Reaping the benefits of embargoes in the name of nuclear terror
By Kai Yang Shiao
Graphic by Malky Currie
Iran’s alleged nuclear weapons program has been a lingering issue. While the full truth is uncertain, many western countries have long suspected Iran of having nuclear ambitions. The subsequent sanctions imposed on Iran have no ethical basis, as they have exacted a serious toll on the lives of the country’s ordinary citizens.
Initial sanctions aimed to cripple Iran by restricting foreign commerce beneficial for its alleged nuclear weapons program. They have, however, extended to oil embargoes by several western countries as well as the European Union. Petroleum continues to serve as the main source of revenue for the Iranian government. Because of this, the decrease in Iran’s oil exports in 2011 by over 50 per cent has significantly weakened its ability to fulfill its everyday core activities, including subsidizing higher education. The spending cuts that accompany this trend will challenge the Iranian university system to respond to the educational needs of an expanding population. Furthermore, as a portion of such funding is directed at research and development efforts by universities, increasingly limited financial constraints will further restrict Iran’s ability to make positive contributions to the country’s gross domestic product, and to develop innovations that can then be commercialized. Therefore, the oil embargoes have the long term effect of undermining Iran’s potential for progress and advancement. The sanctions have also had harsh consequences for the living standards of ordinary citizens in Iran.
Whenever a monetary transaction involving the purchase imports is made, it is customary for the seller, for example the U.S., to convert U.S. dollars into the Iranian rial for purposes of payment. By selling U.S. dollars for rials in the foreign exchange market, the United States is, in effect, demanding Iranian currency. Because of increased demand for the currency, its exchange rate decreases in relation to the U.S dollar, reflecting an increase in the rial’s value. This inverse relationship is also observed as decreased demand for the rial is seen in an increased exchange rate. As oil embargoes have continued to decrease demand for Iranian petroleum, the rial’s value has fallen by more than a third of its 2007 value. As of February 2012, at more than 12,000 rials for every U.S. dollar. As the rial’s value continues to take a nosedive, it has been responsible for Iran’s heavy reliance on imports.
As petroleum remains one of the key drivers of the Iranian economy, this unfortunately means that Iran continues to import many of its products from abroad. In the face of its steadily weakening currency, the cost of imports will continue to rise rapidly. This is reflected in the officially reported 23 per cent inflation rate, which measures price levels of typical goods and services consumed by Iranian society. While this is by no means a tolerable rate, it misrepresents the current economic reality due to the harsh extent of the sanctions. To make matters worse, Iranian prices are rising several times faster than Iranian wages, making it harder for ordinary Iranians to make ends meet.
The Iranian rial’s rapid depreciation bodes poorly for the long run performance of the Iranian economy. As double-digit inflation continues unabated, there will be a strong incentive to spend and a strong disincentive to save, depriving the country of funds that may be loaned out to accumulate productive capital. As its population continues to increase, there must also be a corresponding increase to sustained economic growth. Unfortunately, the rapid depreciation of the rial will likely undermine Iran’s ability to adjust to such demographic changes.
While the western mainstream media commonly portrays the sanctions as key to preventing Iran from going nuclear, they have gone too far, and have compromised citizens’ access to quality education and economic prosperity.
