THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Volume X, Issue # 271, October 18, 2008
Dr. Almon Leroy Way, Jr., Editor
Government Committed to & Acting in Accord with Conservative Principles
Ensures a Nation's Strength, Progress, & Prosperity
IRAN'S ECONOMY RUNS OUT OF STEAM
By Dr. Michael Rubin
IRAN'S ECONOMIC TROUBLES & AMERICAN FOREIGN POLICY: ECONOMIC DECLINE IN IRAN, DUE TO THE FLAWED
POLICIES & UNWISE ACTIONS OF IRAN'S ISLAMIST POLITICAL REGIME -- WHY THE U.S.A. SHOULD NOT RELAX SANCTIONS
ON THE ISLAMIC REPUBLIC -- WHY AMERICA SHOULD NOT THROW AN ECONOMIC LIFELINE TO A TERROR-SPONSORING
REGIME DEDICATED TO THE AQUISITION OF NUCLEAR WEAPONS CAPABILITY
FULL STORY:
As markets floundered amid the credit crunch, Iran's leadership celebrated the West's economic crisis. On October 11,
2008, Iranian President Mahmoud Ahmadinejad declared, "The claim that the free market manages all things is a huge lie
and benefits only thieves and criminals." Two days later, Supreme Leader Ali Khamenei decreed that the West's financial
crisis was a sign of "the ineffectiveness of liberal democracy-based policies."
The Iranian leadership may rue their words. Ahmadinejad has run Iran's economy into the ground. On October 11, just a
day after Ahmadinejad declared prices in decline, the Central Bank reported inflation above 30%. Such figures are still
likely low. Both Shahab News and Aftab-e Yazd have noted the tendency of Iranian officials to pull
numbers from thin air.
Parliamentarians and journalists might complain, but, as the Islamic Republic reverts to a Soviet-style command
economy, regime intolerance toward technocratic expertise grows. Hojjat al-Eslam Ha'eri Shirazi, the Supreme Leader's
personal representative in the city of Shiraz, explained:
"The banking system wants to demand interest rates in
exchange for loans to the people. We will not let them
do so. And should a couple of banks go bankrupt as a
result, so what? What is worse anyway, closure of
factories or banks?"
Non-oil sector production is stagnant. Factories may remain open, but many do not pay workers. On October 2, for
example, tire factory workers staged a protest in front of the Ministry of Labor seeking six months' unpaid wages. In
recent weeks, wild cat strikes have occurred in Tehran, Isfahan, Qazvin, and Sanandaj. Purchasing power has
plummeted.
To mitigate such trends, the government has imposed price controls. On June 11, the daily Resalat reported that the
paramilitary Basij, a subdivision of the Islamic Revolutionary Guard Corps, would enforce low prices. Over subsequent
days, the Iranian press featured photos of Basij beating merchants whose prices were too high.
The combination of high liquidity, sparked by Ahmadinejad's arbitrary decree lowering interest rates to single digits,
no-interest banking, and inflation has led wealthy Iranians to pour money into real estate. Housing costs have skyrocketed;
Tehran real estate prices rival New York's. The average Iranian family now pays 60% of its income for rent, while the
Ministry of Housing estimates 1.5 million Iranians are homeless.
To fight economic malaise, Ahmadinejad has raided Iran's foreign reserves. In the past two months alone, Iranian papers
have reported more than $15 billion in withdrawals from the reserves to import refined gas and several additional billion
dollars to subsidize industrial schemes. Ahmadinejad's reinstatement of subsidies has meant Iran once again must import
40% of its refined petroleum needs.
He will need to continue spending. Last Winter, Iran ran out of gas. Food prices more than doubled and the Revolutionary
Guards had to deploy on the streets of towns and cities to keep order. On October 1, 2008, the Parliament's Energy
Commission predicted another "severe gas shortage" again within months.
As oil prices plummet, Iranian pessimism grows. In 2006, Tehran planned its budget assuming an oil price of $60/barrel. High
oil prices masked Ahmadinejad's incompetence. While Iran's budgetary process has grown more opaque, it appears that
Ahmadinejad constructed his budget with the assumption of oil price stability. Now that oil has plummeted, the Islamic
Republic is in trouble.
On October 7, Asr-e Iran asked:
"How much did we save from the period when oil price
was up to $130 per barrel? Did we build up a foreign
exchange reserve? The authorities don't provide us
with a clear and official answer about the foreign
currency reserve ... and there is some fear that the
entire reserve has gone to imports of junk."
