Squeeze Play

With Europe’s banning Iranian oil purchases and Americans putting the squeeze on Iran’s ability to function in the global banking community, life in Tehran and the rest of the country is getting pretty nasty, particularly for the Iranian middle class. Will these sanctions push Iran into bargaining away their potential for nuclear weapons? Recent forays by a delegation U.N.’s International Atomic Energy Agency that visited Iran produced evidence “of experiments with detonators that strongly suggested Iran might have worked on technologies to turn its nuclear fuel into working weapons and warheads,” but were also “told that they could not have access to Mohsen Fakhrizadeh, an academic who is widely believed to be in charge of important elements of the suspected weaponization program, and that they could not visit a military site where the agency’s report suggested key experiments on weapons technology might have been carried out.” New York Times, February 3^rd. We squeeze harder.

The squeeze also limits exports into Iran, which is particularly effective since a lack of refineries results in oil-rich Iran’s importation of about 40% of their gasoline and other refined petroleum products. Even before the new sanctions settle in, Iranians are girding for what could prove to be the most difficult time since their war with Saddam’s Iraq decades ago, wrenching an already decimated economy down one giant notch. “One measure of the profound anxiety now coursing through Iranian society can be seen on [Tehran’s] Manouchehri Street, a winding lane at the heart of this city where furtive crowds of men gather every day like drug dealers to buy and sell American dollars.

“The government has raised the official exchange rate and sent police into the streets to stop the black marketeers, but with confidence in Iran’s own currency, the rial, collapsing by the day, the trade goes on. … ‘Am I afraid of the police? Sure, but I need the money,’ said Hamid, a heavyset construction engineer who was standing by a muddy patch of greenery amid a crowd of other illicit currency traders here. ‘Food prices are going up, and my salary is not enough.’ Glancing nervously around him, he added that he had converted almost all of his assets into dollars. Like many Iranians, he had also stockpiled months’ worth of rice and other staples.

“The fuel for this manic trade is not an actual economic collapse — the new European oil embargo has yet to take effect, and there is plenty of food on the shelves — but a rising sense of panic about Iran’s encirclement, the possibility of war and the prospect of more economic pain to come. The White House announced a further tightening on [Feburary 6^th] aimed at freezing Iranian assets and constricting the activities of Iran’s Central Bank. .. Already, the last round of sanctions on Iran’s Central Bank has begun inflicting unprecedented damage on Iran’s private sector, traders and analysts say, making it so hard to transfer money abroad that even affluent businessmen are sometimes forced to board planes carrying suitcases full of American dollars.” New York Times, February 6^th.

A deep and widening schism has developed between Iran’s conservative religious leaders and conservative members of parliament, on the one hand, and President Mahmoud Ahmadinejad and the Revolutionary Guards, on the other. Criticism on both sides, each castigating the other for the economy and the failed efforts in foreign affairs, is leading to a big showdown. Called by the Supreme Religious Leader (the Ayatollah Ali Khamenei) over some “inappropriate” high level firings by Ahmadinejad in a recent confrontation, Ahamadinejad now faces a new threat from parliament.

For the first time since the 1979 revolution, the Iranian parliament has mustered the 25% of the membership need to compel the President to testify and explain himself before that elected body, testimony that could come as soon as March: “Questions for Mr. Ahmadinejad are likely to touch on a range of concerns about the economy, which in the view of many critics in Iran has been weakened and mismanaged by his administration, and has now been made worse by Western sanctions. In addition, hard-line clerics devoted to Mr. Khamenei have long harbored accusations that Mr. Ahmadinejad leads a ‘deviant current’ that would challenge their primacy in all aspects of Iranian society.” NY Times, February 7^th.

All of this is occurring during an undercurrent of threats by Ahmadinejad against the U.S. naval presence in the Gulf, further threats to shut down the Strait of Hormuz (pictured above) through which a huge amount of Europe-destined oil passes and recently discovered Iranian plots to mount attacks inside of the United States – all in response to the mounting pressure from international sanctions. That Israel has been restrained by the U.S. from mounting a surgical strike against Iranian nuclear research facilities is hardly a secret. Will the sanctions produce the desired result? Will we be required to live with one more crazy nuclear power, one that even makes North Korea look tame, or will there be a confrontation that sends oil prices through the roof, ending the sputtering global economic recovery?

I’m Peter Dekom, and we are all connected to each other by a series of fragile strings.