Published on October 4th, 2012 | by Djavad Salehi-Isfahani
13Understanding the Rial’s Freefall
by Djavad Salehi-Isfahani
The sharp drop in the value of the rial in the last two weeks has created much excitement in Iran and abroad, but mostly for the wrong reasons. In the parallel (or free) market for foreign currencies, the rial fell by 15% in one day this week, reaching its lowest value ever — 35,000 rials per US dollar — down by more than 50% compared to a month ago and 300% to last December when international sanctions tightened against Iran.
What all the related excitement overshadows is that this devaluation is not comparable to those in other countries where large devaluations caused severe shocks to the economy, such as those that swept through Asia in 1997-98. That’s because in those situations all prices were affected because all foreign exchange was traded at the same (rising) rate. This is not the case in Iran because nearly all foreign exchange is earned by the government, which has decided to sell most of it at a lower rate for the import of goods and services that it deems essential.
The rial devaluation that has created the media excitement is actually taking place in a narrow market that is shrinking in size and diminishing in importance. Iran’s Central Bank has classified a long list of goods into categories with priorities 1 through 10, leaving it to the parallel market to take of all other needs. Priorities 1 and 2 are food and medicine, receiving foreign exchange at the official rate of 12,260 rials per dollar, followed by other categories with lower priorities, which are mostly intermediate goods used in industrial production.
The government has been promising to do something for the import of these non-essential but important commodities, which account for about two-thirds of Iran’s imports, offering them some sort of preferential treatment. But the Central Bank was slow to respond and those producers who did not want to wait bought their currency needs in the parallel market, competing with speculators and people taking their money out of the country. The uncertainty about the sanctions, bewildering pronouncements from government officials in Iran, and hype over a possible Israeli attack, all combined to throw this market into chaos.
To protect Iran’s producers from what the government considers the consequences of “psychological war”, the Central Bank set up a “Currency Exchange Center” and invited licensed importers and exporters to trade their foreign currencies there, hoping that the auction rates reached there would be more stable and lower than the parallel market rate. When the Exchange Center opened just two weeks ago, the volume of transactions quickly jumped from $10 to $181 million per day, with most of the supply likely coming from the Central Bank. The Exchange Center diverted some of the supply of currency away from the parallel market, which I believe caused the rate there to soar.
Curiously, the Central Bank had predicted the opposite: that by arranging trade in the Exchange Center it would help lower the rate in the parallel market. This miscalculation added to the confusion and fear that the government did not know what it was doing. While the Exchange Center has produced a lower rate than the parallel market and can potentially shield producers from the worst psychological effects of sanctions and war, the shock to the parallel market has caused a serious political if not economic crisis for the government of Mr. Ahmadinejad.
Does all this mean that Iran’s economy is on the verge of collapse, as Israel’s Finance Minster reportedly said? The answer is no, because most of the economy is shielded from this exchange rate, though not from the ill effects of the sanctions, which will continue to bite for a while. Would it cause sufficient economic pain that would push the Iranian government to make concessions in its nuclear standoff with the West? The answer is not likely. The multiple exchange rate system, as inefficient as it is, will protect the people below the median income, to whom the Ahmadinejad government is most responsive.
But the government can ill afford to ignore millions of Iranians, mostly upper income Iranians, who are affected by the gyrations of the parallel market. Among them are millions of people who are seeking a safe place for their savings, parents who send money to their children for education abroad or need to travel there to see them. They are not all importers of luxury items or those who want to take their money out of Iran. In allocating its limited — perhaps shrinking supply of for foreign currency — the government has a difficult time balancing the needs of the lower middle class and the poor with those of upper income Iranians that it cannot rely on for political support.
About the Author
Djavad Salehi-Isfahani conducts research on the economics of the Middle East and is currently a professor of economics at Virginia Tech. He is a nonresident senior fellow at the Brookings Institute and is also serving as the Dubai Initiative fellow at the Belfer Center for Science and International Affairs at Harvard University's John F. Kennedy School of Government. He has served on the Board of Trustees of the Economic Research Forum (2001-2006), a network of Middle East economists based in Cairo.
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Although Mr. Djavad Salehi-Isfahani has written persuasively about the Iranian economy in the past in his blog Tyranny of Numbers (http://djavad.wordpress.com/), I am not convinced about his dismissing of the current crisis. Mr. Salehi-Isfahani’s only provided reason why the economy is not on ‘the verge of collapse’ is his arguement that in societies that were on the verge of collapse, ‘all prices were affected because all foreign exchange is traded at the same (rising) rate.’ Although this is true about Iran, but Mr. Salehi-Isfahani should also show that the above quoted reason is sufficient and necessary for an economy to be on the verge of collapse.
