Thursday, July 5, 2012

Iran's threats originate from internal pain

FARS: - Commander of the Islamic Revolution Guards Corps Aerospace Force Brigadier General Amir Ali Hajizadeh said that the IRGC has detailed contingency plans to hit 35 US bases in the region in the early minutes of a possible conflict.
What's driving this aggressive posture from Iran? This certainly isn't new, but such detailed threats against the US are somewhat unusual even for the Islamic Republic. The answer as always comes down to managing domestic perception. How does such a government hold on to power when conditions at home are deteriorating? By encouraging the population to rally against a common "enemy".
FARS: - "The West and the Zionist regime are on the verge of collapse; the US and its allies are making their utmost efforts to deviate Islam..."
And the situation domestically is indeed getting worse. Unwilling or unable to stem capital outflows, Tehran once again allowed the Iranian currency to depreciate - reaching an all-time low of 12,407 rial to the dollar. With the official inflation rate now running at 24% (and the unofficial number could be much higher), this import dependent nation's struggles are increasing.

Iranian Rial Spot (IRR)
Bloomberg: - Iran’s economy has deteriorated amid the sanctions, which have weakened the national currency and pushed up costs that were already surging after the government started removing energy and food subsidies a year and a half ago. Inflation accelerated to 22.2 percent in the 12 months ended May 20, the Central Bank said.
With oil and oil products accounting for 80% of Iran's exports and half of government revenue, the sanctions will add further pain.
Bloomberg: - Iran was producing about 3.3 million barrels a day in May. Full implementation of sanctions will remove about 1 million barrels a day during the second half of the year, the Paris- based International Energy Agency forecast in a June 13 report.
Backed against the wall, desperately wanting to raise oil prices to stabilize declining revenues, and trying to rally the masses at home, Iran becomes increasingly belligerent in its interactions with the West.
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