Iran rulers eye currency mess from protected perch

By Brian Murphy

Associated Press

Published: Sunday, Oct. 7 2012 10:35 a.m. MDT

An Iranian man tries to sell carpets at the main entrance of the Tehran's old main bazaar in downtown Tehran, Iran, Sunday, Oct. 7, 2012. Iran's parliament on Sunday abandoned its planned impeachment of a Cabinet minister over the free-fall of the country's currency, opting instead to look for more effective economic measures, like cutting spending. The aborted move to impeach the minister reflects unease over the severe drop in the value of the Iranian rial, mostly because of Western sanctions over Iran's suspect nuclear program. On Sunday the parliament approved outlines of a bill to restrict the government's use of different exchange rates for its foreign revenue and requiring the return of some funds to the treasury.

Vahid Salemi, Associated Press

DUBAI, United Arab Emirates — Just as Iran's currency was rattling near bottom after a stunning free fall, officials in Tehran opened a trade exhibition that included advanced engineering tools, heavy machinery and robotics. Nearly every Iranian booth had some connection to the country's powerful Revolutionary Guard and the ruling system it safeguards.

This display of the regime's industrial muscle showcases why the collapse of Iran's rial is unlikely to pose any immediate threats to the country's real centers of power, despite protests last week that brought quick speculation in the West about the stirrings of a popular revolt.

The top end of Iran's economy remains fully in the hands of the Revolutionary Guard and its networks, which span from oil to aerospace. And the lifeblood for the ruling clerics and the Guard still comes from Iran's oil exports that — on paper at least — bring in tens of millions of dollars a day to buffer against the blows hitting the rest of the country: a tanking currency, skyrocketing prices for imported goods and double-digit inflation.

"There is a lot of breathless talk about the regime collapsing," said Salman Shaikh, director of The Brookings Doha Center in Qatar. "It is no doubt under severe pressures and cannot ignore the currency situation, but the fundamentals of the economy, from the standpoint of the ruling system, are still OK."

The sanctions target oil exports, banking, and other sectors. They are imposed over Iran's nuclear program. The U.S. and allies fear that the country's uranium enrichment labs could eventually produce warhead-grade material. Iran insists its nuclear efforts are only for energy and medical uses. But some in Washington and European capitals openly say that, the nuclear issue aside, they would be delighted if sanctions brought the downfall of Iran's clerical leadership.

To be sure, it would take far more than the small-scale demonstrations in Tehran last week to pose any immediate threat to Iran's ruling establishment, which has the huge strength of the Revolutionary Guard behind it.

But neither can Iranian leaders afford to ignore the latest upheavals. The battle for perceptions and longer term stability goes by different rules.

They must now explain to a reeling public how they intend to stabilize an economy slammed by Western sanctions that have cut into oil exports and a deflated currency that lost nearly 40 percent of its value in a weeklong plummet — and why taking to the streets in protests is not the answer.

Iran's leaders are desperate to quell any sense of uncertainty and panic — which largely drove the downward pressures on the currency. Even small flare-ups could start to erode their claims that sanctions and economic isolation cannot unravel the country.

"Iran knows it needs to keep a tight lid on open opposition," said Mehrzad Boroujerdi, a Syracuse University professor who follows Iranian affairs. "As everyone knows well, these things can snowball out of control."

One thing that cannot be contained is Iran's internal political skirmishing.

Conservatives are using the crisis to hammer President Mahmoud Ahmadinejad, who once enjoyed the favor of the real powers in the country — top clerics and the Revolutionary Guard — but whose star has been in decline since he tried last year to challenge the authority of Supreme Leader Ayatollah Ali Khamenei. Ahmadinejad must leave office next year and the battle is on to determine who will be his successor in June 2013 elections.

Ahmadinejad's political foes have openly scapegoated him as the cause for the rial's drop, which hit an all-time low of 35,500 to the dollar on Wednesday and touched off merchant strikes at Tehran's bazaar and sporadic clashes as police tried to round up sidewalk money changers. The rate was about 10,000 as recently as early last year.

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