Before i get to my final point, there should also be a correction in the article for ‘quickly jumped from $10 to $181 per day’, since volume of transaction seems very low, maybe these figures should have been quoted in millions?!
But I think the most important reason why I do not find Mr. Salehi-Isfahani’s argument convincing is that I am not seeing a clear explanation about why the current devaluation of Rial vs. Dollar has taken place, especially the one day drop of 15% and as noted by the author the 300% decline since December, notwithstanding of his earlier explanation in his blog in July 2012.
One gets a fleeting glimpse of Mr. Salehi-Isfahani’s contributing factors as ‘uncertainly about the sanctions, bewildering pronouncements from government officials in Iran, and hype over a possible Israeli attack’ as an explanation for the current steep decline of the value of Rial vs. Dollar. What about the rising liquidity of Rial in the Iranian society? (http://alef.ir/vdcewf8znjh8ppi.b9bj.html?167625#list)
What is perplexing is that while one understands that the demand for Dollar has increased sharply in the past few years, I mean where would all the stolen money from unbelievably large financial scandals (last one which put many culprits on public trial had netted about $3 Billion) end up?, one also asks why would not the government supply the market with the need to keep the prices stable when it has increased its foreign reserves by 50% in the last year ( Iran’s foreign reserves will be deployed against sanctions: CBI governor. Tehran Times, July 1, 2012. Retrieved July 11, 2012.)
Mr. Ahmadinejad who stole the elections in 2009 this week in a televised press conference admitted that one source of the current crisis has been reduction of oil exports by Iran, but I doubt the current crisis will go away simply by his suggestion that 22 people have been responsible for the current fluctuations of foreign exchange market.
I think the explanation is much more complex than either Mr. Salehi-Isfahani or Ahmadinejad would want us to believe.
I finish with one question from Mr. Salehi-Isfahani:
You mention that Iran’s source for foreign exchange is mainly government’s sale, I presume, of oil. Would you refer us to a source to see exactly how much is the share of the private sector to own foreign exchange, let’s say for example from the sale of Pistachios?
I am not an economist but I think what professor Salehi-Isfahani is saying makes perfect sense. How can the “value” of a currency suddenly falls by 15% in one day!! And I agree with Vakil-e-Roaya that something more complex is the cause of this situation. But this is the fact that ordinary Iranians are under tremendous financial pressure and unless the government does something fast to rectify the situation, it may easily go out of hand.
Here in Iran the general feeling is that things are spinning out of control. Price of galvanized steel tubes just jumped from 18,000 per kilo to 31,000 Rials per kilo within less than two months.
My guess is that the central reason for the huge jump in the price of the dollar is because of a lack of supply. Iran has billions stuck outside of Iran that it can not bring back into the country. China is holding onto 20 billion dollars for some unknown reason and not paying back to Iran.
And given the acceleration of inflation in Iran over the past few months people want to park their money into something that will generate a return or keep its value and that means land, gold, and dollars, and the latter is obviously the most attractive given its rate of increase. So it’s too many Rials chasing after too few dollars that is the main cause for the current crisis.
I would suggest that the Iranian government change its interest rate it grants to dollar bank accounts (currently 7.5%) to 16% and make this an investment opportunity to overseas investors, charging them only 5% on capital gains, which the freedom to withdraw their money within two years. This will create an inflow of dollars into Iranian banks and restore the Rial’s value. Would this work and can the government implement something like this quickly? I have no idea.
Dear Ararastou jan,
Thank you for forwarding Dr.Javad Salehi Isfahani’s article to me.In fact I have the honour of knowing the gentleman.
Dear Arastou jan,in fact I intend to subscribe to most of Dr.Salehi’s views regarding minor or so to say less than commonly believed adverse impact of Rial devaluation in Iran’s economy.
During early and mid-2000,Iran opted to buy very large quantity of gold and amassed volumes of foreign currencies notably the United States Dollar.Bank Markazi was instrumental but several of our ambassadors were quite active in physically transferring gold and currency to the country.Having said that those gold and currency remained intact during the micromanaged years of the current administration due to the fact that revenue earnings from oil export was already at its highest.
