October 1, 2013 | Quote
Iran Staggers as Sanctions Hit Economy
The owner of a bus manufacturing company here admits that he is a man who likes his routines, and so every day he continues to commute to his downtown office. There he orders cups of tea, barks orders to his factory foremen over the phone and signs a steady flow of papers his employees put on his desk.
“It looks like I’m working, right?” the owner, Bahman Eshghi, said, folding his hands. “No. In reality I am praying, either for a miracle to save our economy or for a fool to come in and buy my factory.”
For years, Iran’s leaders have scoffed at Western economic sanctions, boasting that they could evade anything that came their way. Now, as they seek to negotiate a deal on their nuclear program, the leaders are acknowledging that sanctions, particularly those applied in 2010 on international financial transactions, are creating a hard-currency shortage that is bringing the country’s economy to its knees.
This was evident in New York last week when Iran’s new president, Hassan Rouhani, emphasized the need to act swiftly to resolve the standoff over Iran’s nuclear program, perhaps in three to six months. While there may well be political reasons for him to be in a hurry, Mr. Rouhani and other officials admitted that the sanctions were hurting.
In repeated meetings during the week, Mr. Rouhani and his foreign minister, Mohammad Javad Zarif, said the government’s financial condition was far more dire than the previous president, Mahmoud Ahmadinejad, had let on.
Mr. Rouhani and Mr. Zarif did not publicly specify the severity of the cash squeeze. But Western economists believe the crisis point may be much closer than previously thought, perhaps a matter of months. Iran news outlets have reported that the government owes billions of dollars to private contractors, banks and municipalities.
Because of the sanctions, oil sales, which account for 80 percent of the government’s revenue, have been cut in half. While Mr. Ahmadinejad had asserted that Iran had $100 billion in foreign exchange reserves, the total had shrunk to $80 billion by mid-2013, according to a new study by Roubini Global Economics, a research firm based in New York, and the Foundation for Defense of Democracies, a Washington group that advocates strong sanctions against Iran.
But even that vastly overstates the amount readily available to Iran. Three-quarters of the $80 billion is tied up in escrow accounts in countries that buy Iranian oil — the result of an American sanctions law that took effect in February. Under that law, the money can be spent only to buy products from those countries.
Even gaining access to the remaining $20 billion is difficult — it has to be physically moved in cash because of Iran’s expulsion from the global banking network known by its acronym Swift, which had allowed the money to be transmitted electronically.
“They can’t repatriate the money back to Iran,” said Mark Dubowitz, the executive director of the Foundation for Defense of Democracies. “This is the dilemma Iran finds itself in.”