Currency woes spark clashes in Iran

WASHINGTON — Tensions over the plunging value of Iran’s currency sparked clashes between protesters and security forces in the capital Wednesday, the most significant unrest there in two years and a possible prelude to a more serious threat to political stability.

Increasingly stringent U.S. and European sanctions against Iran have driven the value of the rial down for years, but its fall has accelerated dramatically over the past week, forcing a run on hard currency and anxieties over the skyrocketing prices of food and other staples.

Protestors, apparently including many shop owners, clashed with riot police Wednesday in the area around Tehran’s foreign-exchange markets in what experts described as the most significant Iranian protests since the popular uprising in 2010.

Police deployed tear gas to disperse crowds and closed off neighboring streets, and in an apparent bid to prevent any spread of unrest, the government deployed satellite jamming to block TV networks, including the BBC, from airing in the country.

There were conflicting reports on the initial cause of the unrest, with some news reports from Tehran suggesting they were sparked after security forces attempted to close foreign exchange traders in the bazaar.

The clashes came a day after Iranian President Mahmoud Ahmadinejad acknowledged that Western sanctions were exacerbating the country’s economic problems and urged Iranians not to exchange their rials for foreign currencies, saying that doing so would further the “hidden war” against the country.

U.S. officials said the Iranian currency crisis reflected the combined consequences of fiscal mismanagement by its government and economic sanctions imposed to force the country to negotiate over its nuclear program. The value of the rial has fallen roughly 60 percent over the past year but about 30 percent over the past week.

Asked about the fall of the rial Wednesday, Secretary of State Hillary Clinton said sanctions could be reconsidered if Iran moves to cooperate with the West.

“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,” Clinton said.

“Of course, the sanctions have had an impact as well, but those could be remedied in short order if the Iranian government were willing to work with the … international community in a sincere manner,” she said.

Analysts said the currency weakness spells serious political problems for the Iranian government.

“These are the biggest demonstrations we have seen in Iran since 2010,” said Barbara Slavin, senior fellow at the Atlantic Council. “It’s a reflection of pent-up frustration and anger with the economic problems of the country, which have gotten worse, particularly since the European sanctions came into effect in the summer.”

While the Obama administration has steadily imposed more severe economic sanctions on Iran, a European ban against Iranian oil imports did not take effect in July.

The E.U. is meeting again later this month to debate further tightening and refining the sanctions, which a European official says are likely to tighten its existing measures on Iran’s financial and energy sectors.

The most likely additional penalties would close some loopholes in sanctions on the Iranian Central Bank, and make it harder for Iran to evade existing European and U.S. oil sanctions through shell companies and straw buyers.

The goal is to “bring the Iranian economy to its knees,” the European official said Wednesday.

Banking sanctions, experts say, have had as severe an effect as those on oil imports and have caused substantial quantities of the Iranian regime’s overseas currency reserves to be frozen outside of the government’s reach. Among ordinary Iranians, however, the currency crisis is being felt most severely in shops and bazaars.

Iran imports substantially more food than it exports. According to figures from the World Trade Organization, the country imported $9.4 billion of agricultural products and $8.2 billion of food in 2010. Iran also imports substantial quantities of materials for industry, as well as consumer electronics.

“This is really calamitous in terms of how it affects prices for ordinary people. Iran produces a lot of its own food, but not all. It imports wheat, inputs for its manufacturing, medicine and medical devices and more,” Slavin said.

Anger over rising food prices have caused small-scale protests in Iran during the past year. In July, small-scale unrest broke out over the rising price of chicken, a staple food, in the northern city of Nishapur.

Such price hikes came despite Iranian efforts to stockpile foodstuffs ahead of tighter sanctions, including the purchasing of millions of tons of wheat early in the year through international markets.

Iran’s economy could be approaching a state of hyperinflation, where prices rise daily, said Karim Sadjadpour, an Iranian-born American and senior associate at the Carnegie Endowment for International Peace.

“When authorities concede an inflation rate of 29 percent, you can be confident that the unofficial rate is usually much higher,” Sadjadpour said.

“So far, the slogans people are chanting are more economic than political, and they’re directed at the regime not Western sanctions,” he said. “The regime will try to nip these protests in the bud right immediately, before they start getting overtly political.”

Iran’s leaders have acknowledged that international sanctions are partly to blame for the country’s currency crisis, but economists and Iran experts cite other factors as well. Some, for example, fault a series of recent government decisions to phase out subsidies for basic commodities, such as food and fuel, in favor of direct cash payments to low-income Iranians.

Despite worsening economic conditions for millions of Iranians, the country’s leadership has shown no sign of changing nuclear policies that triggered the sanctions. Michael Singh, a former Middle East adviser to the George W. Bush administration’s National Security Council, said Iran’s ruling elites are largely insulated from the present economic turmoil.

“The Iranian people have felt an impact, but it is not clear that the crisis has had an effect on the regime,” Singh said. “Creating a domestic outcry may be one way to influence the leadership’s calculus, but what we’re seeing so far is relatively modest.”

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