Cracks in the ground
Spengler at the Asia Times asked a year ago: what do you give someone who has everthing -- "cancer, AIDS, Alzheimer's, diabetes, kidney failure, and so forth. Iran's economy is so damaged that it is impossible to tell how bad things are. Except perhaps for the oilfields of southern Iraq, and perhaps also northern Saudi Arabia, there is nothing the West can give Iran to forestall an internal breakdown."
That degree of dysfunction was underscored by a recent Pajamas Media article describing the biggest case of corruption in Iran. Or possibly the Middle East. The chief auditor of the Iranian parliament has reported that $35 B of the country's oil revenues has just gone missing. Not that there's a heck of a lot to be stolen anyway. Despite record oil prices, the regime in Teheran has mismanaged its economy so badly that it is bankrupt. Losing the $35 billion is like a struggling retiree looking in the sugar jar and finding that the next six month's rent money is missing. Spengler writes:
Iranian dissidents put overall unemployment at 30% and youth unemployment at 50%. Government subsidies sustain a very large portion of the population; 42% of the non-agricultural population is employed by the Iranian state, compared with 17% in Pakistan.
Within fewer than 10 years, Iran will become a net importer, at which point the government no longer will be able to provide subsidies. Iran's economic implosion is a source of imminent strategic risk.
Risk to whom? one might ask. More on this later. But the huge corruption scandal in Iran may actually understate the extent of its mismanagement. The Pajamas Media article continues: "This is a serious allegation, as this amount constitutes almost half of Iran’s total oil income for that year. ... To make matters worse, this is not the first time since the start of the presidency of Mahmoud Ahmadinejad that money has been used without the Majlis’ knowledge. One other famous case took place during the 2007-08 financial year. It was revealed later that $2 billion was used to import gasoline, without any consultation or approval of the members of the Iranian parliament."
Spengler argues that Iran is treating its economic malaise with the equivalent of Dr. Morell's famous little pills. Morell was Hitler's personal physician and kept the flagging dictator going with short-term stimulants to the detriment of his long-term health.
The fact that Iran cannot stabilize its currency suggests a breakdown of political consensus within the regime, and a scramble by different elements in the regime to lay hands on whatever resources it can. ... That is the background to Ahmadinejad's decree last week reducing private and state bank lending rates to 12% from 14%, that is, 5-10 percentage points below the rate of inflation. If Ahmadinejad were in the pay of a hostile intelligence service, he could not have found a more effective way to sabotage Iran's economy. If the price of goods rises faster than the cost of money, everyone who can will borrow money to purchase and hoard goods. The result will be higher prices and reduced economic activity, and the eventual prospect of hyperinflation, which no government ever has survived.
Even after discounting the gloom-and-doom talk, there's a reasonable case for arguing that Iran is on the ropes. Spengler argues that one of the motives for Iran's foreign adventures in Lebanon and Southern Iraq -- what he calls Ahmedinajad's "pocket Persian empire" -- is to export Iran's domestic pressures. If so, we are probably not far from hearing the argument that we ought to let Iran continue its expansion in order to forestall an internal meltdown.
Right now Nancy Pelosi maintains that Iran is distributing political largesse, according to Abe Greenwald who listened to her audio interview in the San Francisco Chronicle, advancing the view that Teheran is not only in definite control of the situation at home, but the situation in Iraq. Pelosi said after her May 17 trip to Iraq:
Well, the purpose of the surge was to provide a secure space, a time for the political change to occur to accomplish the reconciliation. That didn’t happen. Whatever the military success, and progress that may have been made, the surge didn’t accomplish its goal. And some of the success of the surge is that the goodwill of the Iranians-they decided in Basra when the fighting would end, they negotiated that cessation of hostilities-the Iranians.
Manifest evidence that Iran is in difficulty will decisively undermine the assumptions underpinning Pelosi's strategy. Developments in the next few months will clarify the situation for all to see. If Iran begins to break down then it will be abundantly clear that Pelosi's -- and indeed Obama's -- diplomatic strategy in the region is fundamentally flawed. There is no point to going, hat in hand, to a regime that is itself on the way out. It would be like dealing with a corpse. Moreover, if Spengler's prediction that Iran has no way out but to continue it's "imperial adventure" -- "In fact, Iran is engaged in such an adventure, funding and arming Shi'ite allies from Basra to Beirut, and creating clients selectively among such Sunnis as Hamas in Palestine," then the Pelosi-Obama strategy of rapidly abandoning Iraq before an imploding, yet expanding radical Islamic state will be the worst of all possible worlds.
But there is a silver lining to Teheran's mismanagement of affairs. It creates the possibility that regime change will occur without any direct military intervention in Iran. It may simply be sufficient to hold the line and keep up the pressure against Iranian proxies in Southern Iraq and Lebanon to make Teheran blow a gasket. I've argued before that the greatest danger that the relatively liberal, Shi'ite democracy in Iraq poses to Teheran is that it creates an alternative political model within the Shi'ite Crescent.
I'd like to think that if events in the next months show Iran starting to crack, then the Democratic Party will see the see the strategic opportunity and reverse its position on abandoning Iraq. But then again in politics what's good for the faction isn't always good for the nation. Ahmedinajad proved that.
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