Currency Depreciation

The impact of the 40 percent depreciation of the Iranian rial over the last couple of weeks is covered in this NYT article.

10 replies on “Currency Depreciation”

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Friday, October 5, 2012
Ironically, Sanctions Success Strengthens Iran’s Strait of Hormuz Trump Card
Military strategists appear to have missed a foreseeable outcome in their efforts to pressure Iran.

As the temperatures are rising in the Mideast, as reader chatter about Turkey’s involvement in Syria attests, a Financial Times article describes how the success of economic sanctions against Iran have strengthened its ability to make credible threats to restrict oil shipments.

Market participants have long discounted the idea that Iran would restrict the flow of oil through the Strait of Hormuz, a comparatively narrow channel though which 35% of the world’s oil supplies pass. Threatening cargo ships would also interfere with Iran’s own oil shipments, far and away its biggest source of foreign exchange, and critical food imports.

But that dynamic has now changed. As the Financial Times notes (hat tip Scott):

Sanctions imposed over Iran’s nuclear programme have grown tighter, and the effects are being felt across the country. Fears are rising that Iran’s leadership, facing increasing domestic unrest over spiralling inflation, has less and less to lose through brinkmanship in the channel now that its own oil income is being squeezed to a trickle. For years, oil traders were inured to rhetoric from Iran that it stood poised to shock world energy markets by blocking the seaway in retaliation for sanctions or an Israeli attack. They were sceptical it would engineer a crisis in a region so critical to its own economic survival. But Iran’s plummeting oil exports mean that a cornered Tehran could see a confrontation in the strait as less an act of self-immolation and more a calculated gamble.

It is almost impossible to calculate the cost of policing the Gulf but Sherife AbdelMessih, chief executive of Future Energy Corporation, provides a back-of-the-envelope approximation: that the US spends roughly $90bn on its Bahrain-based fifth fleet or about $15 per barrel that crosses Hormuz.

Now we know why Obama is so keen to talk about fracking. It solves more than one problem.


Not to mention the shocking jail sentences Irish trained medics in Bahrain!

I was talking to an Iranian this morning. As he describes it the present Iranian gov’t is quite left wing and has lent billions to not for profits and people who were not credit worthy. Himself and his wife are profesionals and come from a family of professionals. As the NYT states long term mismanagement combined with sanctions are major parts of the problem.

Iranians do not see disruption to oil supplies in the Straits of Hormuz as they say even the present bunch of drunks, clowns and fools in Qom and Teheran.

They see it oil and gas markets opening up. They see banking as a major problem. As they put it Alllah in his infinite wisdom created barter and precious metals to take care of that problem.

Robert Fisk

The Tehran “bazaaris” – the men who have shouted for an end to Iranian subsidies to the Syrian regime of Bashar al-Assad – have to be taken seriously. They were the rich boys of the souk who supported the Islamic revolution against the Shah, the makers and breakers of Iranian politicians, carpet-sellers and bankers alike, and they believe that Iran gives £7bn a year in subsidies to Damascus.

The figure is unprovable and subject to all kind of Levantine statistical “wobble” – no one knows how much assistance Tehran renders to Damascus in subsidised oil – but it’s less than a month since the leader of the Iranian Revolutionary Guards admitted that his intelligence agents were “advising” the Syrian government. Now comes the call from the very men who formed the bulwark of Ayatollah Khomeini’s Islamic revolution in 1979 – and who, incidentally, allied themselves with the CIA’s plot to overthrow the democratically elected Mohamed Mossadegh more than half a century ago – to withdraw Iran’s cash from Syria.

The US is a past master at bringing countries to their knees via their economy. Witness various Latin American countries in the 20th century. So much tidier than a nuclear conflict in the midddle-East don’t you think?

Iran will still have the oil. It’s pure poker. The yanks need a stable oil price to stave off recession. Asia needs oil to grow. Will the chinese hold the line or will they go their own way?

The UK should hang their heads in shame at their role in the Irish
crisis. Bank of Scotland sparked the entire mortgage price war and loose
lending with their foray into Ireland – a country, let us not forget
about the size of Yorkshire. The latter day HBOS and RBS pumped huge
amounts of credit into the market and prices took off as the smaller
domestic banks were forced to compete on a like basis. Based on these
asset prices they were able to borrow more and more and they entered the
UK market en masse.

Then the coup de gras, when the crisis struck, the UK devalued its
currency by about 35% against the Euro blowing a hole in Irish bank and
company balance sheets virtually overnight. Their largest trading
partner by far had beggared its neighbour in trade and UK banks were arm
wrestled by Darling and Brown to concentrate their credit in their
domestic market in return for government support.

A small country was helpless against the antics of its large neighbour.

Personally I’m inclined to say tht the Brits are just looking out for their own interests, something we might learn to do as well

Blind Biddy has accepted the position of Honourary Consul in Tehran.

I have yet to hear a reasonable explanation for the closure of the Irish Embassy in Iran, especally considering its unquestioned geopolitical, intellectual, economic and social significance in the Middle East.

@Mickey Hickey
If it was down to not stupid people, we wouldn’t have wars at all. Unfortunately, it is the ‘smart on their own interest’ people that usually have the say…

The Yugoslav hyperinflation was before the internet (post-modern) era. Zimbabwe was too poor and remote. Iran, though, may give us a much better crowd-sourced description of a hyperinflation in progress – one that is not intermediated by the media.

Here’s what it looks like at its depths:
Day 1- salary and bread before lunch
– mineral water after lunch
Day 2 – newspaper before lunch
– nothing after lunch
Only accepted at state owned shops… which ended up stocking bread, mineral water, and pickles in Belgrade…

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