Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, said recent events suggest that Iran’s foreign-currency reserves already are dwindling to the point that the government is trying to conserve what is left.
While the International Monetary Fund last year estimated Iran’s foreign-currency reserves at $80 billion, Hufbauer said the market turmoil is likely a sign that the regime has spent that down. He estimates that the reserves have dropped by 50 percent or more.
The collapsing exchange rate and shortages of goods could be countered, Hufbauer said, only by using some of that hard currency to buy more imports and stop the run on the rial. The fact that it continues, he said, is evidence the government does not want to let go of the dollars, euros or other reserve money it has on hand.
“What you get is kind of a parallel economic system,” he said. “The government imports based on what it sees as vital needs. You have a rationing of key imports, and the rest of the economy just has to function as it can.”
Inside Iran, the pain from higher prices is widespread, but it is felt most acutely by Iran’s middle class and urban working families. Only the rich and Iran’s ruling class — whose bank accounts are largely in dollars — appear to be immune, said Khalaji, the Iranian-born researcher.
“Food, transportation, everything is up, and people are worried not only about today but also tomorrow,” said Khalaji, a senior fellow at the Washington Institute for Near East Policy, a think tank.“People are extremely panicked about the economy.”
The crisis turned violent Wednesday with clashes between police and money-changers in a Tehran bazaar. Amateur video posted online showed thousands of Iranians marching on Iran’s Central Bank, some chanting slogans denouncing Ahmadinejad as a “traitor,” while others waved placards demanding that the government “Forget about Syria, think about us.”
The Obama administration has acknowledged the contribution of U.S.-backed sanctions policy to Iran’s economic plight but said Iran’s government was ultimately to blame. “The Iranian state has horribly mismanaged all aspects of their internal situation,” State Department spokeswoman Victoria Nuland told reporters Wednesday.
Other diplomats were even more blunt. One senior European official said the goal of the tightened sanctions was to “bring the Iranian economy to its knees,” and to “make it in a way that really hurts the regime more than the population. That is very difficult.”
Howard Schneider and Anne Gearan contributed to this report.