Iran's rial falls to record low on U.S. sanctions

TEHRAN Tue Jan 3, 2012 4:15am EST

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TEHRAN Jan 3 (Reuters) - The Iranian rial fell to a record low against the dollar on Tuesday following U.S. President Barack Obama signing a bill on imposing fresh sanctions against the country's central bank.

The new U.S. sanctions, if fully implemented, could hamper the world's major oil producer's ability to sell oil on international markets.

The exchange rate hovered at 17,200 rials to the dollar, marking a record low. The currency was trading at about 10,500 rials to the U.S. dollar last month.

Some exchange offices in Tehran, when contacted by Reuters, said there was no trading taking place until further notice.

"The rate is changing every second ... we are not taking in any rials to change to dollar or any other foreign currency" said Hamid Bakhshi in central Tehran.

Imposing sanctions on Iran's central bank would tighten the screw and make it more difficult for the world's fifth biggest oil exporter to receive payments for exports -- particularly oil, a vital source of hard currency for Iran.

Sharp rial fluctuations are linked to the foreign sanctions imposed on Iran since 2006 over its disputed nuclear programme, coupled with high inflation and concerns over potential military strike by the United States and Israel.

The United States and Israel have not ruled out military option if diplomacy fails to resolve Iran's nuclear dispute. Tehran denies the West's claim that it is after nuclear bomb, saying its response to any military strike will be firm.

WITHDRAWING SAVINGS

Some analysts suggest that the government is making profit out of the souring price of dollar but the currency drop has created concerns among ordinary Iranians.

Iran's economy is 60 percent reliant on petrodollars and any sanctions imposed on its oil income will put further pressure on the country's ailing economy.

"I have some savings in my account ... I am trying to withdraw it and change all of it to dollars," said housewife Zohreh Ghobadi, while waiting in a long line at a bank.

Iranian authorities have played down any link between the souring exchange rates and the imposition of the U.S. ban.

"The new American sanctions have not materialised yet," Foreign Ministry spokesman Ramin Mehmanparast told a weekly news conference on Tuesday.

"It will take a few months until these sanctions are fully implemented."

Iran responded to the growing international pressure by warning last week that it could shut the Strait of Hormuz in the Gulf if sanctions were imposed on its oil exports.

It launched 10 days of naval wargames in the Gulf as a show of strength, further rattling oil markets and pushing up the price of crude.

The U.S. Fifth Fleet, based in Bahrain, said it would not allow shipping to be disrupted in a waterway through which 40 percent of the world's oil passes.

The price of staple foods has increased by up to 40 percent in recent months and many critics have put the blame on increasing isolation brought about by President Mahmoud Ahmadinejad's economic and foreign policies.

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