It's No Fun In Iran

Tyler Durden's picture

Since Mahmoud Ahmadinejad first became President of Iran, in August 2005, the country's economy has gone from bad to worse. As Steve 'hyperinflation' Hanke noted recently, the Iranian economy has, for decades, been cobbled together by religious-bureaucratic regimes that have employed mandates, regulations, price controls, subsidies, a great deal of red tape, and a wide variety of other interventionist devices, in an attempt to achieve their goals. It's all been kept afloat - barely afloat - by oil revenues. Shortly after Ahmadinejad took power, Iran began to draw the ire of the United States and its allies over a number of issues related to its nuclear ambitions and this 'loose' coalition of allies has ratcheted up economic sanctions. These sanctions are starting to have very significant impacts. From the Rial's greater-than-50% plunge to estimated inflation rates over 70%, the country's 'Misery Index', as noted in Bloomberg's Chart-of-the-day, has surged massively in recent months. For context, Iran's Misery score of 106 currently compares to Egypt's pre-Arab Spring Misery score of around 40! Whether the sanctions' "bite" will cause the regime to dig their heels in more and/or force the people to openly revolt (or turn ther anger on the sanction-enforcing aggressor?), it truly is no fun in Iran.


Hanke - "Even if sanctions have a massive impact on the economy, they tend to paradoxically do what they are intended not to do, the highest probability scenario in terms of interpreting the misery index in a case where you have sanctions is that as the misery index goes up the regime gets stronger and digs in."


The Chronology of Sanction against Iran:


Via Cato:



There is no question that the sanctions the "allies" are imposing on Iran are starting to bite, and bite pretty hard. But, will this coercion win the "war?" Probably not. Prof. John Mearsheimer, in his masterpiece, The Tragedy of Great Power Politics, provides more than ample evidence to show that naval blockades and strategic bombing (and I would add financial sanctions) rarely produce their desired results. As Prof. Mearsheimer concludes:


"...the populations of modern states can absorb great amounts of pain without rising up against their governments. There is not a single case in the historical record in which either a blockade or a strategic bombing campaign designed to punish an enemy's population caused significant public protests against the target government. If anything, it appears that 'punishment generates more public anger against the attacker than against the target government.'"


Even though the sanctions are causing untold misery in Iran, history suggests that a good dose of skepticism about whether the Iranians will comply with the demands of the "allies" is in order — as Prof. Mearsheimer writes:


"...governing elites are rarely moved to quit a war because their populations are being brutalized. In fact, one could argue that the more punishment that a populations suffers, the more difficult it is for the leaders to quit the war. The basis of this claim, which seems counterintuitive, is that bloody defeat greatly increases the likelihood that after the war is over the people will seek revenge against the leaders who led them down the road to destruction. Thus, those leaders have a powerful incentive to ignore the pain being inflicted on their population and fight to the finish in the hope that they can pull out a victory and save their own skin."


So, in one sense, the sanctions are working; they are imposing a great deal of misery on Iranians. But, in another sense, they will probably fail — fail to force the mullahs to comply. Perhaps that's why Russia's wily foreign minister, Sergey V. Lavrov confidently stated that "Russia is fundamentally against [adopting even more sanctions], since for resolving problems, you have to engage the countries you are having issues with, and not isolate them."

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Imposing economic sanctions is financial terrorism whereby innocent citizens always suffer.  

quintago's picture

Meanwhile we have a free trade Agreement with Israel.

Thomas's picture

Sanctions of this severity are an act of war. We should not be surprised when Iranians start retaliating.

Lore's picture

People like that guy are the pathogen that is destroying all that America once represented.

Bringin It's picture

Looks, acts and sounds like our very own cpl.

Quarky Gluon's picture

The word 'sanctions' is just a euphemism for 'a siege.'

Totentänzerlied's picture

"We should not be surprised when Iranians start retaliating."

We should be more surprised that they have not done so already, and in a very big way.

CapitalistRock's picture

Sorry, but it's not the economic sanctions that are causing near hyperinflation in Iran. It is their own central bank that is making up e shortfall by debasing the currency. The government feels the bite of the sanctions so they are digging deeper into the pockets of the Iran citizens.

There is absolutely nothing about the sanctions that requires the Iranian government to take away the people's liberty.

THX 1178's picture

Yeah, but why does Iran HAVE TO make up the shortfall in the first place? Sanctions. If it was not for the debasement, there would be serious SERIOUS deflation and then the index would be even higher. Providing liberty to their people? WTF that has nothing to do with anything-- if the banks (pretty much all over the world) DONT print, people will be rioting in the streets... and where is the Liberty there? There is none, only an excuse to crack down some more.

