Tag: Iran Sanctions

On Iran, Would U.S. Take “Yes” for an Answer?

Since the election of relative moderate Hassan Rouhani to Iran’s presidency, there’s been a wave of events producing a newfound optimism about the prospects for a peaceful resolution of the dispute over Iran’s nuclear program. President Obama sent a letter congratulating Rouhani on his victory and mentioning other, unspecified issues, and Rouhani reciprocated. Obama told Telemundo he saw Rouhani as “somebody who is looking to open a dialogue with the West, and with the United States, in a way we haven’t seen in the past. And so we should test it.”

Iran’s Supreme Leader, Ali Khamenei, got into the act, reiterating an earlier call for “heroic leniency” in diplomacy over the nuclear program. Khamenei also told the radical and anti-American Islamic Revolutionary Guards Corps to butt out of Iran’s politics. At this time of writing, there are reports Tehran has released a number of political prisoners in Iran.

It all adds up to a period of positive trends in relations between the two countries. But it’s important not to overlook the fact that while atmospherics may help bring about talks, the countries are miles apart on the substantive issues surrounding Iran’s nuclear program. Too much attention has been spent on getting to talks, and too little on bridging the chasm dividing the parties.

A central, if not the central, problem is that the American foreign policy community has failed to lay out any conceivable way Iran could satisfy Washington other than immediate suspension of all uranium enrichment with no serious sanctions relief in return, which nearly everyone agrees isn’t going to happen. Congress seems to have two speeds on Iran policy these days: sanctions and asleep. Congress regularly piles on more sanctions to Iran, some painful, some symbolic, because it’s the easy thing to do politically, and no one seems willing to spend the political capital to provide Iran with a realistic offramp by which Tehran could lessen the pain and save face. Unfortunately, Congress’ actions and rhetoric have given the Iranians good reason to fear that our real policy in Iran is regime change, which can’t augur well for a deal.

Adding to the problems, Israeli Prime Minister Benjamin Netanyahu recently reiterated his own ultimatum to Iran, which is certain to fail. Netanyahu, whose hawkish id commands more influence in Washington than one might hope, demands zero enrichment in Iran—a formula no one believes is achievable. This formula puts Israel, and likely the United States, on a path to war with Iran.

So would Sen. Lindsey Graham, who last weekend reiterated his call for Congress to pass a war resolution allowing the Obama administration to bomb Iran when it determines bombing would be appropriate.

Hyperinflation Has Arrived 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.

The rial’s death spiral is wiping out the currency’s purchasing power. In consequence, Iran is now experiencing a devastating increase in prices – hyperinflation.  As Nicholas Krus and I document in our recent Cato Working Paper, World Hyperinflations, there have been 57 documented cases of hyperinflation in history, the most recent of which was North Korea’s 2009-11 hyperinflation. That said, North Korea’s hyperinflation did not come close to the magnitudes reached in the recent, second-highest hyperinflation in the world, that of Zimbabwe, in 2008, nor has Iran’s hyperinflation – at least not yet.