US sanctions against Iran

Iranian Rial Currency Targeted For Destruction

Forbes,

17 June, 2013

Effective July 1st, the United States has authorized new sanctions directly targeting the already-devalued Iranian rial with penalties for transacting or holding the currency outside of Iran. This represents the first time that the U.S. has focused specifically on the Iranian monetary unit itself and the ninth set of sanctions President Barack Obama has imposed against Iran.

White House Press Secretary Jay Carney said, “This new action targets Iran’s currency, the rial, by authorizing the imposition of sanctions on foreign financial institutions that knowingly conduct or facilitate significant transactions for the purchase or sale of the Iranian rial, or that maintain significant accounts outside Iran denominated in the Iranian rial.”

The tough sanctions are intended to increase the financial pressure on the Islamic republic to abandon its nuclear program. However, Iran maintains that its nuclear energy program is for peaceful purposes only and has refused to back down arguing that it has this right.

Carney explained how the sanctions also target the foreign assets of Iran’s leaders, “Further increasing the pressure on the Iranian government, the Executive Order authorizes the imposition of additional sanctions on persons who provide material support to Iranian persons and certain other persons designated pursuant to Iran sanctions authorities that are included on the list of Specially Designated Nationals and Blocked Persons (SDN List) maintained by the Department of the Treasury.”

The Government of Iran’s leadership controls a vast overseas network of 37 private businesses for the purpose of managing off-the-books investments that are shielded from the view of international regulators.

This month in exchange for pledges to reduce oil purchases from Iran, the U.S. State Department renewed six-month waivers on Iran sanctions for nine countries in total, including China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan.

In early 2012, the U.S. and the European Union imposed payment sanctions on Iran’s oil and financial sectors with the goal of weakening Iranian oil exports and blockading transactions with the Central Bank of Iran via Swift. However, a European Union court in February ruled against the EU banking sanctions imposed on one of Iran’s largest banks, which extends to the payment sanctions imposed by Swift in March of last year.

The Iranian currency has already been suffering from record inflation losing more than two-thirds of its value in the past two years, trading at 36,000 per U.S. dollar as of April 30th, compared with 16,000 at the beginning of 2012.

“The idea is to cause depreciation of the rial and make it unusable in international commerce,” according to David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence.

President Obama issued this latest Executive Order on June 3rd and during an interview Cohen said, “the purpose of the one-month phase-in period is to give financial institutions currently holding rials the opportunity to dump them.”

The Iranian economy

Iran set to introduce second official currency

Trade Arabia,

26 October, 2012

Direct look at why Iran wants to introduce a second currency exchange rate for imports, and what this means for the country.

The Central Bank of Iran is planning to introduce a 2nd official currency exchange rate for imports, Mehr news agency has recently reported. The new measure, which should be implemented within the next few weeks, has been approved by the government.

But why is this change necessary? Well, the new currency will aim to bring back stability to the volatile Iranian market. Earlier this month, the Iran rial plunged significantly against the US dollar in open market trade on Monday.

On Thursday 4th October, Currencies Direct revealed that the rial was trading at 34,200 for every $1, which was down from about 29,720 on Sunday 30th September. It was even trading at 24,600 during the previous week.

The currency's freefall has intensified the burdens on Iran's economy, as it is currently struggling with tough sanctions targeting oil exports and measures that are blocking it from key international banking networks. These sanctions were imposed upon Iran due to the country's continued development of its nuclear program.

But many accept that Western sanctions are not the only reason for the rial's sharp decline. Some have begun to blame governmental policies, such as fuelling inflation by increasing money supply while also artificially holding down inflation rates. This has encouraged many native Iranians to exchange their rials for foreign currency, as it is more likely to hold its value.

This economic unrest has led to riots in Tehran's main bazaar among the disillusioned merchant classes. The decreasing value of the rial and the rising prices has not only made staples, such as lamb and chicken, out of the reach of many low-income Iranians, but imports are also diminishing due to the poor exchange rates.

So while it may be difficult to tell at the moment, Currencies Direct will be paying attention to the developments in Iran to see whether the second currency exchange rate will benefit the ailing country.

Iran’s currency traders forced underground

FT,

26 October, 2012

Ahmad paces the street by his shuttered shop in Tehran, waiting for customers to call him on his mobile phone.

For 20 years, he has operated a small currency exchange in the downtown area of Iran’s capital. But earlier this month, state authorities sealed off his shop as part of a wider attempt to counter the sharp fall in the rial.

