Iran's Ahmadinejad Could Become Scapegoat For Sanction Woes

By Scott Neuman

Published October 3, 2012 at 2:11 PM CDT

Iranian President Mahmoud Ahmadinejad during a news conference in Tehran on Tuesday.

Economic sanctions have a reputation for being the international equivalent of a slap on the wrist. But in Iran, there's evidence that they are working, and that the country's flamboyant President Mahmoud Ahmadinejad might pay the price.

In the past year, Iran's currency has shed 80 percent of its value against the dollar, dropping by 25 percent in just the past week. That's caused a scramble for the few U.S. dollars available in the black market as people seek a safe haven against the free-falling rial.

According to Al-Jazeera, Iranian police have clashed with protesters angered over the massive inflation that threatens to wipe out their savings.

Ahmadinejad blames currency speculators. He also readily acknowledges that the international sanctions imposed by the United States, Europe and other countries are taking a toll, even as he remains defiant about giving up the country's nuclear program, which most experts believe is aimed at acquiring an atomic bomb.

It has "put the squeeze" on Iran's economy, says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics.

Iranians are feeling the pinch because oil is far and away the country's main export, and much of what ordinary consumers want and need has to be imported.

The sanctions have "basically cut off bank transactions between Iran and all of these other countries," Hufbauer says. "If you don't have bank transactions, how do you pay for anything even if you have money? And money is quickly running out in Iran because of oil sanctions."

The restrictions have also made it nearly impossible to insure tankers carrying Iranian oil to anyone who is still willing to buy it.

"Each one of these vessels has between $50 [million] and $100 million worth of oil in it," he says. "What kind of shipping company is going to take cargo of that value without insurance?"

Hufbauer thinks the economic sanctions may make it more difficult for Iran to attract the science and engineering talent it needs to get a nuclear bomb past the end zone. Combined with covert operations such as the Stuxnet computer virus and the assassination of one of Iran's nuclear scientists, it could "set the program back a few years."

Suzanne Maloney, of the Saban Center for Middle East Policy at the Brookings Institution, says what's occurred is "a kind of feeding frenzy on the streets of ordinary Iranians who simply want to ensure that the value of their money isn't lost overnight."

Maloney says the sanctions have helped trigger the current situation, but the crisis is "not tied so much to the specific American, European or international sanctions, so much as it is a growing sense of panic and fear among the Iranian population."

The Iranian government, she says, has moved to restrict the supply of dollars offered at a preferential exchange rate to particular groups. "In the past, individuals going on pilgrimage or students going abroad had been able to have access to larger amounts of cheap dollars. Those supplies are beginning to be cut off," she says, adding that the current level of inflation is "unprecedented since the [1979] revolution."

What are the consequences of the unrest for the Iranian regime?

Ahmadinejad's term as president expires next August, and he can't run for re-election. But the president plays second fiddle to the country's real power base, the Islamic clerics. They have grown increasingly disenchanted with his leadership over the past 18 months and may be looking for a convenient scapegoat, Maloney says.

"I wouldn't be surprised if there was an attempt to blame Ahmadinejad," she says. "That seems to be where much of the leadership has been trying to divert attention."

There's already intense speculation about who succeeds Ahmadinejad. Whoever the new president is, he is unlikely to abandon the nuclear program outright.

"We will see the Iranians dangle a bit more receptivity and flexibility on the negotiating front," Maloney says. "I don't think they've made the strategic decision to capitulate on all of the demands of the international community or Washington, but I do think they recognize they are going to have to play in order to get paid."