Rial in crisis

By Editorial Board
August 01, 2018

The decision by the US to scrap the Iran nuclear deal has sent the Iranian currency into freefall. The efforts of European powers as well as Russia and China to keep the deal alive have not made a difference as the Iranian rial has fell to another record low this week. With the first batch of US sanctions set to be re-imposed on August 7, there are fears that the Iranian rial is likely to fall even further. The currency’s value has fallen by over a half since April as Iranians scramble to buy US dollars. The Iranian central bank has been unable to stem the tide, which could create more social unrest inside Iran and amplify pressure on the Rouhani government. Social unrest in Iran is in addition to the risk the nuclear deal faces. Will Iran have incentive left to keep the deal in place when there is little the country can gain for its own economy? On the flip side, US President Donald Trump might be right in saying that Iran may be forced to take any new deal that might be on offer. Trump is playing a dangerous game of showmanship – much like he did with North Korea.

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The US came out with very little out of the Trump-Jong-un summit – but it did make for good optics. The headlines for Trump’s vote base were that Trump had bullied the North Korean leadership, however little the actual substance of the document that was presented. Perhaps there is a lesson for Iran there. The White House seems like it does not have the expertise to understand the fine print of any international deal. Ironically, if Iran does pen itself to a ‘new deal’ with the US, it could actually come out with a better deal for itself as long as it keeps up the impression that Trump got the upper hand.

One must wonder if there is anything else that Iran can do. It will either need the European powers to up the ante in terms of economic guarantees to Iran – or it might need to return to the talks table with the US. There is little else that posturing does in international politics when all is not well at home. If the Iranian currency is collapsing without a deal with the US in place, it is clear that trust in the economy is low. Iran has tried to hand over public-sector business to the private sector to stop the slide, but the measures have only reinforced the sense of desperation at the helm of government. One would wonder how much more the Iranian economy can take. No government in recent history has been able to stem a currency collapse once public trust is lost. The Iranian government will need to act to stem the domestic economic collapse. It may have few options left if it cannot stop its currency collapse.

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