was good and I heard it as "the best I've ever had by far".

.

Obama wants to destabilize the Iranian government. He doesn't want to bomb the population.

ahandout
ahandout

 Jay, do you have a poll or evidence of what you are saying or is it just what you believe?

sacredh
sacredh

JNS was just over there to see for herself. Jay has written a series of articles. She had to get a waiver from the Treasury Dept to  spend money while there. She covered that in a previous article on Iran. They've all been good and worth going back to read if you missed them.

Tero1
Tero1

"To your point, I'll give you an anecdote:"

Reading is fundamental, moron.

ahandout
ahandout

Because liberals sit around all day and listen to "Imagine" on their ipods, you may not have heard of Ahmadinejad the president of Iran.  He's quite a guy on a mission.  This guy is seriously crazy. 

Here's his mission: "In light of concerns over Iran’s nuclear capabilities, Mahmoud Ahmadinejad has reportedly stated Israel should be wiped off the map. He spoke to the United Nations in September ’05. During that speech he claims to have been in an aura of light and felt a change in the atmosphere during which time no one present could blink their eyes. Iran’s PM is also said to have spoken in apocalyptic terms and seems to relish conflict with the West whom he

calls the Great Satan. This is while he proclaims he must prepare the

world for the coming Mahdi by way of a world totally under Muslim

control. He is working hard to bring about the world-wide horrors that

must be in place for their al Mahdi to bring peace."

https://www.google.com/#hl=enamp;...

Tero1
Tero1

"He's quite a guy on a mission.  This guy is seriously crazy."

In case you were wondering what an uneducated moron thinks about Iran, heeeeere's ahandout! Good thing I put down my ipod long enough to read it.

ahandout
ahandout

 Now back to your regularly scheduled propaganda, Tero. "Imagine there's no countries"...

The reality is that we have countries like Iran with leaders like Mahmoud, and their religion too.

Tero1
Tero1

"Now back to your regularly scheduled propaganda, Tero."

Thank you for proving my point again, moron.

"The reality is that we have countries like Iran with leaders like Mahmoud, and their religion too."

Like duhhhhhh.

Vinayprasad
Vinayprasad

I wonder how the world is sure Iran does not have the bombs in the first place. Because if this is the channel of thinking, and Iran suddenly out of the blue tests ten bombs at the same time, I wonder what shock the west will get.

Iran can get the bombs from next door Pakistan. There are civilizational links between the two countries. There is a big segment of population of Iranian origin settled in Pak over different periods of history. Ex PM of Pak Gilani is an Iranian Pak guy, just as the way you have the Indian Americans in the US.

chaharmahal
chaharmahal

No you're wrong .The 3 scenarios are 1- Govt. printed more money and trying to buy all the dollar and get the bazzaries money to ballance the economy, 2- people know this regime is done and Toman is not real money,3-Chaos of huge magnitude going to take Iran to worse economy than Sudan ...     

p b
p b

the Chinese decide to place a complete economic blockade on the united states.

the dollar and the economy collapse hardship from coast to coast.

will the america's

A) over throw their government for not doing exactly what the chineses want

B) over throw their government because they love the communist for strangling them death

C)over throw their government because it is the will of the international community

some crazy people suggest that the American people might resist the chinese or even go to war at the same time rallying behind their besieged government

but that's crazy

anon76returns
anon76returns

Nice analogy.  Why are the Chinese blockading us, again?  And do they have UN support?  Are you saying Iran vs. the world would be as likely to lead to victory as US vs. China?

p b
p b

 they are blockading the us becuase it is a nuclear threat to the world

concernedreader71
concernedreader71

Americans can always go to the polls and elect a different president and congress... Too bad Iranians don't have the option of replacing their "supreme" leader...

ifthethunderdontgetya™³²®©
ifthethunderdontgetya™³²®©

Impossible scenario:

We stop playing global shakedown muscle for multinational oil companies and Israel, and leave Iran alone.

Call me a dreamer...

~

ahandout
ahandout

"Call me a dreamer"...

That's not what I would call you.  Lets see, Saudi Arabia, Kuwait, UAR, Mexico, Canada, Venezuela, Brazil, all have large oil deposits.  We are not "playing global shakedown muscle for the oil companies and Israel" with those countries.  Hmmm...I wonder what the difference is?  Maybe it's because they don't have a bunch of crazies running the government that want to bring on the  Islamic version of the Apocalypse and the twelfth Imam.

http://www.allaboutpopularissu...

Tesla787
Tesla787

 ahandout - I think we already have the rest of the oil countries in control, other than perhaps Venezuela.  Look around - Iran is surrounded by U.S. military bases in all the Arab nations - from Saudi Arabia, to Kuwait, to Jordan, Iraq, and Afghanistan (Pushton).  Overthrowing Iran's regime will allow America to open up more oil for global markets, thereby reducing the cost at the pump.  Furthermore, it will allow the new U.S.-backed Iranian regime to receive funds from the World Bank, thereby making Iran a slave to western debt and destroying its weak economy with structural adjustment programs.  You do realize that Iran is sitting on a gold mine, but they lack the expertise to actually produce that crude oil out of the ground?  As a result, they end up actually having to IMPORT a good deal of refined product.  It will be a big win in the context of U.S. geopolitical aims and will only benefit the American elite class.  The middle/lower class will be told that their freedoms are under attack, and so naturally, the lemmings will gladly march toward the cliff with "Support out troops" bumper stickers and American flags.

Ben August
Ben August

"...leave Iran alone." 

Great lets leave the one entity calling for unilateral destruction of another state alone. 

Did you fail history? Or just not attend the years where WWI and WWII were covered? 

sacredh
sacredh

You're not the only one.

peacock2828
peacock2828

Ahem.

sacredh
sacredh

October 8th would have been Lennon's 72nd birthday. I listened to John Lennon/Plastic Ono Band this morning. It still makes me a little melancholy.