Now Iran has lost nearly half of its foreign revenues and Iran’s import bills per single volumes is inflated by some 30 per cent.This is a tremendous pressure on the country’s financial structure,but it is yet too early to believe that cracks have already surfaced in the economic structure
I intend to believe that Iranian politics is too perplexed and often cruel towards the nation.Mr.Mehdi Hashemi was quite busy this last week with his associates and advisers.However,Rial’s devaluation and rising value of Dollar is in the interest of both anti Ahmadi nejhad as well as pro Hasmemites.
Having said that I believe that international sanction has yet to penetrate deeper into the country’s economic inner texture.Iran’s embargo is a very expensive affair for sanction-imposing countries.According to a study by EU Parliament,Iran’s sanction has cost around $85 Billions in direct revenue to the European Union.Neither the US nor Israel are not compensating those losses.In fact EU is doing much to do business with Iran behind the scene and America’s Treasury Departments is aware of the fact.
However,what I wish to say in response to your question regarding Dr.Salehi Isfahani’s views on Rial falling values is that I am mostly supporting his views,but for now and by that I mean just for now and not for many months or years to come.That is why the issue of Resistive Economy is now on the table in Iran.
Best,
fereydoun
The core argument of Dr Salehi, that I think is a good economist but get this one wrong, is that the parallel exchange market doesn’t matter. This is exactly what Ahmadinejad says. If parallel exchange market doesn’t matter, then why they try so hard to shut it down? and why all the other prices, including the price in that center is designed to follow the price in the parallel market?
Here is an idea that may help the Iranian economy. Iran is having hyperinflation and it is also one important oil producer. Iran could start selling oil at an attractive discount if the oil is paid in the Iranian currency. The discount would be calculated using the current exchange rate with EUR. In this way, several countries would rush to sell products to Iran in order the get the Iranian currency to later pay for the oil. This will increase the demand for the Iranian currency and could even completely reverse the hyperinflation.
For more than ten years Iranian economy suffered from an inflation rate of around 20 percent annually, while self-serving top bureaucrats kept pegging Iranian Rial at a fixed parity of close to 10,000 Rials per dollar. Sustaining this over-valued Rial, has cost the treasury hundreds of billions of dollars in oil revenues and damaged the farming, manufacturing and non oil exports sectors of the economy. Meanwhile, they were enriching themselves, the civil servants and the upper middle class, while impoverishing farmers and manufacturers through cheap imports. Squandering money on luxury imports (thousands of Porsche and Bugatti ….cars) and vacations in expensive hotels on Mediterranean shores (not the Caspian) became a status symbol.
Now, thanks to sanctions, those top bureaucrats have come to their senses and allowed the Rial to slip to its real market value. Thus, reducing the budget deficit by timidly selling petrodollars and gold on this secondary market, while blaming currency speculators for the further increase. Of course this inconveniences the millions of civil servants and their families, mostly populating Tehran, and benefiting from years of cheap imports. They will not like the devaluation, and are likely to be complaining openly. The manufacturers, the workers, the farmers and specially the exporting industries are benefiting from the new situation. The country should see increase in both GDP and employment after some initial adjustment. Already cement exports are double the same months of last year, and there is a noticeable trend towards using more local products in the construction, finishing and furnishing of new buildings. Iranian economy would gain substantially from this timely devaluation.
Sanctions have acted as cathartic agent for a nation that once prided itself on creating extensive irrigation networks in the desert through its own labor over several generations. Indeed more than 50,000 qanats (kariz), and the towns and farms created around them represented the largest long-term per capita investment the private sector had achieved in any country until modrn times.
The Iranian people, over several thousands of years, have survived plots and schemes hatched by more intelligent foes than the ‘coalition of unwilling’.
Mr. Isfahani’s analysis is not based on current facts in Iran. I’m an economist in Iran. All signs of an economic collapse and hyperinflation are in place. The following are the indications:
1- It is believed that the gov. has only achieved 30% of its total predicted revenue. It’s printing money to compensate for its budget shortcomings.
2- Liquidity has passed the 400 trillion toman mark with a growth rate of 30% (very inflationary). It is expected to reach higher rates.
3- Many industries including the auto (2nd largest after oil), cement, textile, petrochemical, etc. on the verge of complete bankruptcy.
4- The banking system is in dire shape. State-owned banks are practically bankrupt. And the private ones are dragging their feet. The amount of delinquent loans is accelerating. The official figure points to over 60 trillion tomans but the unofficial figure is much higher.
5- The oil industry needs $100 billion investment per year for the next few years. Unless sanction lifted, there is no way to invest in it.
6- Oil exports has dropped to below 800,000 per day compared to 2,6 million last spring.
