The oil embargo against Iran has worked, assuming one defines "work" as a destruction of the Iranian riall which has fallen 33% in a week, 57% in three months and 75% in a year vs. the US dollar.
On Wednesday, the Tehran bazaar closed in turmoil and police used teargas and batons on demonstrators protesting the currency crisis.
Please consider Iran currency crisis sparks Tehran street clashes
Hundreds of demonstrators in the Iranian capital clashed with riot police on Wednesday, during protests against the crisis over the country's currency. Police used batons and teargas to try to disperse the crowds.
The day after President Mahmoud Ahmadinejad appealed to the market to restore calm, the Grand Bazaar – the heartbeat of Tehran's economy – went on strike, with various businesses shutting down and owners gathering in scattered groups chanting anti-government slogans in reaction to the plummeting value of the rial, which has hit an all-time low this week.
"Mahmoud [Ahmadinejad] the traitor … leave politics," shouted some protesters, according to witnesses who spoke to the Guardian. Other slogans were "Leave Syria alone, instead think of us," said opposition website Kaleme.com.
"The Bazaaris shouted 'Allahu Akbar' [God is great] as they closed down their shops in the morning," said a witness. "It's impossible to do business in the current situation." Amateur videos posted on YouTube which appeared to have been taken from Wednesday's protests, showed demonstrators encouraging Bazaaris to close down shops in solidarity. Security forces were soon sent to quell the protests.
"They used teargas to disperse demonstrators in Ferdowsi Street and also blocked the streets close to the protests in order to prevent people joining them," said another witness, who asked to remain anonymous. "Some shop windows in that area have been smashed and dustbins set on fire." A number of demonstrators had been arrested, according to Kaleme.
On Wednesday, many foreign exchange dealers and bureaux across the country refused to trade dollars and some currency-monitoring websites refused to announce exchange rates.
The hand-washing maneuver of the day goes to Hillary Clinton who stated "They have made their own government decisions - having nothing to do with the sanctions - that have had an impact on the economic conditions inside of the country."
Iran has undoubtedly made many poor economic decisions (but so has every other country on the planet). It is extremely disingenuous to suggest this has "nothing to do with sanctions".
Monthly 70% Inflation Rate
Steve Hanke, Professor of Applied Economics at Johns Hopkins University, has also been following the Iranian currency crisis. He pinged me with these thoughts yesterday.
For months, I have been following the collapse of the Iranian rial, tracking black-market exchange-rate data from foreign-exchange bazaars in Tehran. Using the most recent data, I now estimate that Iran is experiencing a monthly inflation rate of nearly 70%, indicating that hyperinflation has struck in Iran.
Since the U.S. and E.U. first enacted sanctions against Iran, in 2010, the value of the Iranian rial (IRR) has plummeted, imposing untold misery on the Iranian people. When a currency collapses, you can be certain that other economic metrics are moving in a negative direction, too. Indeed, using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.
When President Obama signed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, in July 2010, the official Iranian rial-U.S. dollar exchange rate was very close to the black-market rate. But, as the accompanying chart shows, the official and black-market rates have increasingly diverged since July 2010. This decline began to accelerate last month, when Iranians witnessed a dramatic 9.65% drop in the value of the rial, over the course of a single weekend (8-10 September 2012). The free-fall has continued since then. On 2 October 2012, the black-market exchange rate reached 35,000 IRR/USD – a rate which reflects a 65% decline in the rial, relative to the U.S. dollar.
click in chart for sharper image
Reflections on Economic Warfare
The US has waged economic war on Iran and that is taking a huge toll. Better economic war than the military war Mitt Romney seems hellbent on starting, but I support neither.
The last thing the US and the world needs is another senseless war in the Mideast.
Once again note that hyperinflation is essentially a political event. Weimar Germany was triggered by war reparations, Zimbabwe by confiscation of property accompanied by capital flight (including human capital), and Iran by US and European embargoes (a clear act of war).
Those suggesting hyperinflation will hit the US are barking up the wrong tree. For further discussion including a chart of 27 hyperinflation episodes and their causes, please see Hyperinflation Nonsense in Multiple Places
Mike "Mish" Shedlock