Sanctions push Iran into recession: IIF

BEIRUT Mon Dec 10, 2012 9:57am EST

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BEIRUT (Reuters) - Sanctions imposed on Iran over its nuclear program have pushed the country into recession, a global association of financial services said on Monday.

Crude oil exports have dropped sharply, the Iranian rial has plummeted and inflation has soared in 2012, the Washington-based Institute for International Finance said in its report on the Middle East and North Africa.

GDP in 2012 is expected to shrink by 3.5 percent, from 1.2 percent positive growth in 2011, it added.

The West suspects Iran is enriching uranium to levels that could be used in weapons and the U.S. Senate is considering a broader set of economic sanctions on Iran's energy, port, shipping and shipbuilding sectors.

Tehran says its nuclear program is for civilian purposes.

During the 2012/2013 fiscal year "with crude oil prices holding at around $110 per barrel, government revenues from oil (which accounted for about half of its total revenues in previous years) could drop by at least 40 percent," it said.

The Iranian government has started consolidating public spending to offset a fall in revenues, it added.

The rial has been "steadily depreciating this year as foreign currency inflows have been garnered by the central bank for use in payment for government imports and to meet essential import needs," it said.

Inflation will average around 50 percent this year, up from 26.5 in 2011.

Iranian officials at first sought to downplay the effect of sanctions, but in recent months have acknowledged their impact on the economy, saying Iran must use the sanctions as an opportunity to wean itself off heavy dependence on oil.

Iranian parliamentarian Gholamreza Mesbahi Moghaddam, who sits on the parliamentary budget committee, said in November the state budget for the next fiscal year may assume exports of just one million barrels of oil per day, about half volumes shipped in 2011.

The economic problems have also contributed to sharper criticism of President Mahmoud Ahmadinejad by his rivals in parliament, worsening divisions within the government.

Parliament speaker Ali Larijani said last week the country was experiencing an "economic drought" this year.

The IIF report said that the economic conditions could have serious political and social implications as the country approaches mid-2013 presidential elections.

"As the economy enters a recession, the regime faces pressures from rising public unrest and discontent within Parliament," the report said.

(Reporting by Oliver Holmes in Beirut and Yeganeh Torbati in Dubai; Editing by Angus MacSwan)

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Comments (1)
Chazz wrote:
In the late 1930′s the US imposed a series of increasingly stringent economic sanctions on Japan. The goal was to obstruct Japan’s heinous military aggression and advance in Asia.

US President Roosevelt knew the sanctions were putting Japan in an untenable position and that the Japanese government might well try to escape the economic stranglehold by going to war. Their only other choice was to submit to US demands, and that is something that they could NOT do and still “save face.” (“Saving face” guides daily life in Asia. Causing someone to “lose face” — even if done on accident — is an infraction rarely forgiven.)

Having broken the Japanese diplomatic code, the Roosevelt Administration read this message sent by Foreign Minister Teijiro Toyoda to Ambassador Kichisaburo Nomura On July 31, 1941: “Commercial and economic relations between Japan and third countries, led by England and the United States, are gradually becoming so horribly strained that we cannot endure it much longer. Consequently, our Empire, to save its very life, must take measures to secure the raw materials of the South Seas.”

Three days and 71 years ago the Japanese attacked Pearl Harbor – and act that brought us completely into World War II. We all know how well that turned out for the millions who died in that conflict.

Fast forward to today and once again economic sanctions are strangling a country with beliefs and traditions that are far worse than just “saving face.” The Japanese people had no problem dying for their “Emperor.” Our news shows us daily that Iranians and Islamic fanatics have no problem dying for Allah. The cooker is sealed and the heat is turned on high. Will Iran just cave into Western demands or, will they fight back because the option to cave is completely, and utterly, unacceptable? Is history going to repeat itself?

The scary part of this – to me – is that starting a war is not a BAD thing in the hearts and minds of the Iranian leaders. They believe a war will hasten the coming of the Mahdi – the “Last Messiah.”

In the words of Dr. Carl Sagan, “Imagine, a room, awash in gasoline. And there are two implacable enemies in that room.” Both have matches….

Dec 10, 2012 11:54am EST  --  Report as abuse
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