7- Rent opportunities are enormous and contrary to what Mr. Isfahani said maybe essential goods are imported with the dollar rate of 1,226 but they are sold with much higher rates on the market.
8- Again contrary to Mr. Isfahani’s claim prices are very dependent of the FX rate. Day increase of prices are very tangible.
Therefore, the credibility of his analysis is very much in question!
The following article is from Donya e Eghtesad newspaper in Iran. The article is in Persian. I apologize from English speakers.
The article is exactly contrary to what Dr. Isfahani claims. The mechanism that the Central Bank of Iran has put in place and Dr. Isfahani explains and justifies is futile and dysfunctional …
حذف ارز مرجع از بازار
گروه بازرگانی – به اعتقاد برخی فعالان اقتصادی، دلار «1226 تومانی» در حالی به یک رانت تبدیل شده که به دست مصرفکننده واقعی نرسیده است. آن طور که این افراد در توجیه دلایل رانتزا بودن ارز مرجع میگویند: «این روزها قیمت ارز لحظهای تغییر میکند؛ بنابراين در حاشیه مرزهای کشور هیچ کالایی فروخته نمیشود و محصولاتی که با ارز مرجع 1226 وارد کشور شده است، با قیمت ارز بازار آزاد محاسبه و به مشتریان فروخته میشود.»
اعضای بخش خصوصی بر این اعتقادند که ارز مرجع یا همان دلار 1226 تومانی برای اقتصاد کشور کاری از پیش نبرده و باید هرچه سریعتر از بازار حذف شود تا رانتهای ناشی از آن، بیش از این، به بدنه اقتصاد ضربه وارد نکند. این اظهارات در نشست اخیر کمیسیون صنعت و معدن اتاق بازرگانی تهران مطرح شد. اعضای حاضر در این نشست، علاوه بر انتقاداتی که به اصرار دولت بر ادامه نگه داشتن ارز مرجع در نظام پولی – مالی کشور دارند، در مورد اتاق معاملات ارزی نیز معتقدند: «اتاق مبادلات ارزی صرفا برای جبران کسری بودجه جاری دولت راهاندازی شده است؛ بنابراين این اتاق اثری روی کنترل بازار ارز و ایجاد آرامش در این بازار نخواهد داشت.»
در این باره، احمد پورفلاح، رییس کمیسیون صنعت و معدن اتاق بازرگانی تهران میگوید: تنها راهکاری که پیش روی فعالان اقتصادی برای رفع مشکلات ارزی باقیمانده، این است که واحدهای تولیدی برای تامین نیازهای ارزی خود، به سراغ محصولاتی بروند که ارز بری کمتری دارد.
از سوی دیگر، محمدرضا نجفی منش، دیگر عضو کمیسیون صنعت و معدن اتاق تهران هم معتقد است: بخش خصوصی باید راهکارها و راهحلهای کارشناسی خود را به اندازهای تکرار کند که سرانجام شنیده شود، او گفت: در شرایط پرنوسان بازار ارز، برخی کالاها بدون دلیل افزایش قیمت یافتهاند، اما معلوم نیست که به چه دلیل، فروشندگان افزایش قیمت ارز را بهانه میکنند، در حالی که گرانی ارز هیچ اثری روی قیمت این کالاها ندارد.
رانت ارز مرجع 1226
به اعتقاد محمدرضا بهرامن نیز، «ارز مرجع» به یک فاجعه در اقتصاد کشور تبدیل شده است. عضو هیات نمایندگان اتاق تهران معتقد است که عدهای با سوءاستفاده از ارز مرجع، بخش زیادی از داراییهای کشور را در بیرون از ایران هزینه میکنند که برای مقابله با این پدیده، باید راهکاری اندیشید. او گفت: دلار 1226 تومانی به یک رانت تبدیل شده و به دست مصرفکننده واقعی نمیرسد و محصولاتی که با ارز مرجع 1226 وارد کشور شده است، با قیمت ارز بازار آزاد محاسبه و به مشتریان فروخته میشود. نایب رییس خانه معدن افزود: این روزها که قیمت ارز لحظهای افزایش مییابد، در مرزهای کشور هیچ کالایی فروخته نمیشود.
بهرامن خواستار بازگشت اقتصاد ایران به دوران «عرضه کوپنی کالاها» شد؛ چرا که شرایط پیش آمده چارهای جز کوپنی کردن کالاها باقی نمیگذارد. او همچنین پیشنهاد کرد که دولت به بانکها و صرافیهای مجاز اجازه دهد که ارز را 5 درصد بیشتر از قیمت ارز اعلامی دولت به مشتریان ارائه دهند تا به این طریق، بازار سوم ارز برچیده شود.
