Peter Beaumont writes: The continuing currency crisis in Iran, which has seen the rial go into freefall, has been cited, with some celebration in certain quarters, as proving that US-led sanctions are “working” against Tehran. Increasingly shut out from international banking and struggling to sell its oil, Iran has been forced to sell more cheaply while buying raw materials at a higher cash price. This, in turn, has led to currency speculation that the government has done nothing to halt, and to sharp devaluation.

But what does “sanctions are working” actually mean? Some hawks have read it as the possible beginning of the end for Iran’s nuclear programme and the collapse of the clerical regime. For others, including those anxious to avoid conflict over Iran, it has been seized on as a suggestion that the crisis might be resolved through negotiation and non-military pressure.

The reality is that the political, economic and social impact of sanctions can produce very different results from those allegedly desired, more often than not hurting ordinary people. And there is a third scenario, in which sanctions might actually make the confrontation with Iran more dangerous still.

The increasing popularity of economic sanctions, as Britain’s former ambassador to the UN, Sir Jeremy Greenstock, has observed, is due to the perception that no other tool exists “between words and military action if you want to bring pressure upon a government”.

When three academics – Gary Clyde Hufbauer, Jeffrey Scott and Kimberly Ann Elliott – examined the history of sanctions between 1914 and 1990, in Economic Sanctions Reconsidered they determined that out of 115 cases that they looked at, only a third had seen any measure of success. The US political scientist Robert Pape has challenged even this measure, claiming that of the 40, only five can be determined genuine successes for sanctions. [Continue reading…]

As Iran’s currency crisis escalates, Ali Chenar has spoken to people in and around the bazaar in Tehran.

Many merchants in the bazaar had already shut down their stores since Monday, claiming that they do not know what prices they should be charging their customers. The sudden fall in the rial’s value has brought it to a level unthinkable only a week ago.

“The problem is that the exchange rate always sends a signal about market stability and government reliability,” said Muhammad, an economic activist. He adds, “With the rial in freefall, many believe that the situation is simply out of control.”

He explains the dilemma faced by the merchants. “Many in the bazaar save in dollars and need hard currency to import the products they sell. If the products are produced domestically then they need hard currency to import the material needed in the production process. The machinery and other services cost too, and usually we have to pay companies who use the [open-market] dollar-rial exchange rate to estimate their costs.”

Babak, a graduate student, is worried about his upcoming sabbatical trip abroad. “With the hard currency rising so fast, I am not sure if I can afford it anymore.” He also cannot wait much longer to make a decision — the deadline to apply for a visa is fast approaching.

Businesses face similar decisions about whether to renew their orders and sell their inventories. Mahmoud, an apprentice in the bazaar, wants people to know that “we would like to work, but how can you work when you do not know what will happen tomorrow.”

Ahmad Reza, a dealer in Persian rugs, is mad at the government. “They ruined everything. They wasted all the revenues generated by oil and now they are not supplying the market with hard currency…. Every day, something new happens: one day it is sanctions; the next, new banking regulations. The authorities always need to be greased with some extra cash.” The challenge of keeping his business going is making him infuriated. “Some days, I just want to go to the Sahara and just yell. I do not know why I come to this store anymore.”

Hamid, a social science teacher who lives near the bazaar just south of central Tehran, believes that the “bazaaris have always been unhappy and frustrated. Almost every government has found ways to interfere with them and to tell them what to do.” What is different now “is that Ahmadinejad has become more vulnerable.” Hamid observes that criticizing his administration is no longer equivalent to opposing the regime as a whole. On his way home, he saw people had set fire to garbage and other flammables. “Bazaaris usually hate governments, but I think they hate the current administration the most.”