June 23, 2008


Worst of times for Iran (Spengler, 6/24/08, Asia Times)

Iran has shown in the most vivid fashion that it cannot solve its internal problems. It is therefore likely to seek an external solution.

What happened to the US$35 billion of oil revenues that Iran's Shabab News, in a now notorious account, claims disappeared from official accounting during the year through March 2008? Half the country's oil revenues disappeared from the books. A great deal of it left the country for banks in Dubai in the United Arab Emirates and elsewhere; capital flight already was running at a $15 billion annual rate last year, by my estimate.

During the past year, though, conspicuous consumption in the form of a luxury housing boom has absorbed even more of Iran's oil windfall. Luxury apartments in Tehran's better neighborhoods now sell for $15,000 per square meter, Agence France Presse reported May 26, equal to the best neighborhoods in Paris or New York. A 200-square-meter apartment in northern Tehran sells for about $1 million. Real estate prices in outlying suburbs and some provincial cities have doubled over the past year.

Corruption has metastasized, that is to say, for the scale of the property boom implies that tens of thousands of Iranians are taking six-to-seven figure bites out of the oil budget. Rather than a handful of officials siphoning state funds into bank accounts in Dubai, an entire class of hangers-on of the Islamic revolution is spending sums beyond the dreams of the average Iranian, and in brazen public view.

Ahmadinejad's patronage system generates payoffs to the political class that have set in motion uncontrolled inflation - officially 25% per year but certainly much higher - and a rush into real assets. A side effect is that the average Iranian urban household, which spends $316 a month, is gradually being priced out of the rental market.

Not only rents but foodstuffs, fuel and other essentials have registered double- or triple-digit price increases during recent months, according to fragmentary reports trickling out of the country. The government's 25% inflation figure cannot be correct. The German Suddeutsche Zeitung's Tehran correspondent wrote on June 17, "Price increases follow one another in batches. After the prices of rice and detergent suddenly jumped by a multiple, tea prices have their turn. In just a few days different types of tea have become 300% to 700% more expensive." It is too early to speak of hyperinflation, but the the Iranian bazaar already presents with symptoms of incipient hyperinflation. How do households survive?

Mahmoud has certainly shown he can't solve--in fact, doesn't understand--the internal problems. But the coming election, in which he'll likely be replaced by an ally of Ayatollah Khamenei, who's been pushing economic reform, suggests that there are internal solutions.

Posted by Orrin Judd at June 23, 2008 8:20 AM

Did you even read the whole article? It clearly states that there are no internal solutions thus the likelyhood of armed conflict rises every day. The only solution is for the whole place to start from scratch.

Posted by: BJW at June 23, 2008 12:26 PM

I would think that all the oil producing countries would be suffering from some form of inflation right now. You can't have that much money start flowing in to your country from rapidly rising oil prices and not see it reflected in prices of other goods.

Posted by: Brandon at June 23, 2008 1:01 PM

What possible reason is there to think that Khameini knows anything about how to reform an economy?

Brandon: Um, the money isn't "flowing into" those countries. It's "flowing into" the pockets of the kleptocrats in charge, and then "flowing into" swiss bank accounts.

Posted by: b at June 23, 2008 1:11 PM

OJ - you do know what followed Weimar don't you. A regime that killed millions of Jews. are you conceding that the Iranians are planning a second holocaust?

Posted by: Oddbark at June 23, 2008 6:36 PM

Khamenei's words suggest that he gets how the economic reform needs to go.

Posted by: oj at June 23, 2008 7:32 PM

Reading the wole article doesn't make them stop being a democracy. Elections are an internal tool.

Posted by: oj at June 23, 2008 7:33 PM

Yes, things like Nazism follow in hyperinflation's wake.

Posted by: oj at June 23, 2008 7:52 PM

Khameini and his presumed pets (Rafsanjani, Larijani, etc.) haven't shown that they know what to do, either. They are circling the drain just as much as Ahmadinejad. If the figures in the article are correct, the competing gangs will start trying to take each other out soon. Mahmoud may be the first to go, based on the upcoming election, or he may force some diversion with Hezbollah and/or Hamas. But the kleptocrats and the Guard know only one way to survive - to be as brutal as necessary.

The people of Iran have been spiritually eviscerated over the past 28 years. It will take a near miracle to find someone who can turn things around, and for the people to unite and demand change.

Posted by: jim hamlen at June 23, 2008 10:28 PM

OJ's love of Khameini reminds me of those misguided Lefties back in the old Cold War days who thought the new Soviet leader Andropov was some sort of closet liberal because he drank scotch and litened to jazz.

Same mentality, same mistake.

