Iran and its currency crisis

The sharp depreciation of the Iranian rial is adding a nasty economic twist to an already difficult political predicament for that country's leaders. In the last week, the rial has plummeted 25% and "the freefall seems to have no end in sight" according to this BBC report .

This may be great for tourists who can now scoop up 35,000 rials for every dollar but the damage this is causing Iranian businesses reliant on imports plus the increases in imported food prices is reminicent of the days before the Arab Spring in Egypt. Then I blogged about Egypt and the root causes of the unrest and about how this affects the poor, and it seemed at the time that many of the world's problems are economic in nature.

The causes? The main cause seems to be US and EU sanctions and particularly the oil embargo which makes it very difficult for Iran to sell its oil. Starved of its petrodollars, the Iranian central bank cannot continue its "managed float" of the currency - whose aim was "to inject enough petrodollars into the market to keep the rial's value against the dollar high."

Evan Davies on this morning's Radio 4 Today programme talked about the ensuing "run" on Iranian assets as a result of the instability and uncertainty that now plagues the Iranian economy which only serves to further exacerbate the currency crisis and push up the domestic price level.The Iranian government's apparent confrontational attitude seems to be generating unexpected and unwanted repercussions for the Irani people.

"Iranians have lost their trust in their government's grip over the economy, and on the other they fear their country may end up in a military confrontation with Israel over its nuclear programme."

As long as the government is prevented from cashing in on Iran's oil supplies (and continues with its nuclear programme), the economic hardships of the ordinary people will not be shortlived.