Iran on brink of economic collapse

18 October 2012

Tehran will have to formulate a more viable way to stabilise the economy

Iran is facing its most serious economic challenge since the Islamic Revolution in 1979: the collapse in the value of the rial in recent weeks, which has brought protesters out onto the streets to condemn President Mahmoud Ahmadinejad’s handling of the economy.

This is not the first major crisis to confront the embattled president, but it is perhaps the first real sign that ordinary Iranians are feeling the impact of the growing economic isolation that is the result of international pressure over Tehran’s alleged intention to develop nuclear weapons.

For Iranians with longer memories, the sight of Bazaaris and merchants openly demonstrating against the regime will be eerily reminiscent of the situation that faced the Shah in the months leading up to 1979. His loss of support among the Bazaaris was to prove critical in his eventual overthrow.

That does not imply that the Islamic Republic is about to go the same way as its predecessor, although Ahmadinejad looks increasingly positioned as the fall guy for the dire economic consequences of Tehran’s determination to go its own way on the nuclear issue.

There is a deeper concern for the Iranian regime and the clerical and security establishment that has a vested interest in its survival. Ayatollah Ali Khamanei, the supreme leader who has manoeuvred against the president, has few options left to maintain economic stability. The sanctions noose is growing ever tighter and in the view of Western policy makers, they are clearly having the desired effect.

If Khamanei is unable to shore up the economy over the medium term, his endless promotion of the benefits of self-sufficiency will begin to look hollow.

A Western military strike may play to the regime’s short-term advantage in corralling national support behind the leadership, but if Iran is to survive the crisis intact it will have to formulate a more viable means of keeping the economy afloat. As yet, there is no clear sign as to what that would look like.

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