Iran's currency, the rial, has lost 71 percent of its value against the dollar since September, a fact that a senior Treasury Department official said today was a direct result of U.S. and international sanctions on Tehran. Today the rial dropped 10 percent to reach record lows after the European Union imposed sanctions.
The EU today banned oil imports from Iran, and the U.S. Treasury sanctioned Iran's third largest bank, the last of five state-owned banks to be sanctioned, and one of Iran's final lifelines to the international monetary system.
Iran has reacted to the increased pressure with heightened belligerence in the Strait of Hormuz as well as a renewed willingness to engage in nuclear talks.
The Treasury Department official said today that Iran had taken some drastic steps to counter the effect of sanctions, including blocking text messages that contain the words "euro" or "dollar." Sales of Western currencies were banned and plain clothes police roam currency exchange booths searching for violators, the Treasury official said.
According to a senior European diplomat, the EU's oil ban, combined with decisions by Japan and South Korea to cut back oil purchases from Iran, will have a disastrous effect on Iran's economy. Together they account for a significant percentage of Iran's foreign oil sales. Countries like Russia, China and India represent the balance, but not enough to make up for the loss of revenue.
As Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner made clear in their joint statement this morning the aim is clear: to starve Iran's nuclear program of its major source of funding but cutting off oil revenues.
Given that the United States has yet to even begin implementing tough new sanctions on oil deals through Iran's Central Bank, the senior Treasury official today predicted that Iran's economic woes were only going to get worse in the near future.