Selling $2 Billion in Currency Under Blockade Conditions Is High-Risk / Currency Shock Began Before the Blockade

A faculty member at Ahvaz University rejects the prediction that Iran's economy will collapse within two weeks. He believes that although the naval blockade and disruption of oil exports have limited the country's currency capacity, previous currency policies also played a role in intensifying the crisis. He also considers selling $2 billion in currency to applicants under resource constraints a high-risk move that, if capital exits the economic cycle, could end up harming national interests.

According to Ambassador Arjan, Iran's economy is faced with high inflation, a drop in economic activities and increasing restrictions in the supply of foreign currency, which, at the same time, external pressures and weaknesses in domestic policies, have made it more difficult to manage the crisis. In the meantime, Morteza Ofegh, an economist and member of Ahvaz University's academic staff, believes that although Iran's economy still has the capacity to resist, the continuation of disruption in oil exports can wear down these capacities. In a conversation with Ambassador Arjan, while criticizing the foreign exchange policies of Abdul Nasser Hemmati and the liberalization of the exchange rate, he warns about the consequences of allocating 2 billion dollars for the sale of foreign currency to applicants and the possibility of these resources leaving the economic cycle.

Morteza Ofgeh, an economist and member of the academic staff of Ahvaz University, rejecting the prediction of the two-week collapse of Iran's economy as a result of external pressures, believes that despite serious limitations, the country's economy still has the capacity to resist; However, the continuation of the maritime blockade and disruption of oil exports can reduce its ability to withstand more pressure.

In a conversation with Ambassador Arjan, Ofeke said that such a prediction is not compatible with economic and political realities. According to him, the dependence of Iran's economy on the sale of oil and its vulnerability to the economic blockade cannot be denied, but it cannot be expected that an economy of these dimensions will undergo a fundamental disintegration in a short space of time.

He emphasizes that evaluating such a claim depends on the precise definition of collapse. If this term means the fall of the political structure and the disruption of the established order, in his opinion, the groundlessness of this prediction was clear from the beginning. Ofeke also suggests that the economic capacities or reserves that are not included in the pessimistic estimates have contributed to the country's resistance.

However, this economist differentiates between resilience and having unlimited resources. According to him, the continuation of pressures, especially in the field of oil export and currency supply, can make economic conditions more difficult.

Ofeke considers one of the most important vulnerabilities of Iran's economy to be significant dependence on oil revenues. From his point of view, disruption in oil exports and limited access to foreign exchange sources have reduced the ability of policymakers to manage the foreign exchange market and meet economic needs.

He believes that in such a situation, the currency policymaker should not be expected to solve the structural problems of the economy by himself; But at least he can be expected to prevent the escalation of the crisis and reduce the pressure by managing the available resources.

Ofeke also points to the oil shipments that, according to him, were about 80 million barrels on the water between the signing of the Islamabad agreement and the resumption of the conflict with America, and they could generate foreign exchange income. However, he believes that this support has also been reduced to a minimum and it is no longer possible to count on the income from these shipments as in the past.

According to this economist, the reduction of reliable resources along with the disruption in oil exports has increased the necessity of prudent management of foreign exchange resources and maintaining the possibility of meeting the country's future needs.

Ofgeh: The currency shock had started before the siege

In evaluating the roots of the currency crisis, Ofeke does not focus only on external factors and considers domestic policies as part of the responsibility for the current situation. Criticizing the performance of Abdul Naser Hemmati and the proponents of freeing the exchange rate, he believes that previous currency policies have contributed to intensifying the pressure on the value of the national currency.

According to him, not all price jumps and exchange rate increases can be attributed to war and sea blockade; Because the process of weakening the value of the national currency had started before the intensification of these pressures.

Referring to the time sequence of economic developments, Ofeke says that until July, the currency shock of January was the main reason for the increase in prices, and from July onwards, the pressures caused by the war and sea blockade added to the existing problems. Accordingly, although external restrictions have increased the severity of the crisis, domestic policies have also contributed to the formation of the current situation.

He also emphasizes that there were warnings about the consequences of the exchange rate liberalization from the beginning, but he believes that the supporters of these policies have not fully accepted the responsibility for its results.

Sale of 2 billion dollars of currency; Providing today's needs or weakening tomorrow's support?

Another focus of criticism of Ofeh is the decision to allocate 2 billion dollars in currency and sell 10 thousand dollars to each qualified applicant. He believes that in a situation where the prospects of the country's foreign exchange earnings are uncertain, it is necessary to decide more carefully how to allocate these resources and its consequences for the economy.

Ofeke says that it is not clear how long the current restrictions will last and the resources that are supplied today may become more important in the coming months to meet the essential needs of the country. In his opinion, even in the medium term, this policy will not necessarily prevent the increase of the exchange rate.

Criticizing the justifications given for this decision, this economist believes that in the conditions of limited resources, the mere supply of currency cannot alone solve the market problem. According to him, the result of this action depends on how the currency is allocated and how buyers use it.

Ifegh suggests that the sale of currency can at best cover part of the budget deficit or help reduce liquidity; But the realization of these results is not certain. He warns that if the allocated currencies reach the hands of dealers and speculators and are used to buy unproductive assets or transfer capital abroad, this policy will drain the country's limited resources instead of helping the economy.

Criticizing this approach, he says: "It has put national interests at risk."

From the point of view of Afgha, the main issue is not only the amount of currency supplied, but it must be determined what these resources will be used for and whether they will return to the cycle of economic activities or fuel speculative demand and capital outflow.

Based on this, he believes that in a situation where oil export restrictions have made it difficult to access foreign exchange earnings, the policy maker must strike a balance between responding to the current demand and preserving the resources needed in the future. Otherwise, the decisions taken with the purpose of currency supply may lead to weakening of the country's currency support and increasing the vulnerability of the economy against subsequent pressures.

You can read the full text of this conversation here.