As Iran threatened on January 3 to take action if the U.S. Navy moves an aircraft carrier into the Persian Gulf, the country’s economy is taking a hit as new US and EU financial sanctions take a toll.  The prospect of sanctions targeting the vital oil sector has hit Iran's rial currency, which has fallen by 40 percent against the dollar in the past month. Lines of customers snaked their way to the entrances of banks, while currency exchanges  shut their doors as Iranians scrambled to buy US dollars to protect their savings. Iranian consumers are also dealing with price hikes for fuel and other subsidized goods.

Culminating weeks of saber-rattling, Iranian Army chief Ataollah Salehi said the United States had moved an aircraft carrier out of the Gulf ostensibly because of Iran's naval exercises, and Iran would take action if the ship returned. The USS John C Stennis aircraft carrier is leading a task force in the region. At least one US submarine, equipped with cruise missiles, is also believed to be in the region. The defiant Iranian officer, nonetheless, declared "Iran will not repeat its warning ... the enemy's carrier has been moved to the Sea of Oman because of our drill. I recommend and emphasize to the American carrier not to return to the Persian Gulf." He added, "I advise, recommend and warn them over the return of this carrier to the Persian Gulf because we are not in the habit of warning more than once." During its 10-day military exercises, Iran test-fired missiles that are believed capable of striking targets in Israel and the Arabian Peninsula.

The unsettled economy, and the prospect of war, comes as further uncertainty is brewing in Iran. Elections are coming March, the first since a 2009 vote that triggered countrywide demonstrations. Iran remains defiant about its nuclear program, claiming that it is not engaged in weaponization. The United States and the EU have imposed the increasingly tight sanctions on Iran in the belief that the Islamic Republic is building a nuclear weapon. Iran has developed long-range missiles that may be capable of delivering a nuclear warhead.

Until now, sanctions apparently had little effect on the course of Iranian policies. President Barack Obama signed new sanctions on New Year's Eve that would cut off any financial institutions that work with Iran's central bank from the U.S. financial system, blocking the main path for payments for Iranian oil. The new law, if fully implemented, would make it impossible for many refineries to pay Iran for crude. While it imposes measures gradually, it also allows Obama to offer temporary waivers to prevent an oil price shock.

Following on, the European Union may impose new sanctions by the end of January, which may include a ban on oil imports. The EU is also considering a blockade. Sanctions will hurt some member states, such as Greece which buys Iranian crude at a discount. French Foreign Minister Alain Juppe said Paris wants new measures taken by January 30, when EU foreign ministers meet. "France ... wants sanctions toughened and the president (Nicolas Sarkozy) has made two concrete proposals on that front - the first being the freezing of Iranian central bank assets, a tough measure, and the second an embargo on Iranian oil exports," Juppe said on French TV. Michael Mann, spokesman for EU foreign policy chief Catherine Ashton, said member states would discuss the issue this week in the hope of reaching an agreement on new steps before the January 30 meeting. "The ball is still in the Iranians' court," he said.

China, even while it has not backed sanctions on Iran, seeks to capitalize on Iran’s plight. Beijing is demanding hefty discounts to buy Iranian oil even while it has pays a premium for crude imports from Russia and Vietnam. China is Iran’s main trading partner. China bought 11 percent of its oil from Iran during the first 11 months of 2012, and has now cut its January purchase by about 285,000 barrels per day, more than half of the close to 550,000 bpd that it bought through a 2011 contract.

While some observers believe that it may be bluffing, Iran did manage to worry the world’s petroleum markets in December when military chieftains said it could easily block shipping through the Strait of Hormuz – a narrow shipping lane leading from the Persian Gulf to the Arabian Sea and through which 40 percent of the world's oil trade flows. Shortfalls in Iranian oil production in the late 1970s, and threatened mining of the Persian Gulf, caused shortages and price fluctuations throughout the world.




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Spero News editor Martin Barillas is a former US diplomat, who also worked as a democracy advocate and election observer in Latin America. His first novel 'Shaken Earth', is available at Amazon.

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