The 45-year-old now operates in secret, his daily trade slowed to a trickle. He is constantly alert to an impromptu visit by the police. “You can’t buy millions of dollars any more, but you can still purchase about $100,000,” he says.

Like many other currency traders, Ahmad’s business is a victim of high-stakes geopolitics as much as domestic economic mismanagement. That combination led to the plunge in the value of the rial this month, and drove the police to close down most currency exchanges. Ahmad is lucky that he has not been arrested.

The move by the authorities curbed market fluctuations and has helped the central bank to limit the foreign exchange market to about two dozen currency exchange shops in Tehran.

These operate under central bank licence and sell only limited amounts of hard currencies at rates just below the black market.

One US dollar now buys about 31,000 rials on the black market and 30,000 in licensed shops, while the official rate remains at 12,260. Before the crackdown, the rial was selling at about 40,000 on the open market.

Ahmad, who asked for his real name not to be used, says he knows of at least 50 other traders who have faced closure in the main centre of the currency market on Ferdowsi and Jomhuri-Eslami streets in central Tehran.

Like him, however, many are still doing some business, and are sought after by Iranian businessmen and ordinary people in need of hard currency.

Ahmad says the main reason behind the market crackdown is the international campaign of sanctions on Iran, which is aimed at persuading Tehran to curb its nuclear programme.

He says the shortage of hard currency is due to shrinking oil revenues following the EU oil embargo in force in July, as well as mounting obstacles to the transfer of foreign exchange income into the country because of US banking sanctions.

“When the police intervene,” he says, “it means there is shortage of hard currency and the market has got out of control.”

Ahmad also blames domestic factors for exacerbating the currency problems. He points to “some political hands in the market”, which exploit the sanctions and engineer deliberate depreciation of the national currency to boost their rial income.

Iran’s currency troubles have accentuated tensions between President Mahmoud Ahmadi-Nejad and a generally hostile parliament.

Iran rial

Mr Ahmadi-Nejad has accused speculators of being behind the rial’s sharp decline.

Iran’s parliamentarians, however, have accused the government of not only failing to curb the currency market but also of selling hard currency at higher rates in order to fund its populist policies.

Iran’s parliament this week revised the budget law to prevent any such exploitation and banned the government from using the differences between official and market currency rates to meet its rial expenditures. The government denies the allegations.

Despite the unprecedented economic pressure, the Islamic regime insists the country is still able to withstand sanctions and will not halt its nuclear programme under any condition.

“As long as the [political and economic] conditions remain like this and sanctions continue, we will not be allowed to open our shops,” says Ahmad. “It is not possible to go back to normality in the foreseeable future.”

The risks associated with transactions to overseas recipients – whether businessmen or relatives – have also increased sharply, he says, because many currency dealers outside the country who are linked to Tehran dealers have gone bankrupt due to rial fluctuations.

“They do not admit bankruptcy, but we know that is why some big transactions disappear.”

Despite the risks, Ahmad still uses hawala – an old financial transfer system. It relies on trusted intermediaries to skip the conventional banking system, through which no money can be transferred due to sanctions. He sends his hawalas to Turkey, which he thinks is a safer route than Dubai where, he says, an increasing number of transactions are going missing.

Ahmad says demands for hawala have decreased amid the deteriorating economy. The fall in the purchasing power of many families means they are less able to travel abroad or support their children's’ education overseas.

“Many families who used to buy hard currencies from us now tell their children to either come back from Malaysia, Australia and Europe or earn your own money if you wish to stay,” he says.

“A family which used to transfer £5,000 once in a while now can send £1,000, or a family which used to buy [Malaysia’s] ringgit at 2,200 rials cannot afford ringgit at 12,000 rials now.”

For video and original article GO HERE

Iranian economy

Iran Low on Options as Hyperinflation Concerns Spark Gold Dash

Iran has few policy options to end turmoil in its currency markets, as the U.S. and allies seek to inflict enough economic pain to force the Islamic republic into concessions over its nuclear plans, analysts said

Bloomberg

8 October, 2012

The rial has depreciated as much as 40 percent against the dollar in street markets since August and gold purchases have surged as residents seek to shield savings. The currency plunge led to unrest in Tehran’s markets last week as police used tear gas to end protests. Iran has raised interest rates on deposits and opened an exchange center to stabilize the currency market.

