Federal Politics


Iran sinks into rial hole

Since the US and the EU tightened the noose of sanctions on Iran with the aim of halting its nuclear program, there have been doubts over whether the new measures would prove more effective than past ones. This week's shutdown protests by bazaaris in Tehran and Isfahan over the collapsing value of the rial show the strategy has at least succeeded in raising the pressure on the government.

True, the riots may have been orchestrated by president Mahmoud Ahmadinejad's opponents within the regime. But no palace plot can explain the staggering depreciation of the rial and the consequent inflationary spiral that Iran has fallen into.

The EU's oil sanctions have opened a hole at the heart of the Iranian economy, which is over-reliant on crude exports. Meanwhile, the US financial sanctions are making it slow and expensive for Tehran to receive payments for its exports. Investors, who expect the economic outlook to worsen, are staying clear of the rial. Citizens are also dumping their plummeting currency, seeking shelter in foreign notes.

That the sanctions are working should obviously encourage the US and the EU in pushing on with their strategy. Unless the regime offers significant concessions over its nuclear program there is no reason to loosen the screw.

This is an extract of an editorial published in Sunday's Financial Times.