Iran: preparing for food vs. oil sanctions

Iran Materials 24 January 2013 14:21
Iran’s economic performance for 2012 was composed of alarming indicators for Iranians
Iran: preparing for food vs. oil sanctions

Dalga Khatinoglu, Trend Iran News Service chief /

Iran's economic performance for 2012 was composed of alarming indicators for Iranians. An 0.9 economic contraction, 27.4 per cent inflation rate, 14 per cent unemployment, 50 per cent decrease in oil exports which shared 87.9 per cent of the country's total exports in 2011, increasing bad loans to $60 billion and increasing liquidity to around $350 billion.

Now the Iranian government headed by Mahmoud Ahmadinejad whose rule will finish in six months, has new disputed economic plans.

According to a Mehr News Agency report, the government wants to issue 17 million 'food cards' for poorer citizens aimed to support them with oil, rice, sugar and probably meat and chicken.

The Iranian government reportedly agreed with parliament to pay a monthly sum of between 800, 000 to 1000, 000 rials to very poor families as well. Several days ago,the government and parliament agreed to allocate $2 billion from the National Development Fund (NDF) to provide staple foods for 15 million low income families.

The USD in Iran's official rate is 12, 260 rials, but in an open market, the dollar is being sold for 36, 690 rial on Jan.24, while this figure in early 2012 was around 21, 000 rials.

Iran's national currency dropped 40 per cent during a year. In fact, Iranian very poor citizens would receive at least around $27 based on an open market rate in a month as compensation for the rising commodities' price. Other citizens would keep receiving 450, 000 rials (about $12) cash per month.

The Iranian government commissioned a subsidy reform plan in late 2010, paying monthly 45, 000 rials cash money to citizens, which amounts to about $3 billion based on the officials USD rate and $0.9 billion based on the USD rate in an open market.

In budget law, the paid cash payments as compensation of eliminating a part of subsides is counted based on official USD rate.

According to the subsidy reform plan, the Iranian government's income from removing a part of the subsides should allocate cash payments to citizens by 50 per cent, to industry sector by 30 per cent and remained 20 per cent for the government.

However, the budget commission member of Iran's Parliament Ismaeil Jalili said on Wednesday that the total income from removing a part of the subsides reached $30 billion in the past 12 months.

This figure is not 50 per cent of removing subsidy income but 120 per cent of the paid cash money amount for citizens, a fact that reportedly forced the government to borrow about $10 billion from banks.

The Iranian government announced last September that it is preparing to launch a second round of the subsidy reform plan, but parliament boycotted Ahmadinejad's suggestion.

Iranian Parliamentary Economic Committee chairman Gholamreza Mesbahi-Moqaddam has predicted that the administration would face a 740 trillion rials (some $60 billion) budget deficit in the current calendar year.

Jalili says Ahmadinejad wants to earn $100 billion from increasing prices due to removing subsidies amount more, this means the government wants to increase energy carriers' price by 4.5 times in last solar year, which will start on March 20.

New round of The U.S sanctions

The United States' new round of sanctions on Iran will begin in two weeks.

According to this round of sanctions, Iran would be unable to transfer exported oil money through any currency into the country. The oil money would be transferred into an internal bank in an Iranian oil importer's country and Iran can spend this money to import certain commodities from only those countries. This is exactly similar to sanctions over Iraq in the 1990s called food vs. oil sanctions.

The Iranian government has no choice but to rely on internal financial sources. For instance Iran's oil exports halved in 2012 compared to 2011 and cost the Iranian government about $60 billion lose.

Rising energy carriers' price by 4.5 times can compensate for a drop in oil revenues completely, but this would cause more and more inflation, economy contraction and unemployment rate. The Iranian industry sector which is being knocked by sanctions has to pay more money for gas, electricity and water. Damaging this sector means losing more and more jobs and increasing economic contraction.

It seems as if the Iranian government has reached a decision over its nuclear ambitions and attempts to launch a 'resistance economy' with unpredictable consequences.