The U.S. and European Union are starving Iran of foreign currency by blocking sales of oil, its main export, and other transactions in dollars and euros. Israel has threatened to attack to stop Iran’s nuclear program if the sanctions don’t succeed in curbing it. Iranian leaders say they won’t bow to the pressure, even as the country’s crude output plunges to the lowest in more than two decades.

“I don’t see what Iran can do on the economic front other than try to avoid sanctions by exporting to countries that are prepared to use their currency as payment,” said John Williamson, a senior fellow at the Peterson Institute for International Economics in Washington. “I don’t think monetary policy changes will make any difference. People aren’t going to examine interest rates when their savings are being confiscated.”

‘Hyper-Inflation’

The run on the rial has exacerbated inflation that had already been pushed up by the removal of subsidies on energy and food. The official rate rose to 23.5 percent in August. The real rate, which adjusts for the currency depreciation, is three times that, according to Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore.

“We’re getting into what is technically hyper-inflation,” with an “implied inflation rate” of about 70 percent a month, Hanke said.

Concern that savings are being eroded is leading Iranians to other assets, including gold and property.

Turkish sales of precious metals to Iran jumped to $6.2 billion through July from $21.9 million in the same period last year. Wealthy Iranians in Turkey are collecting gold and exporting it to Iran, the Istanbul-based Zaman newspaper said July 11. Iranians in Dubai and India are also collecting gold and sending it to the central bank, Zaman said, citing a Turkish economy administration official it didn’t name.

‘Out of Options’

The currency decline is reminiscent of Iran’s economic crisis in the 1980s, when its eight-year long war with neighboring Iraq prompted a rush to buy gold and dollars.

“Iranians have made some very big purchases recently,” said Mohamed Zahran, a shopkeeper at Al Matroushi Jewellery FZCO at Dubai’s Gold and Diamond Park said by telephone Oct. 7. “Definitely more than before. Although Iranians have always been good customers, it’s just that we’ve seen more sales.”

While foreign-currency traders and bazaar merchants in Tehran opened their shops this week, prices are climbing so fast that the price of milk jumped 9 percent in a single day last week. The risk of protests spurred President Mahmoud Ahmadinejad to call for calm on Oct. 2, blaming the weakening of the rial on foreign pressures.

More than 200 policemen were stationed around Ferdowsi Street, near one of the main trading areas in the capital, on Oct. 4. Earlier in the day, police used teargas to disperse a crowd at the currency market, and were also sent to the city’s bazaar after shopkeepers refused to open.

“If some believe that through pressure they can push Iranians to the negotiating table they are certainly mistaken,” Ahmadinejad, 55, said.

Foreign Reserves

Still, some analysts say that behind the scenes Iran may take a more flexible line.

“They’re running out of options, no one is going to realistically help shore up their foreign currency reserves,” said Ghanem Nuseibeh, founder of political risk analyst Cornerstone Global Associates. Making concessions on Iran’s nuclear program “will probably be their way out,” he said.

The rial traded at about 30,000 per dollar yesterday in the streets of Tehran. That compares with the official rate of 12,260 rials set by the central bank. Importers of essential goods including medicines, meat and grains have access to that rate at an exchange center opened by the government last month, while other importers of goods such as industrial and agricultural machinery enjoy a smaller discount.

Camouflage the Problem

Edward Bell, an analyst at the Economist Intelligence Unit in London, said Iran’s “strong manufacturing and industrial base” and agricultural output leaves it better placed than most regional economies to be self-sufficient for a period. He said another round of sanctions flagged by the EU would impose a “sharper squeeze on the economy, and that might bring the government back to some negotiations.”

The new exchange center “has clearly not been up to the task” of meeting demand, Bell said. To steady the rial, Iran would have to “inject a lot more money into the market to support the currency, and that means injecting foreign currency reserves into the market to meet demands.”

It’s not clear how much cash would be needed or how much the authorities have at their disposal, he said.

The EIU estimates Iran’s foreign reserves will drop to $70 billion this year from $80 billion in 2011 as sanctions reduce oil exports. Ahmadinejad said in January that the country has $90 billion in reserves earned from crude sales.

Without recourse to hard currency, Iran’s response may be limited to stop-gap measures, such as the new exchange centers or a January move to raise interest rates on rial accounts to as much as 21 percent.

“The direction they will go won’t solve the problem, it will repress” it, Hanke said. “All they will they be able to do is camouflage the problem.”

Regarding Iran - a view from Iran

This article is by an American writer currently based on the ground in Iran.