محسن خلیلی عراقی، پدر صنعت ایران نیز در این نشست گفت: باید کاری کنیم که خرید و فروش ارز و سکه در ایران را تحریم کنیم. به اعتقاد او، خرید و فروش ارز و سکه حرام است و باید این را به جامعه القا کرد. این عضو هیات نمایندگان اتاق تهران ادامه داد: امروز در ایران شرایط به گونهای شده است که برخی پیاز فروشها نیز به بهانه گرانی ارز محصول خود را گرانتر از قبل میفروشند.
اما نوسانات اخیر ارزی، تاثیرات نامطلوبی را بر فضای اقتصادی کشور گذاشته و همین موضوع، برخی نمایندگان مجلس را به پیگیری استیضاح وزیر صنعت، معدن و تجارت سوق داده؛ اما فعالان بخش خصوصی، طرح موضوع استیضاح «مهدی غضنفری» را در شرایط فعلی به صلاح نمیدانند.
اعضای کمیسیون صنعت و معدن اتاق تهران در نشست اخیر خود اعلام کردند: طرح سوال و استیضاح وزیر صنعت، معدن و تجارت در شرایط نابسامان فعلی اقتصاد کشور، به زیان بخش خصوصی است. در این باره، پورفلاح، رییس کمیسیون معتقد است: گرفتاریهای بخش تولید در جای دیگری است که دست وزیر صنعت، معدن و تجارت را نیز برای حل مشکلات بسته است. این عضو هیات نمایندگان اتاق تهران افزود: وزیر صنعت، معدن و تجارت نباید در تشکیل اتاق مبادلات ارزی مشارکت میکرد؛ چرا که به نظر میرسد تمام مشکلات ارزی کشور قرار است سر او خراب شود.
محسن خلیلی عراقی نیز از طرح استیضاح وزیر صنعت، معدن و تجارت انتقاد کرد و افزود: بانک مرکزی مسوول مشکلات و گرفتاریهای اخیر در بازار ارز است، نه وزیر صنعت، معدن و تجارت. این عضو هیات نمایندگان اتاق تهران در ادامه خواستار «تشکیل دولت در سایه» با حضور خبرههای اقتصادی و سیاسی کشور شد تا آنها برای حل مشکلات به کمک دولت رفته و راهحلهای عبور از شرایط فعلی را پیش پای دولت بگذارند. او همچنین از مجلس به عنوان وزنهای قوی و کارآ برای همراهی با دولت یاد کرد و افزود: مشکل تحریم را استیضاح حل نمیکند، بلکه این عقل است که برای عبور از تحریمها به کار میآید.
Unlike Mr. Azad I am not an economist but a businessman living in a town in central Iran. I know, first hand, the following assertions to be true:
- Most farmers in our area are benefitting from Rial devaluation. They are selling farm products at close to world prices at free market parity, while buying inputs only 20-30 per cent higher than a year ego. They are not so much dependent on imported goods or food items.
- over the past four years the price of cement has gone up only by 25 per cent, thanks to an over capacity of 15 million tons. Non-the-less, on 3rd Ocober the cement plant close to where I live has increased its profit estimate for the current Iranian year by 80 per cent, sighting higher revenues from exports at new exchange rate. I know because I am a shareholder. Iran’s cement exports have almost doubled so far this year compared to the same period last year. The inputs are marl (clay and limestone), gas and electricity – all dirt-cheap in Iran.
- Although oil exports are down, but please do not forget that if we were importing the energy we use, like Turkey, the Iranian nation would have had to pay an additional bill to the tune of USD 120,000,000,000.-. Whether we are squandering it or saving it is a different matter! What more do we want from the oil industry? With that massive subsidy, which at present exchange rate would amount to Rls 3,600,000,000,000,000, are we still a poor nation unable to take care of ourselves?
Forgive me for meddling in your learned discussion.
Correction: please read ‘citing’ for ‘sighting’.
Dear Mr Salehi-Isfahani,
I am an economist and also producer in Iran born and raised in Germany. I came to your article through http://www.irananders.de, in which I posted a critical statement. Basically I found some main mistakes in your analysis I would like to point out here:
1. You state that the main imports are processed through the government with a preferred exchange rate and therefore the prices for essential goods can be controlled.
