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Iran rulers eye currency mess from protected perch

By Brian Murphy

Associated Press

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

On Sunday, the dollar was fetching about 30,000 rials among unofficial street traders, who effectively set the daily rate used in nearly all commerce.

The rush to accuse Ahmadinejad also appears part of efforts to insulate the ruling clerics — and their foreign policy — from blame. One of Ahmadinejad's main political foes, Parliament Speaker Ali Larijani, parsed the currency crisis this way last week: 80 percent traced to Ahmadinejad's policies and 20 percent tied to sanctions.

"The attacks are growing due to the economic problems," said Ali Reza Khamesian, a journalist at Tehran's independent Maghreb daily.

Some officials are making increasing appeals for the country to pull together as the Western pressures mount.

During Friday prayers at Tehran University, Ayatollah Ahmad Khatami reached back to an earlier time where the country pulled together against an outside threat by calling the sanctions an "imposed economic war" — the same terminology Iran uses for its "imposed" 1980-88 war with Iraq.

But there is a risk of going too far in pointing the finger at the external foe.

Public support for Iran's nuclear program remains solid, but backers of the theocracy worry that closely linking the currency implosion to the sanctions could raise uncomfortable questions about Iran's defiance over uranium enrichment. Hence the attacks on Ahmadinejad.

"Frustration over high inflation and the state of the economy will persist, and sporadic protests such as Wednesday's are likely to become a new element in the Iranian political landscape," wrote Cliff Kupchan, Middle East director for the think tank Eurasia Group. "However, there is no evidence at this point that the temperature is reaching (the) boiling point."

One reason is the memory of how Iranian authorities brutally snuffed out the uprising after the disputed 2009 re-election of Ahmadinejad, before he lost favor. Officials unleashed civilian militias under the wings of the Revolutionary Guard to break up demonstrations.

While there are no signs of renewed street protests since last week's flare up, officials rushed ahead with efforts to calm domestic markets, get a grip on currency speculators and, hopefully, pump back some value in the rial. Parliament tabled other issues to focus on the economy.

In theory, Iran's leadership could attempt a rial rebound by opening up the treasury taps to flood the market with dollars. But plans last month to try to control exchange rates began "fueling doubts over the size of the government's accessible reserves and generating flight to other currencies," wrote Eurasia analyst Kupchan.

"The only thing that is likely to budge the regime is if they see or sense an existential threat," British Defense Minister Philip Hammond was quoted by The Observer newspaper on Sunday.

The European Union next week is expected to consider proposals for tougher sanctions, including a possible ban on Iranian natural gas. In July, the 27-nation EU placed on embargo on Iranian oil imports. U.S. Defense Secretary Leon Panetta also warned that Washington could increase its economic squeeze on Iran, citing the currency fall as evidence of its impact.

"Make no mistake, the international community will continue to impose additional sanctions," Panetta said Saturday during a stop in Peru.

Iran's foreign minister Ali Akbar Salehi fired back that the currency swings and inflation are not enough to upend the country — unlike Europe, which he suggested was torn apart over austerity plans.

"Iranian society is used to living with difficulties — perhaps better than those in Spain and Greece," he was quoted by the German weekly Der Spiegel in Sunday's edition. "We can count on our people's patience. Can you in Europe, too?"

Associated Press writer Nasser Karimi in Tehran, Iran, contributed to this report.

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