CapitalistRock's picture

You are brainwashed by the propaganda. The Iranian government does not have to debase the currency and create hyperinflation. They do it simply to fund their own government and enslave their people. That is the only purpose of a fiat currency.

fourchan's picture

Mahmoud Ahmadinejad is just a fucking puppet for the mullahs ilke ronald reagan was for bush and the cia.

tickhound's picture

Didn't you say this?  "The government feels the bite of the sanctions so they are digging deeper into the pockets of the Iran citizens"

Then you say this?  "The Iranian government does not have to debase the currency"

Then you close with this?  "They do it simply to fund their own government and enslave their people" 

But, but... I thought you said they felt the bite so they.... but, but then you say they simply.....

Keep track of your own fucking propaganda you too often apologist for unchecked economic sanctions by the WORLD'S RESERVE FIAT.

Get back to blaming ALL THE COMMUNISTS in our midst and TURRURIST boogeymen.  Its a better schtick for you.

CapitalistRock's picture

There was nothing contradictory about my post. Try reading it again without your coolaid. The choice to create new money to rob the people is a choice, not a requirement or logical conclusion to sanctions.

tickhound's picture

"Imposing economic sanctions is financial terrorism whereby innocent citizens always suffer"

You were attempting to refute the above post.

You try to confuse and dispute one crime and replace it with another.  You blame CRIME BY FIAT... deliberately.

And while we're here you said, "Creating new money is NOT... a logical conclusion to sanctions" 

LOL, yeah cuz the more logical conclusion to sanctions is war, right?  war AND printing.  LMFAO!  Right up ure demented worldview, eh?

CapitalistRock's picture

Well, if you view central banks as being held captive to what goes on outside the country within which they reside, then you are correct. Or maybe if you view money printing as a requirement to protect excess government spending at a time when the outside world will not cooperate, then you are correct again.

But I disagree. There will always be an excuse for currency debasement. Bernanke has his excuses too. I happen to think it's all bullshit. Allowing people a stable currency is just about a basic human right and is why our founders insisted that debts were to be settled with gold and silver.

JPM Hater001's picture

Double Yeah,

Again, it's like taxes on Hospitals. 

Does the Hospital acutally pay the taxes? No, they pass it on.

Does the Insurance acutally pay the taxes? No, they pass it on.

Does the Employer acutally pay the taxes? No, they pass it on.

Does the Individual acutally pay the taxes? Yes.  In premiums, co-pays, prescriptions, and OTC cures owned of course by the pharacuticals.


And so do Sanctions on Irans Government really get paid by the Government?  No, they pass it on.

deki's picture

Plus one for you sir you nailed it. In Serbia in early 90's we had sanctions and guess what only regular people suffered. 


You obviously don't understand the meaning of the word terrorism

"Systematic use of violence to create a general climate of fear in a population and thereby to bring about a particular political objective."


Acet's picture

It's not about Iran, it's about Western nations having an enemy abroad so as to distract the sheeple during the last great shearing and slaughter before the economy colapses.

CrashisOptimistic's picture

I am gonna cry bullshit on the story.

1) They aren't isolated from oil.  They have their own, subsidized, at low price.

2) Rent is not affected by external sanctions.  Rent is housing inside the country.

3) They grow their own food.

4) Oil's price is up.  They sell less, and make more on it.

5) So all in all, this "inflation" would seem to apply only to iPhones.  If you're Iranian, you can't afford one.  You won't die from this.


otto skorzeny's picture

this was written by a Mossad agent.

CrashisOptimistic's picture

That makes no sense.  

The Mossad would want it to appear that the sanctions are failing to have an effect, to encourage US military action.

This article says, wrongly, that there is horrible inflation in Iran, and there can't be.  Rent and gasoline will not be rising, which would keep food cheap too.  Leaving only iPhone prices to rise.


zerozulu's picture

Devaluation of local currency make imports extremely expansive(good thing). And make exports of locally manufactured product cheaper abroad (good for domestic economy).

Max Hunter's picture

This is only true to an extent.  Iran does not possess every natural resource needed to produce goods and food. Thinking that a devalued currence does not affect prices is absurd.  I would go as far as to say it's moronic..

zerozulu's picture

Sanction are not new to Iran. Every time Iran came out stronger than before. Homo sapiens is a wonderful specie. They figure out how to come out of a crisis.

potlatch's picture

/agree.  Iranian lucky duckies, in fact.  The naysayers can answer this question: how come every Iranian I ever see is dripping with gold chains and bracelets and rings?  Iranians must like to dab at their tears with fine lace handkerchiefs. 


They are doing fine.  Discoteque all night.

meizu's picture

There's no reliable iranian economic data, so i doubt the misery index is accurate, there is rumour that iranian government is faking economic data in order to make US think that sanctions are working.  Iranian rial is backed by oil, so no hyperinflation.

meizu's picture

All it takes to sabotage another country's currency is CIA counterfaiting operation.

otto skorzeny's picture

so by faking economic data they(Iran) are fooling the guys that pioneered it(US)-cunning Persians. by the way-Americans are miserable pricks also- but by buying worthless shit on credit and feeling a false sense of self-worth by rooting for your fav sports team we feign happiness. being of German descent I embrace my self-loathing.

zerozulu's picture

Wise man says," never underestimate Iranians, Afghans and Pakistanis".

potlatch's picture

relative to what?  I need a marker or that is a meaningless statement.

vato poco's picture

Wise man also say "never trust those fuckers for one second, either".