Financial Warfare: Destabilizing Iran’s Monetary System

By Nile Bowie

Global Research,

6^th October, 2012

ESFAHAN – Dramatic fluctuations of the Iranian rial triggered small protests among merchants in Tehran’s grand bazaar on October 3rd, 2012. In an attempt by authorities to prevent further devaluation, Iran’s central bank recently issued new limits on the amount of USD available for purchase at a subsidized rate, leading many to panic as the rial fell 40% against the dollar since the start of October. Although the demonstrations were economic in nature, many took advantage of the moment to voice their grievances against the political system, with many crediting President Ahmadinejad with overseeing fiscal mismanagement that has exacerbated Washington’s unceasing barrage of economic sanctions. Ahmadinejad’s political opponents also blame his administration for economic mismanagement, sentiment that is appearing more frequently among Iranian society.

While combating the challenges that economic sanctions represent is an arduous task for any government, it is important to recognize that these sanctions are not aimed against Iran’s government, but at its poor and merchant population. An unnamed US intelligence source cited by the Washington Post claims:

”In addition to the direct pressure sanctions exert on the regime’s ability to finance its priorities, another option here is that they will create hate and discontent at the street level so that the Iranian leaders realize that they need to change their ways.”

Washington has long engaged in psychological operations that aim to foment the kind of “hate and discontent” among Iran’s factory workers, merchants, shopkeepers, students, and manufacturers – as part of a series of measures taken to coax widespread social discontent and unrest throughout the country to topple the government.

For the average Iranian business owner and worker, US-led sanctions and currency devaluation have affected everyday transactions that provide paychecks and economic viability for millions of people. From urban shopkeepers to rural restaurant owners, many have been forced to close their businesses because they are unable to profit from reselling imported goods purchased with dollars. Isolation from the global banking system has made it increasingly more difficult for Iranian students studying abroad to receive money from their families. Sanctions targeting Iran’s central bank aim to devastate the Iranian export economy, affecting everyone from oil exporters to carpet weavers and pistachio cultivators. By crippling people’s livelihoods and hindering their ability to pursue education and afford necessities such as food and medication, the Obama administration believes such measures will erode public confidence in the government and challenge its legitimacy.

Such policy is not only immoral, but exhibits the fraudulence and dishonesty of the United States toward the values of liberty and the pursuit of happiness it claims to represent. Although western media has gone to great lengths to depict Obama as being reluctant to endorse a tough stance on Iran, it is clear that Washington is quietly pursuing belligerent policy against Tehran – one that has alienated Iranians that seek reconciliation with the United States and greatly escalated tensions and the possibility of war. As demonstrated by the covert measures being taken against Tehran – including sabotage, cyber warfare, and targeted assassinations – Washington is fully committed to preventing Tehran’s independent technological, economic and political development. While US-led sanctions are intended to target all mechanisms necessary for international oil transactions, Iran continues to show defiance by pursuing diplomacy and mutually beneficial economic development with its energy hungry allies across Asia.

China has continued to purchase larger amounts of Iranian oil despite the sanctions regime. While the fledging European Union cuts its ties with Tehran, Beijing has moved closer with Iran to provide credit lines and consumer goods. Additionally, nations such as India, Malaysia and Japan have continued their energy imports from Iran – making efforts to internationally isolate Tehran increasing more difficult. Iran has actively engaged in the modernization of its energy infrastructure, including the construction of fifteen domestic pipelines throughout the country. Furthermore, Iranian firms are planning to construct an electrical power plant and a pipeline to provide energy to Pakistan. In the interest of pursuing mutually beneficially economic development, Tehran has sought further cooperation with its neighbors in Pakistan and Turkmenistan. Iran’s domestic investments emphasize the importance of developing the kind of trade and energy infrastructure needed to continue resistance to hegemony without being internationally isolated.

Tehran has pledged $25 billion to develop its Chabahar port, and an additional $4 billion of investment into several different ports around the country. The expanded trade and energy capabilities that would result from such investment would solidify Iran’s place in the global economy, and its seat among world powers. It is for this reason that “the threat of Iran developing nuclear weapons” is used as a stale pretext to enforce economic sanctions, despite a complete lack of evidence to implicate Iran with weaponizing its nuclear energy program. Tehran must be diligent in finding ways to manage its currency devaluation and economic growth – because of its natural resources and abundant energy wealth, the country is in a unique position to deflect international sanctions and use them to its advantage. By partnering with its international allies, Iran can bolster its domestic manufacturing industries and secure international markets for its products. Policy makers in Washington and Tel Aviv should remember that chess is an Iranian game.

