With Friends Like These: How Sanctions Might Hurt america's Potential Allies Inside Iran
by Djavad Salehi-Isfahani
http://www.foreignpolicy.com/articles/2012/10/12/with_friends_like_these?print=yes&hidecomments=yes&page=fullReviewed by Michael Hornblow
I visited the State Department at the end of October and talked about Iranian sanctions with an old friend who is now administering them. He looked at me and smiled tolerantly, “I bet you didn’t know that the Iranian economy grew faster than the U.S. economy in 2011. It has been difficult. You can act against 19 banks, but if one remains open for business all the money will flow through it, like water through a hole in a dike. But now that the U.S. and its allies have imposed an oil embargo, the sanctions are beginning to bite.”
Djavad Salehi-Isfahani, a professor at Virginia Tech and fellow at Brookings, is an Iranian-American and an expert on the Iranian economy. He admits in the attached article that the sanctions have created economic woes: the Iranian rial is down 40% against the dollar, oil exports are down 50% this year, car production is down 42%, and inflation is way up, close to 50%. Added to this unpleasant stew is economic mismanagement by the regime.
And yet, despite much grumbling and unhappiness, there is no rioting in the streets. Indeed, the only sanctions-related political crisis was a recent protest of several hundred ordinary Iranians in Salehi-Isfahani’s home town of Neishabour over a shortage of chicken feed.
Salehi Isfahani points out that one reason for the relative calm is that the Central Bank in Tehran sets different exchange rates for different users and different products. Thus the price for essential items such as food and medicine is kept artificially low at about 12,000 rials to the dollar while other products are traded at a much higher rate.
While inflation is a problem the multiple exchange rate system has insulated the economy from the type of hyperinflation that affected some East Asian countries, Turkey, and Zimbabwe. In sum the economy is functioning, real estate is booming and gold and foreign currencies have “gone through the roof.”
Salehi Isfahani argues that Iran seems to be weathering the storm and the regime’s multiple exchange rate system eases the sanctions’ impact on Iranians living below the median income, President Ahmadinejad’s political base. The pain, the author says, is being borne by upper income Iranians. They will blame the West, not Ahmadinejad, for their misfortune, and this may further complicate relations with Iran when the country rejoins the global economy.
Comment: I am not concerned with the plight of the upper income Iranians who live the good life in sumptuous villas in Northern Tehran and who will have to pay more for their vacations in Turkey and Switzerland. When and if the nuclear problem is resolved some of them will benefit. The sanctions were started in 2006 with two United Nations Security Council resolutions but nuclear enrichment continues. With the U.S. election finally concluded and the Israeli election scheduled for January, the time is approaching when this issue will come to a head. In 2013 the problem is likely to be resolved one way or another.