On the 8th of August 1988, the price of foreign currencies and gold in Iran collapsed to the point that dozens of Iranians committed suicide because they were unable to settle debts or had lost their wealth, as the newspaper Keyhan reported at the time. Some historians assert that the Iranian riyal’s loss of two thirds of its value was a national catastrophe for the regime, particularly as the country had not yet recovered from the 1987 money markets’ shock. The difficult economic situations were one of the main reasons for Tehran’s acceptance of a ceasefire according to conditions it considered unfair but the regime had to drink the “poison” — as late Imam Khomeini said – so that the people would not die from starvation.
Historians differ over the main reasons that led to the collapse of the Iranian economy but there is an almost consensus that the attempts by some Revolutionary Guards’ naval units to plant sea mines in the Strait of Hormuz targeting US navy vessels in the Gulf in April 1988 and the lightening US operations that followed to strike the Iranian navy under the name of “the Prophet’s horse” ultimately led to the downing of the Iranian Flight 655 in July 1988. All these desperate attempts to threaten the safe passage through the Strait rebounded quickly on Iran politically and militarily and it found itself incapable financially of continuing the war.
Some of the events of 1988 were repeated last week. Iranian Navy Commander Habibollah Sayyari came out to say “closure of the Strait of Hormuz to oil tankers is easier than drinking water.” The Iranian navy tried at the same time to flex its muscles through major exercises and the testing of an assortment of weapons. And though the Iranian Government denied later it intends to close the Strait and sent a message to the EU demanding the reopening of negotiations, the international reactions were angered by the Iranian show of force and the policy of blackmail as a means for negotiations.
As a result of this, the Iranian maneuver failed to change the prevailing negative atmosphere and even at the time the Iranian regime was threatening to close the Strait US President Barack Obama was signing a decision putting into effect the new package of American sanctions imposed on Iran. It was a bold and direct decision imposing sanctions on Iran’s Central Bank which is responsible for the Iranian Oil Company’s revenues. Some observers compared the decision to “a declaration of war” by freezing the Central Bank’s activities through which the country’s financial transactions are carried out. This made the Iranian riyal lose 35 percent of its value since the announcement of the sanctions last September.
The Iranian regime is undoubtedly in a state of shock and anger because its economy is being directly targeted. But it appears that the Iranian decision makers do not have other options for avoiding the anticipated collapse in their financial markets and the evidence of this are the Iranian threats to stop trade exchange with the United Arab Emirates and before that the draft bill in the Iranian Shura Council to sever commercial ties with Saudi Arabia after the Bahrain events. All of these remained threats which the regime did not carry out because they were bound to increase its economic isolation.
While preparing to write this article, my attention was drawn to two reports separated by 23 years which sum up the present Iranian scene. Al-Majalla magazine published a report headlined “suicide cases in Tehran” (13 September 1988, issue 448) in which it talked about the Iranians’ despair and melancholy following the collapse in the riyal value. The report related the tale of a widow called Shahnaz whose difficult economic conditions forced her to sell their house and all her savings so as to buy a gold coin to secure food for her three children. The other report was published by the New York Times under the headline “Iranian currency collapses under US sanctions” (2 January 2012) in which it reported that house prices rose 20 percent and the banks stopped giving bank guarantees or sell the dollar at the government sanctioned value. The newspaper reported within the article the tale of a young man called Meherdad Allehyari who dreamt of buying a “BMW” car but was forced to sell his motorcycle – which was all he owned – to turn its price into dollars for fear of the riyal losing more of its value in the coming weeks.
With this worrying scenario, the Iranian threats should be taken seriously, not because Iran is capable of closing the Strait for it does not have the military preparedness for this but because the Iranian regime is now in the position of being economically and politically blockaded. There are two teams inside the ruling conservatives’ camp: One is pushing for confrontation and the other wishing to avoid a clash with neighboring countries or foreign forces deployed in the Gulf. Hence the Iranian decision remains confused and we do not really know how the wind will blow.
In an important scientific article published by researchers Joshua R. Itzkowitz Shifrinson and Miranda Priebe from the Massachusetts Institute of Technology entitled “Crude Threat: The Limits of An Iranian Missile. Campaign against Saudi Arabian Oil”, they concluded that Iran lacks the necessary military competence to carry out a major operation with which it closes the Strait, strikes the neighboring countries’ ports, and targets the oil and gas production lines. The Revolutionary Guards might be able to carry out a series of suicide operations and activate the sleeping cells for sabotage but naval wars require more than booby-trapped naval cruisers.
All right, what would happen if the Iranian regime decided to risk it militarily? Can it really close the Strait? The two researches Shifrinson and Priebe answer that such a scenario might impede navigation between three days and even three weeks to allow removing the mines and sunken ships from it. As to Iran’s ability to disrupt the Saudi oil installations with ballistic missiles, the Saudi defense capability will be capable of repelling any missile attacks and these will not affect the production lines because of its superior air force, its possession of early warning systems, and the presence of modern land defense systems (International Security periodical: Summer 2011).
No one can predict the Iranian regime’s behavior. The regime leaders are used to exercising the brinkmanship policy. But during the several times when the regime was in danger, the desire for the regime’s survival overcame the suicide tendency among some of its men. There is an almost consensus that the Iranian regime’s closure of the Strait or the threat to navigation in it will subject Tehran to a confrontation, not just with the Gulf countries or Western forces but also with other international forces like China, India, and Japan. These countries will not accept having their oil imports stopped by an Iranian decision.
The Iranian regime is facing a real challenge. Its problem is not – just – military as much as it is an economic and political one inside and abroad. If the regime leaders do not realize that the collapse of the riyal is more dangerous than the foreign presence in the Gulf waters or agree to make concessions in the nuclear dossier, then Iran will without any doubt drag the region to a futile war that will cost everyone dearly in human and financial terms.
Shahnaz and Meherdad did not aspire for hegemony over the Gulf waters or to impose the Shiite ideology influence on the region by force of arms but their main concern was, and remains, that their national currency have a value so they can have a dignified life like the other Gulf countries. The Persian proverb says: “You can close the city’s gates but you cannot shut its people’s mouths.”