Economic Shock In Iran As USD Rises To 500,000 Rials
Maryam Sinaiee
Iran International
Iran’s rial fell to a new low Monday, breaking a crucial threshold despite repeated government promises of “soon” strengthening the battered national currency.
Iran International
Iran’s rial fell to a new low Monday, breaking a crucial threshold despite repeated government promises of “soon” strengthening the battered national currency.
The rail fell to more than 500,000 against the US dollar from 460,000 only a week ago and 300,000 in late August. Parallel markets including gold, gold bullions, and even vehicles, both domestically produced and foreign made, will immediately reflect the change with higher prices. Essential food items, such as red meat, have already risen to unprecedented highs, making them unaffordable to the majority of people.
The British pound climbed to 600,000 rials and the euro was trading at around 535,000.
Many businesses, such as car dealerships, have already stopped trading while the general population tries to best preserve the value of their savings by making small investments in such commodities.
Further depreciation of the rial in the coming year, many say, would be certain if the situation is not somehow remedied. In a speech Saturday at the residence of Supreme Leader Ali Khamenei to civil and military officials and foreign ambassadors, President Ebrahim Raisi once again promised to bring inflation and the fall in the value of the national currency under control but failed to explain his envisaged solutions to the problems.
Two months ago, when one dollar traded for around 390,000 rials, government spokesman Mohammad Mokhber tried to reassure the public that the fall of the rial was only “temporary”. Other officials including those from the Central Bank of Iran (CBI) continue to make similar statements and promises.
Pensioners marching on Sunday, demanding food on their tables
Shiva Ravoshi, A CBI official, said Sunday that “the bubble in the currency exchange market” would definitely burst and advised people not to make rash decisions over purchasing foreign currencies. She also claimed that with new policies and changes to be introduced by the CBI “soon”, all of the country’s needs for foreign currency will be met and the situation will improve.
But this is what officials have been saying since early 2018 when the currency began to fall once markets anticipated a US withdrawal from the JCPOA nuclear deal.
Some pundits, such as conservative economist Hossein Raghfar, suspect that the government is intentionally pushing up foreign currencies to sell its own stock at higher prices to make up for its budget deficit. “This is the game that the government is playing itself because it’s the end of the year and they have no resources for paying employees’ bonuses and salaries,” he said Friday.
The Iranian currency has fallen 14-fold since the United States pulled out of the 2015 nuclear deal and imposed crippling economic sanctions. With further nuclear talks uncertain, the economic fundamentals work against the rial. The government boasts of large clandestine oil exports, mainly to China, but the fact remains that it faces a more than 50-percent budget deficit.
The drop in the value of the rial is expected to wreak havoc in the lives of many Iranians as the calendar year draws to a close and consumers prepare for the New Year shopping in March.
On Sunday retirees with fixed pensions, whose standard of living has dropped to unprecedented levels, staged rallies outside the Social Welfare Organization in the southwestern cities of Shush and Ahvaz. “Enough oppression! No food on our tables!” and “Inflation, high prices killing people!” retirees chanted. This was a small sign of what may still come amid a rebellious mood among the people.
The impact of rial’s steep fall will be highly reflected in the actual value of the government’s proposed minimum wage increase of 20 percent for the next year. Since early January when the budget bill was presented to the parliament, the rial has fallen by around 20 percent. Many commodities already cost at least 20 percent more than the wage increase which will come into effect on March 21.
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Brigadier General Afshin Khajefard, the chief executive of the Iran Aviation Industries Organization (IAIO), said during a TV program on Saturday night that the country is self-sufficient in the production of drone and cruise missile engines.
"We have reached a level of self-sufficiency in the engine field that today we can produce 10 types of engines in the country, most of which are used on drones and cruise missiles," he said. “Of course, our defense industries have also reached self-sufficiency in designing and making heavy engines,” he noted.
He added that “We have various classes of missiles, precision-strike bombs, electronic warfare avionics and reconnaissance drones. However, we are trying to develop drones with civilian applications, because drones can be used for agriculture, mapping and firefighting."
He claimed that Iran is self-reliant in the field of overhauling commercial aircraft and manufacturing components in defiance of sanctions, adding that the Islamic Republic is also self-reliant in the building and overhaul of helicopters, and many of the country’s manufacturing is domestically made.
Iranian officials are known to make claims about military capabilities that cannot be independently verified.
Iran has developed a program of drones, or UAVs (unmanned aerial vehicles), given it lacks an effective air force due to international sanctions. While Iranian officials and commanders have celebrated this as an achievement of domestic production, Iran has often clandestinely acquired foreign-made parts.
Iran’s Shahed drones, in production since 2013, has been widely reported to have a Rotax 914 engine. A decade ago, there were reports that Iran had copied aspects of a US drone it had shot down.
Quebec-based Bombardier Recreational Products (BRP) expressed surprise that engines made by Rotax, its Austrian subsidiary, were reportedly found in Iranian-made drones shot down in Ukraine. The company’s logo has featured in photographs of drone wreckage. While Rotax engines are used in snowmobiles, watercraft and civilian airlines, they also figure in the United States MQ-1 Predator drone, Israel’s Heron drones, and some Russian drones. Drone output has surged in the Middle East in recent years, with the main producers Israel and Turkey.
After a Rotax engine was apparently found in a Mohajar-6 drone shot down by Ukrainian forces and displayed on CNN in October, BRP stated October 21 it had not given authorization to distributors to “supply military UAV manufacturers in Iran or Russia.”
In January, the BRP, best known for water-skis and snowmobiles, said it has established through a “thorough investigation” set up three months ago that an engine found in a Mohajer-6 drone had not been sold directly to either Iran or Russia. Bombardier ended supplies of the engines to Iran in 2019, although the Mahtabal company in Tehran still markets itself as the official representative for Rotax engines. The date – 2019 – suggests this was a response to the United States 2018 introduction of ‘maximum pressure’ sanctions that threatened punitive action against third parties dealing with Iran. The engines, made primarily for recreational use, would not have been covered by a partial United Nations arms embargo on Iran that expired October in October 2020.
In early-February, dozens of US lawmakers wrote to President Joe Biden to express concerns about reports that Iranian-made drones recovered in Ukraine contain parts manufactured in the United States.
Later in the month, Axios quoted two EU officials as saying that the European Union is expected to impose sanctions on seven entities connected to the IRGC that the bloc believes are involved in the delivery of drones to Russia.
About the same time, the Biden administration expressed concerns about the support countries like Iran and North Korea provide to Russia to supply embargoed goods like microchips. Thea Candler, the Assistant Secretary of Commerce for Export Administration said, “Russia has turned to other countries, if you can imagine the partners of Iran and North Korea, to fill certain gaps in their purchases that have been created by the fact that our products are leaving the Russian market.” Moreover, the United Kingdom has submitted evidence to the UN showing that the IRGC is violating Security Council resolutions. Sources in Tehran told the Guardian last week that Iran used boats and a state-owned airline to smuggle new types of advanced long-range armed drones to Russia.