American pressure on international banks continues to hurt Iranian oil exports. Unable to get free access to dollars or euros, Iran has to find other ways to get paid for oil it ships. The sharp drop in Iranian oil exports has seen the cost of imports more than double (because of the loss of oil income and plunging value of the Iranian rial). Oil accounts for 80 percent of exports (the source of foreign currency to buy foreign goods) and half the government budget. In order to keep unrest down, the government allowed imports to climb from $39.1 billion to over $60 billion in the last seven years. Now that is being reversed and Iranians are encouraged to be more self-sufficient. This is not popular and often not possible. Not only are popular imports (consumer goods and food) more expensive, or unavailable, but many essential raw materials or components needed for local manufacturing are missing as well, causing factories to shut and increasing (to nearly 30 percent) unemployment. Inflation is over 20 percent and increasing. Even using smugglers doesn’t help because there is a lot less money available to pay the foreign suppliers (who won’t take Iranian currency). Consumer goods now comprise 80 percent of imports and Iran is trying to arrange barter deals with major oil buyers, like India and China. But neither India nor China have a lot of food to export and buying food from other nations and then passing it on to Iran is too likely to be discovered and cause sanctions on anyone using this scam. India has tried paying its oil bill in its own currency (rupees) but the international market for rupees is too thin to make this work. Iran has already found that taking rupees doesn’t work well, as the rupees lose a lot of their buying power if you put a lot of them into the international market. Right now Iran is dealing with billions of dollars’ worth of rupees and it is not working out well at all. European banks trying to help Iran get these rupees turned into euros were caught by American investigators and their access to international financial markets threatened. That eliminated the Iran ability to turn rupees into a currency they could buy foreign goods with.
The shortage of foreign currency has caused the government to eliminate the low “official” exchange rate for dollars (12,260 rials per dollar) and replace it with a higher one (24,779 rials) that is still below the market rate (33,000). This change hurts some critical government programs, like health care (which must import most medical supplies and has now had its purchasing power cut in half). The military is less concerned about the exchange rate, since they cannot legally import anything. Moreover the defense budget has more than doubled in the past year, to $5 billion. That, however, is still one of the lowest defense budgets in the region.
If currency problems were not enough, port congestion in China further cut oil exports which sank to 800,000 barrels a day in June. That’s 20 percent of what they were two years ago and down from 1.4 million barrels in May. Iran is still pumping 2.6 million barrels a day and running out of places to put it.
Iran is trying to persuade the UAE (United Arab Emirates) to stop expelling more and more of the half million Iranians living there. That expatriate community has long been a source of trade, information, and all manner of useful connections to the outside world. But the UAE is angry at Iranian support for the Assad dictatorship in Syria and its continuing nuclear weapons program and threats against the Arab states on the west side of the Gulf. Iran has been making nice to the UAE lately, but that has not been able to undo decades of bad treatment. This ugly past is catching up with Iran.
With so little oil revenue coming in the government spends carefully. So it is interesting that the project to build an internal Internet (cut off from the international Internet) proceeds. The government is planning to issue all Iranians an official email address that can only be used for communications within Iran. Access to the international Internet is getting more and more difficult for Iranians to obtain. The government also admitted that it had indeed throttled Internet speed on June 14th to hinder any organized demonstrations on election day. Most Iranians are hoping that newly elected president Hassan Rouhani will follow up on his previous statements about free access to the Internet. This bothers the many senior clerics who let Rouhani run as a sop to the “liberal” wing of the Shia clergy. Rouhani and the other “liberal” candidates got most of the votes, telling the senior clerics (at least the ones not blinded by their own propaganda) that the population was unhappy with the religious dictatorship.
One effort that is still getting lots of dollars is the Shia foreign legion Iran has organized in Syria, in an effort to keep the pro-Iran Assad government in power. Iran is spending over $5 million a month to recruit, pay, and supply over 4,000 Lebanese, Iraqi, and Iranian armed volunteers. Most of the gunmen are from Lebanon (Hezbollah) and Iraq (pro-Iran Shia militiamen that have long been on the Iranian payroll). There are also some Shia from outside the region, but these are only a few hundred and have little military training. The Hezbollah and Iraqi gunmen usually have training and often a bit of combat experience. This force is playing a major role in keeping Assad in power. Some fairly senior Shia clerics have gone to Syria as well, partly to keep an eye on things, partly to help improve morale. There are some Shia shrines in Syria and at least a few of the Sunni radicals fighting Assad have said they will destroy these shrines if they get the chance. Iran is spending even more dollars each month to make it possible for the broke (after two years of civil war) Assad government to feed and supply the 20 percent of the population that still supports Assad. Take away the Iranian money train and support for Assad will take a sharp, and terminal, drop. This expensive support for Syria, while economic conditions deteriorate in Iran is not popular with most Iranians. It is dangerous for Iranians to openly express displeasure.
July 9, 2013: In the southeast (Chabahar) police killed a suicide bomber trying to shoot his way into a police station. The dead terrorist apparently belonged to a local Baluchi group seeking more political and religious freedom for Iranian Baluchis (who are Sunnis).
July 4, 2013: In the northwest, soldiers of the Revolutionary Guard killed two Kurdish civilians, and locals claim five others have been killed by troops in the last two weeks. The Iranian soldiers are quick to fire as they believe Kurdish separatists (PJAK) are still active in the area.
July 3, 2013: President Morsi of Egypt was arrested by the army and his government was replaced by military rule until new elections could be held. Morsi had restored diplomatic and trade relations with Iran, even though many Egyptians opposed this. That resulted in the first Iranian tourists (in decades) to be attacked by Egyptian Sunni radicals. Iran then warned its citizens to stay away from Egypt until the security for them was improved. The new Egyptian government plans to cut relations with Iran once more, if only because the new government is dependent on anti-Iran Arab oil states for billions in badly needed foreign aid. Iranian officials blamed Morsi’s fall on too much support for Israel and the United States. The Iranian government does not want to talk about the real reason, bad economic conditions and a plunging standard of living.
Egypt is not the only Sunni country that has become dangerous for Iranian visitors. Sunni radicals are attacking Iranians in Lebanon and Syria, and the Iranian government is quietly making it more difficult for Iranians to go to such places. Admitting to these restrictions would be too embarrassing as this is all part of the Iranian effort to depose Saudi Arabia (and Arabs in general) as the leader of the Islamic world. But most people in the region see Iran as a bunch of arrogant bullies (an image the Iranians have earned over thousands of years of bad behavior) and note that Mohammed and most of the early Moslems were Arabs and that Iranians had to be converted at sword point.
July 1, 2013: A new set of American laws to sanction trade with Iran went into effect today. These new regulations make it more difficult for foreign insurance companies to cover Iranian oil exports. The U.S. has gotten a lot better at detecting which firms violate these sanctions and that has made all the sanctions more effective.
June 25, 2013: Bahrain arrested nine local Shia and charged them with planning to stage a prison break to free Shia imprisoned for terrorist activity. Bahrain accused Iran of training and supporting the breakout gang.