My comment: Unfortunately we saw a strong raise in essential goods, f.e. milk was 19.000 IRR this week, up from 8.000 IRR a year ago, also meat, rice, eggs, bread cheese are at least twice as expensive as last year. What is the reason? Very easy: first of all the agriculture sector depends also on imports, for example for seeds, agricultural machinery, some livestock feed etc. And another important point is: as farmers, manufacturers and traders of essential goods do not know, if the currency exchange subsidy will last, they try already to price in the free market exchange rate, so they are prepared for the case, that the government will change the exchange rate for products in classes 1 and 2 (mentioned in your text). The reason is, that it happened now a few times, that the government changed its policy within weeks, and if you base your pricing on the subsidized currency exchange rates and it suddenly changes, you lack the capital to be able to purchase your raw materials based on a twice or triple as high exchange rate.
Government tried and still tries to control these prices, but they were not very successful, as some producers just stopped production and so we had a lack of essential products, f.e. milk, for a few weeks.
2. You state, that the “Currency Exchange Centre” invites market players to buy and sell hard currency under government control and its opening resulted in a flow of currency into the centre and lack of hard currency in the free market.
My comment: the truth is, that the Central bank planned such an “Currency Exchange Board”, but finally they decided to change their policy and opened a “Curreny Room” (Otagh-e-Ars). In this Currency Room the whole supply of hard currency comes straight and only from the Iranian Central Bank (see the rates on http://www.cbi.ir). Unfortunately, it does not really work at the moment, the reasons could be various, but the main problem is that they give the companies the promise to pay hard currency (takhsise ars), but they hardly really pay. As the market saw, that this is not a substantial option, the free market prices surged again; and they are at 37.000 IRR per USD at this moment, pretty much a record high.
However, in the last days the Currency Room started to pay more companies, so I believe if this continues for the next 2 or 3 weeks, the free market rate will drop.
One comment regarding the economy:
Apparently the government was surprised about not being able to sell the oil they exported to Europe before to Asia now. We do see today the result of this sudden drop in Oil exports which happened after July, 1st, because there is always a time lag from oil exports to hard currency inflow.
Meanwhile, the oil exports raised again to approx. 1,5 Mio. barrels a day, and I believe that the devaluation of the Rial can at least be halted. Also, in the northern hemisphere winter starts, so demand of oil will be raising the the world will be depended on using the Iranian oil, as we all know that we have more demand than supply anyway.
Therefore I share your view that the Iranian economy will not at all collapse. It is all over a very strong economy, nearly no foreign depts, most businesses are cash (including real estate, very low bank depts), and people are also very patient. Also, I believe, that US and Europe just misuse the question of uranium enrichment in order to gain control over Iran´s vast oil, gas and other natural reserves, so opposing those sanctions is very important.
Nevertheless the crises management of the Iranian government and especially of the Central bank is very bad. They seem to be surprised about the results of their own actions (as f.e. the Currency Room), and they don´t play an open game with the people and especially manufacturers and traders. To overcome sanctions it is essential to play the game very professional.
With all due respect to all the comments posted thus far,let`s not fail to notice that the Iranian government has well learned the power of unpredictibility,and is becoming increasingly good at taking irrational steps to ruffle the equations. And let`s bear in mind that no tyranny throughout the world`s history has been unwilling to make human sacrifices to stay in power. Prior to tightening the sanctions,the economy revolved around raw material export,and services. Considering the FACT that China,India and Turkey`s corroboration of the sanctions (among other countries) is in place only on the surface,owing to the innovative paths that Iranians are very good at unearthing to “circumvent the law”,and regarding the huge social and economic gap in the population of Iran which forms a minority of the middle class and a majority of working class, the latter demanding not much more than only food,clothing,shelter and services necessary for sustaining life,one can easily come to realize that despite devastating impacts on growth in GDP,hinderance to imports will have far fewer than expected effects on an already primitive economy,as long as it hasn`t impeded primitive supplies which would be,for the best part,food and medicine,which (as prof. Isfahani did indeed very well put) can be compensated by shifting import interests from “unnecessary” commodities to “higher priority” goods. And as for the services,the police state regime has had a long history of distorting the real value of work and therefore obliging service providers to continue performing,either by force or deception,at the expense of humanity,to avert an uprising by the predominate working class. So the real question might not be whether this economy will collapse or not,rather,the salient question might be,that how you define “collapse” for an already almost collapsed economy?
And it`s worth noting that the policy makers of superpowers like the US are by no means negligent of the facts. So one might ask what could the real incentives behind persisting these puportedly “failed” strategies are?