Posted by: Oddbark at June 24, 2008 4:26 AM

To the contrary, if Khamanei were a liberal he'd be worse than Mahmoud for Iran.

Posted by: oj at June 24, 2008 6:22 AM

If you brought the U of Chicago boys in they'd push a plan like Khamenei's.

Belief that Mahmoud and Khamenei were aklies reflects a misunderstanding, though a conventional one, of the situation.

Posted by: oj at June 24, 2008 6:30 AM

You kinda missed my point there OJ - perhaps deliberately so.

Like the Lefties of the 80s who projected their needs onto Andropov, you are projecting onto Khamanei.

Posted by: Oddbark at June 24, 2008 10:18 AM

I'm afraid you miss the point of the '80s--Andropov was right. It's a tragedy he died and the end game was left to a less competent protege.

Posted by: oj at June 24, 2008 12:35 PM

Right about what? Adropov was no reformer. He was a status quo KGB functionairy who was going to preserve soviet communism.

Posted by: Oddbark at June 24, 2008 2:32 PM

The reforms Gorbachev too timidly carried out were Andropov's. He wanted to preserve the regime not the revolution, as Khamanei is a republican, not a revolutionary.

Posted by: oj at June 24, 2008 7:14 PM

I understand your point about the Supremo being a liberal, but being a hide-bound reactionary keeps him from any economic reform at all. What's he going to do if he survives past the next election (presuming Rafsanjani wins) - go all Reagan on us? Not bloody likely. Preserving the republic now means some fundamental rearrangements, not just shuffling the prayer rugs around.

Posted by: ratbert at June 24, 2008 8:28 PM

Anropov was a reformer?

Gorbachev was timid?

What planet do you live on?

From a Time magazine article on the death of Andropov and the end of his 15 month rule:

"If the new man in the Kremlin follows Andropov's example, he will turn his attention first to his nation's considerable domestic problems. He will inherit an economy that is in only slightly better condition than the one that Brezhnev bequeathed to his successor. Andropov mixed greater calls for discipline with a handful of modest incentives, thereby raising national income by 3.1% in 1983. Better weather brought in an unusually large grain harvest last year, 200 million tons, compared with a low of 160 million tons in 1981. But the fundamental problems of industry and agriculture remain, and Andropov's reforms were at best stopgap measures. If his successor hopes to improve the Soviet economy in any fundamental way, he will have to take the far bolder step toward reforming the country's rigidly centralized bureaucracy."

Andropov was head of the KGB who had helped crush both Hungary in 1956 and Czechoslovakia in 1968. His "reforms" were mere tinkering around the edges:

"Andropov had only a brief time to be leader of the Soviet Union. He began in those months to rejuvenate the party leadership and to implement new policies. He appointed to the Politburo younger Communist officials, including a young expert on agriculture named Mikhail Gorbachev. He launched a campaign against corruption, making use of the secret police to hunt out and punish culprits within the state and party apparatus. He tried to improve industrial production by introducing measures punishing absenteeism and rewarding productivity. Finally, he launched a "peace offensive" intended to limit the introduction of new U.S. nuclear missiles in Europe. When in early September 1983 a Soviet fighter plane shot down a South Korean airliner flying over Soviet air space, he defended the hasty action of his frontier forces. The international protest over that incident seriously worsened Soviet relations with Western countries."

So I ask again, what reforms?

Posted by: Oddbark at June 25, 2008 6:26 AM

Yes, if he were a hidebound reactionary it would be a problem. But he's so radically altered the Khomeinist regime he inherited that the notion is itself reactionary. Add the economic reforms he proposes and he'll have a classic authoritarian reformer's resume.

Posted by: oj at June 25, 2008 9:48 AM

TIME? You're kidding right? Though even they are forced to recognize that Andropov was a reformist in power and that his successor is likely to continue the reforms.

Bingo! The reforms were necessary for exactly the same reason crushing dissent had been. He wasn't a liberal, just wanted to save the regime.

Posted by: oj at June 25, 2008 9:51 AM

Apparently your only counter argument is an ad hominem directed at Time magazine.

OK, so where are your sources that show Andropov to have been a true reformer instead of a reactionairy KGB hack

Posted by: Oddbark at June 25, 2008 11:19 AM

Wasn't the TIME correspondent in the USSR Strobe Talbott? Has anyone ever understood their beat less well? You're pretty much begging not to be taken seriously when you cite the contemporary MSM on the USSR. They all had it wrong, TIME more than most. What next the expert opinion of Hank Kissinger?

He was a reactionary hack, which is why he was trying to save the regime. No reform...no regime...no KGB.

Posted by: oj at June 25, 2008 3:27 PM
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