Urban Redneck's picture

The Iranians aren't faking their economic data any more than the Americans are...

CapitalistRock's picture

Their currency is not backed by oil. It is fiat, just like the US dollar.

Yen Cross's picture

 A continues diet of "crude for xau", makes one have the " Goldschlager Squirts"

Magnum's picture

For those who spend time overseas in exotic cities like Singapore, Bangkok, Kong Kong, Paris, London...  you may not have noticed but the number of Iranian tourists has risen sharply in the recent decade most certainly due to economic prosperity.  

As a decent measure of Iranian economy I suggest researching tourist numbers.  It might be possible.  Find out how many Iranian citizens have arrived at airports around the world and compare that with 10 or 20 years ago.  

Iran is not the suffering basket case the israeli media wants it to be.

DaveA's picture

Here's an idea for stopping inflation: Issue a new Gold Rial, with 24kt gold threads woven into each banknote in proportion to its value. This gold could be easily extracted by setting fire to a pile of notes.

After the dollar collapses, one-ounce coins are nice for buying houses and cars, but Iranian Gold Rials would be ideal for smaller purchases. This convenience would see them traded all over the world at 5-10% over melt value, with the Iranian government pocketing the difference.

Any other country that did this would be crushed by international sanctions. But Iran's already under sanction, so why not give it a try?

Nadaclue's picture

I gave you an upvote for bringing in the idea, which has been espoused before in other forums, up again in this one.

That said, there are difficulties with your solution. How does one value the amount of gold weaved in? Dollars, Pounds Sterling, Shekels? Gold is money good only when valued against another fiat or commodity. Also there is the problem of being able to remove the gold from the noted chemically, which devalues the note even further.

I'm sure there are other problems with the idea which are too numerous to mention here. As the gilded fiat is devalued, whatever it is valued upon can be advantageous to only the country who produces the gold valued item.

I hope this makes sense.

lolmao500's picture

And it won't be fun in China and the rest of the world soon thanks to Ben's printing.

While the military industrial complex is trying to start a war with China...

Big U.S. Fleet Nears Disputed Islands, But What For?

It’s probably just a coincidence; no need to worry yet. But the U.S. has quietly assembled a powerful air, land and sea armada not far from where Japan and China are squaring off over disputed islands in the East China Sea.

Two Navy aircraft carrier battle groups and a Marine Corps air-ground task force have begun operating in the Western Pacific, within easy reach of the Senkaku Islands. That’s where Japanese and Chinese patrol boats are engaged in an increasingly tense standoff.

Chinese vessels have repeatedly entered territorial waters around the small islands in recent weeks and Coast Guard vessels from Japan and Taiwan fired water cannons at each other last week. The islands are controlled and administered by Japan, but claimed by both China and Taiwan.

No warships have been directly involved in the confrontations, so far. But China has vowed to continue sending patrol vessels into territorial waters and Japan has assembled scores of Coast Guard vessels to “defend” the islands.

The U.S. hasn’t taken sides in the ownership dispute, and Secretary of State Hillary Clinton has called for “cooler heads” to prevail. Nonetheless, U.S. officials have stated clearly that the Senkakus fall under the U.S.-Japan security treaty, which would require the U.S. to come to Japan’s aid in case of attack.


And in a few hours, the election in Saakashvili's Georgia will begin... could turn into a black swan...

Zombie Investor's picture

Does this mean that Obama is the odds on favorite for a second Nobel Peace Prize?

ItsDanger's picture

Key part here is 'kept afloat by oil revenues'.  Hence the constant sabre-rattling to prop up oil prices to generate more revenue.  Might help if the mullahs werent stealing a lot of it.

Money Squid's picture

“…economy has, for decades, been cobbled together by religious-bureaucratic regimes that have employed mandates, regulations, price controls, subsidies, a great deal of red tape, and a wide variety of other interventionist devices, in an attempt to achieve their goals.” Did you really mean the US?

“Shortly after Ahmadinejad took power, Iran began to draw the ire of the United States and its allies over a number of issues related to its nuclear ambitions…” I am a bit surprised that ZH has taken the bait on the whole nuclear abmitions (aka WMD) crap. Given that ZH is geared as a financial new center/blog/caffe I would expect a detailed financial analysis of petrodollar (economic) warefare against Iran for not yeilding the West's wishes and flaunting currency independence. The same issue with Saddam. Add to it that the West needs to control access to Middel East oil to control prices (raised to punish Chine, lowerd to punish Russia) and to deny easy access to Chine to control (tax) their manufacturing. If Iran played along the West would have no objection to a thermonuclear Iran with long-dong missles that fly long time.

A Lunatic's picture

Like it or not we WILL free the shit out of these fuckers............

Money Squid's picture

i guffawed after reading that