Nile Bowie is a Kuala Lumpur-based American writer, video producer and frequent contributor to Global Research. He explores issues of terrorism, economics and geopolitics. Nile Bowie is currently reporting out of Iran.

Iran

Iran parliament may halt Ahmadinejad economic policy

Iran's parliament voted on Sunday to consider suspending plans for further reform of the country's food and fuel subsidies, with legislators citing economic pain caused by the plunge of the rial currency.

Reuters,

7 October, 2012

Subsidy reform has been a centrepiece of the economic policies of President Mahmoud Ahmadinejad, so parliament's vote was a political blow to the president at a time when he faces growing public discontent over the rial's slide.

Of 240 members of parliament present, 179 voted to consider whether to halt the second phase of subsidy reform, according to the Iranian Labour News Agency. It did not say when the decision would be made.

The reform aims to ease pressure on state finances by cutting tens of billions of dollars from the amount which the government pays to subsidise low consumer prices for food and fuel, while offsetting the impact on Iran's poorest citizens by giving them monthly cash payments.

"In conditions in which the inflation rate is increasing and the currency market is in disorder, the second phase of this law must be stopped," said Gholamreza Mesbahi-Moghaddam, head of parliament's budget and planning committee and author of the motion, according to parliamentary news agency Icana.

The government introduced the first stage of subsidy reform in late 2010. At the time, Ahmadinejad called it the "biggest economic plan of the past 50 years".

But domestic critics including many members of parliament say the reform has contributed to soaring inflation, which is officially running at around 25 percent, and charge that the plan has been used by Ahmadinejad for his own political benefit, because he can control welfare payments under the scheme.

Parliament's vote on Sunday was a fresh sign that Western sanctions against Iran, imposed over its disputed nuclear programme, are having a fundamental impact on its economy.

Last week police clashed in Tehran with protesters who were angered by the collapse of the rial, which lost a third of its value against the U.S. dollar over 10 days as the sanctions cut the country's ability to earn hard currency from oil exports.

CURRENCY CRISIS

Ahmadinejad's term as president ends in mid-2013 but some analysts think Supreme Leader Ayatollah Ali Khamenei could remove him before then if public discontent continues to worsen.

Jafar Qaderi, spokesman for a parliamentary committee formed to support producers of goods, told Icana the committee would call central bank governor Mahmoud Bahmani and the industry and oil ministers for questioning about the rial crisis on Monday.

Parliament members also want to summon Ahmadinejad for questioning about the rial, but their request must still be approved by a parliamentary supervisory board.

In a speech on Saturday, Ahmadinejad referred to the currency crisis but did not offer solutions.

"Messing up the market...and the efforts by some to undermine the morale of the people are devilish acts," he said, according to Fars news agency.

The rial's drop is pushing down living standards. Although Iranians say there are no significant shortages of daily necessities, imported goods, including food and some medicines, have rocketed in price or become difficult to find.

"The situation is getting really bad in Iran because of our currency," said Saleh, a 48-year-old Iranian sailor whose wooden dhow was visiting Dubai to trade. He declined to give his full name because of the political sensitivity of his remarks.

A 40 kg (88 lb) bag of imported Indian basmati rice, which cost around 800,000 rials in Iran three months ago, now costs 1.7 million (roughly $45 at latest exchange rates), he said.

"People are frustrated, I'm frustrated. I have problems taking care of my family now. Food is expensive but we have no choice but to buy it," said the father of four.

PRESSURING DEALERS

The government has tried to boost the rial by pressuring dealers to trade at certain rates and by arresting money changers whom it blames for speculating against the currency.

Tehran's prosecutor, Abbas Jafari Dowlatabadi, said 30 "main suspects" had been arrested for meddling in the currency market. They were found with large amounts of foreign exchange and gold coins bought illegally, Dowlatabadi said, adding that more arrests were expected, according to Fars.

But so far official pressure seems to have backfired. Many money changers in Tehran are not willing to trade at state-set rates and too frightened to trade at black market rates.

This is depriving many Iranians of access to hard currency they want for overseas travel and foreign study, and to protect their savings against inflation. The Iranian Students' News Agency said dealers in Tehran's Ferdowsi Avenue and Istanbul intersection were not selling dollars at any rate on Sunday.