In early April 2012, President Mahmoud Ahmadinejad asserted that Iran had enough funds to withstand a total embargo on its oil sales for two to three years, without specifying where the country’s actual reserves stood. Since then, additional sanctions against Iran reduced oil exports by as much as one million barrels per day, or nearly 40 per cent according to the International Energy Agency.
As European member states, including Greece, Spain and Italy — significant past customers — replaced Iranian imports, it was fair to ask how much cash was coming in, and how Tehran was spending it? Both of these questions held a clue to future crises of immense proportions.
Naturally, because Iran was subjected to a wave of sanctions for decades, and because no one truly knew whether Ahmadinejad’s regular boasts that Iran had more than $100 billion (Dh367 billion) in cash was true, many speculated. What was known was that certain government contractors, state employees and even members of the Pasdaran were not paid on time.
Long before the recent collapse in the value of the rial, perhaps by as much as 35 per cent against the dollar — a currency which Ahmadinajad once characterised as a “worthless piece of paper” — Iran faced serious challenges, and was likely to confront far more ominous tests.
In fact, the collapsing currency led to fresh outbreaks of public anger, especially among the powerful bazaari business community, which necessitated the deployment of riot police to violently clamp down on black-market money changers. Parallel to bazaari disruptions, thousands marched in various cities, most demanding relief from skyrocketing prices. Merchants closed their shops in protest while households struggled to convert rials into dollars or gold.
Inasmuch as Iranian leaders continued to make economic choices for their dwindling income, and while Tehran sought alternative schemes to circumvent sanctions, one wondered how long could current conditions last? To be sure, Iran was accepting payment in rice, medicine, engineering supplies and even steel from India, while China, which was the country’s leading customer, received hefty discounts on crude purchases.
Oil was now delivered in Iranian tankers backed by state insurance, which raised fears that any accident could literally bankrupt Tehran, since private indemnity sources were no longer available. Japan was equally anxious to take advantage of markdowns from Tehran although Tokyo underwrote the multibillion-dollar marine insurance required for its ships to carry Iranian crude.
These cases illustrated that Tehran was managing to export oil legally through various loopholes, although barter deals and deep discounts to Asian customers essentially meant that the state’s income was sharply down. Nevertheless, and while there was no doubt such deals were buying time for Iranian leaders, the burden on Tehran’s battered economy was not easing and it behooved the government to note that the country’s nuclear programme and Syria were not cheap and would not diminish anytime soon.
Few knew how much the Iranian nuclear programme cost to date although the figures were probably in the tens of billions. Moreover, there was also no denying that Syria cost Iran a pretty penny. In May 2012, an American intelligence assessment shared with CNN claimed that Damascus’ own cash reserves — which stood around $30 billion in early 2011 — dwindled rapidly, because the Baath regime was spending about $1 billion a month to fight its revolution. If this were correct, Iranian cash infusions helped Syria steady its financial ship, at least for the moment.
Increasingly, however, Iranians sneered at such expenditures and denounced the Ahmadinejad government for its financial support to Syria, insisting that money be used at home instead. “They spend billions of dollars to keep Syrian President Bashar Al Assad in power, but now they say they have no money!” one merchant screamed, according to witnesses quoted in the New York Times. Others were equally livid, apparently chanting, “Leave Syria alone, think of us!”
Of course, and in addition to Syria, Tehran also supported Hezbollah in Lebanon. Estimates on actual cash disbursements varied but these gushed between $100 and $400 million each year into the party’s bank accounts. Others maintained that the figures were higher though no one knew for sure.
The anger that now spread to Tehran’s grand bazaar affirmed that Iran, and of course Syria, may well be able to ride the sanctions for a while longer, but not indefinitely. Iranian oil exports, still the country’s primary source of income, shrunk significantly with a daily revenue loss of perhaps $100 million.
Without hard currency earnings, Tehran was in no position to back up its currency, and while it was getting by for now, it would need a lot of cash to buy equipment for its nuclear programme and to help Syria as well as Hezbollah. Absent such revenues, one wondered whether savvy Iranians, merchants par excellence, would once again learn the value of their pockets.
Dr Joseph A. Kechichian is the author of the forthcoming Legal and Political Reforms in Saudi Arabia.