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Oct 3, 2012 | 18:43 GMT

3 mins read

Protests in Iran Over Rial's Decline

Protests in Iran Over Rial's Decline
AFP/GettyImages
Summary

Shop owners in Tehran's Grand Bazaar closed their stores and went on strike Oct. 3, reportedly marching through the center of the Iranian capital to protest the nearly 40 percent decrease in the value of the country's currency, the rial, to the U.S. dollar since Oct. 1. Eyewitnesses reported that riot police made raids on black market currency exchangers, and there were a few unconfirmed reports of arrests and clashes, but the incident appeared to be a largely peaceful, highly publicized show of law enforcement pressure on illegal currency trading.

The events of the past week come after a long decline in value for the rial that began slowly after the U.S. enactment of comprehensive sanctions on Iran in 2010 and accelerated at the beginning of 2012 after Washington added the Central Bank of Iran and other financial institutions to the sanctions. These sanctions may or may not have played a large role in the depreciation of the rial, and there are certainly other economic factors involved. Nevertheless, regardless of the technical causes of the rial's decline in value, the reported Oct. 3 protests give the appearance that the sanctions are having an impact.

Other than reported protests over chicken prices in July during Ramadan, the Oct. 3 strike is the first report of major unrest related to Iran's economic situation. If these reports are accurate, they are an important indicator of merchant sentiment in Tehran. However, determining the protests' exact significance is much more challenging. Iran censors reporting on most negative news relating to the economic situation, making it next to impossible to measure the social impact that this inflation is having on the country. We know that the value of the rial has plunged, making dollars (and therefore some imports) more expensive. Supply disruptions have not appeared, but the price increases associated with the fall in the value of the rial may be beginning to price out some goods to poor consumers.

Iran

Iran map

Sanctions certainly are a factor in the rial's drop in value, but so are domestic economic policies. The only domestic explanation offered so far has been the alleged Central Bank's late-September introduction of an exchange rate system that would tie imports of critical industrial goods to the volatile and sanctions-prone market rate. No major attempt has been made to reverse course on the policy by the central bank or other entities within the regime, and it is likely that the domestic situation is not dire yet.

Tehran is using the issue for internal political purposes, and it is safe to assume that since the government exercises heavy control over the economy, it has the ability to manipulate the crisis to its needs. With presidential elections coming in 2013 and embattled President Mahmoud Ahmadinejad unable to run for another concurrent term, a number of political actors have an incentive to exacerbate the economic problems to discredit Ahmadinejad and his political supporters, who represent a challenge to clerical institutional rule.

The United States and Europe initially levied the sanctions both as an attempt to slow down or stop the Iranian nuclear program and to assuage an Israeli government that was growing increasingly vocal about its own intent to stop such a program. Since then, however, Washington and Europe have taken an interest in effecting regime change in Iran, and the sanctions have accordingly evolved into a broader attack against the Iranian economy and the regime's ability to govern. Now, with the 2009 Green Movement and its call for regime change still fresh on many people's minds, reports of protests like those of Oct. 3 will be taken very seriously — even if the protests themselves are relatively small.

While the steep decline of the rial's value over the past three days may show that the sanctions are having an impact, it does not necessarily indicate that they will be successful. Iran has experience managing the impact and effect of sanctions, and it has accordingly engaged several workarounds to circumvent them. The country also has long used the tactic of being seen as suffering under the sanctions as a way to stall for time to continue pursuing its goals without further punishment from the West. No matter the result of Iran's current economic and political troubles, Iran has no interest in ending its nuclear program or competition over the Middle East any time soon. These policies and interests are bigger than any one individual or political bloc.

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