The paper's fear is justified.
While Qatar, Saudi Arabia, the United Arab Emirates, and Kuwait now boast Sovereign Wealth Funds worth hundreds of
billions of dollars, on September 15, an unreleased Central Bank report leaked by an Iranian parliamentarian estimated the
Islamic Republic's own future fund to be only $7 billion.
Iran's strategic challenge and nuclear ambitions will be the most immediate foreign policy challenge facing the new U.S.
administration. The National Iranian American Council, Tehran's de facto lobby in Washington, urges a relaxation of
sanctions. So, too, does the Council on Foreign Relations. Condoleezza Rice offers a defiant Tehran financial incentives.
Such strategies are wrong. Throwing an economic lifeline to a terror-sponsoring regime dedicated to the acquisition of
nuclear weapons capability would be nothing short of diplomatic malpractice on a Carter-esque scale. Not only has the
Islamic Republic squandered billions on nuclear weapons, destabilizing Iraq and Afghanistan and sponsoring terrorism, but
it has also pitched itself to countries like Venezuela, Nicaragua, Bolivia, Sudan and Senegal as a pillar of an ideology that
will defeat Western constitutional democracy. Nothing would be a more powerful signal to those applauding Ahmadinejad's
rhetoric than watching the Islamic Republic collapse under the weight of its own follies.
LINKS TO RELATED TOPICS:
The Middle East & the Problem of Iran
American Foreign Policy -- The Middle East
Islamism & Jihadism -- The Threat of Radical Islam
Page Three
Page Two
Page One
International Politics & World Disorder:
War, Peace, & Geopolitics in the Real World:
Foreign Affairs & U.S. National Security
Page Two
Page One
Islamist Terrorist Attacks on the U.S.A.
Osama bin Laden & the Islamist Declaration of War
Against the U.S.A. & Western Civilization
Islamist International Terrorism &
U.S. Intelligence Agencies
U.S. National Security Strategy
Dr. Michael Rubin, a Ph.D. in History (Yale University) and a specialist in Middle Eastern politics, Islamic culture and Islamist
ideology, is Editor of the Middle East Quarterly, a senior lecturer at the Naval Postgraduate School, and a resident
scholar at the American Enterprise Institute for Public Policy Research. Dr Rubin is author of Into the Shadows: Radical
Vigilantes in Khatami's Iran (Washington Institute for Near East Policy, 2001) and is co-author, with Dr. Patrick Clawson,
of Eternal Iran: Continuity and Chaos (Palgrave Macmillan, 2005). Dr. Rubin served as political advisor to the Coalition
Provisional Authority in Baghdad (2003-2004); staff advisor on Iran and Iraq in the Office of the U.S. Secretary of Defense
(2002-2004); visiting lecturer in the Departments of History and International Relations at Hebrew University of Jerusalem
(2001-2002); visiting lecturer at the Universities of Sulaymani, Salahuddin, and Duhok in Iraqi Kurdistan (2000-2001); Soref
Fellow at the Washington Institute for Near East Policy (1999-2000); and visiting lecturer in the Department of History at Yale
University (1999-2000). He has been a fellow at the Council on Foreign Relations, the Leonard Davis Institute at Hebrew
University, and the Carnegie Council on Ethics and International Affairs.
The foregoing article by Dr. Rubin was originally published in Forbes.Com, October 17, 2008, and
can be found on the Internet website maintained by the Middle East Forum, a foreign policy think tank which seeks to
define and promote American interests in the Middle East, defining U.S. interests to include fighting radical Islam,
working for Palestinian Arab acceptance of the State of Israel, improving the management of U.S. efforts to promote
constitutional democracy in the Middle East, reducing America's energy dependence on the Middle East, more robustly
asserting U.S. interests vis-à-vis Saudi Arabia, and countering the Iranian threat.
(Article URL: http://www.meforum.org/article/1997)
Republished with Permission of the Middle East Forum
Reprinted from the Middle East Forum News
mefnews@meforum.org (MEF NEWS)
October 18, 2008
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THE PROGRESSIVE CONSERVATIVE, USA
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Dr. Almon Leroy Way, Jr., Editor
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Conservative Government Ensures a Nation's Strength, Progress, & Prosperity