Worst of times for Iran
"Annual income twenty pounds, annual expenditure 19 pounds 19 shillings and six pence, result happiness. Annual income 20 pounds, annual expenditure 20 pounds and six pence, result misery," said Charles Dickens' Wilkins Micawber in the novel David Copperfield.
Households in President Mahmud Ahmadinejad's Iran must suffer on a Dickensian scale, for they spend 10% more than their income, according to the country's central bank. Iran's data are more hilarious than reliable, to be sure, but they illustrate how ordinary Iranians are perishing in a sea of petrodollars.
The price of oil more than doubled since I warned last year (Why Iran will fight, not compromise Asia Times Online, May 30, 2007) that Iran's Islamic kleptocracy had reached the end of its rope. Despite the surge in oil revenues, conditions are worse than they were a year ago, as the price of necessities soars out of ordinary reach. Not only the theft of the oil windfall, but the manner of the heft, puts Adhmadinejad's political future in doubt, as Sami Moubayed reported on this site on June 21 ('President' Larijani: A star is born). Changing the man at the top, however, is no cure for fecklessness of Central African proportions. Underneath Iran's imperial ambitions and messianic pretensions suppurates a pre-modern patronage system that corrupts everyone who comes near it.
The system is rotten, and must either break down, or break out, that is, through military adventures. Western observers who hope for reduced tensions through replacing the feckless Ahmadinejad with Majlis (parliament) speaker Ali Larijani will be disappointed. On that more below.
Iran's economic disaster looms large in the twilight war now in progress in the Middle East. Israel has just conducted the sort of public display of force that a nation does not do if it actually plans a surprise attack. Israel engages Syria, Egypt engages Hamas, and everyone else engages Iran - but to what end? It may be Sitzkrieg (sitting or phony war), but it is war nonetheless. Wars arise not from whim, but from circumstances that the prospective belligerents cannot bear. Iran has shown in the most vivid fashion that it cannot solve its internal problems. It is therefore likely to seek an external solution.
What happened to the US$35 billion of oil revenues that Iran's Shabab News, in a now notorious account, claims disappeared from official accounting during the year through March 2008? Half the country's oil revenues disappeared from the books. A great deal of it left the country for banks in Dubai in the United Arab Emirates and elsewhere; capital flight already was running at a $15 billion annual rate last year, by my estimate.
During the past year, though, conspicuous consumption in the form of a luxury housing boom has absorbed even more of Iran's oil windfall. Luxury apartments in Tehran's better neighborhoods now sell for $15,000 per square meter, Agence France Presse reported May 26, equal to the best neighborhoods in Paris or New York. A 200-square-meter apartment in northern Tehran sells for about $1 million. Real estate prices in outlying suburbs and some provincial cities have doubled over the past year.
Corruption has metastasized, that is to say, for the scale of the property boom implies that tens of thousands of Iranians are taking six-to-seven figure bites out of the oil budget. Rather than a handful of officials siphoning state funds into bank accounts in Dubai, an entire class of hangers-on of the Islamic revolution is spending sums beyond the dreams of the average Iranian, and in brazen public view.
Ahmadinejad's patronage system generates payoffs to the political class that have set in motion uncontrolled inflation - officially 25% per year but certainly much higher - and a rush into real assets. A side effect is that the average Iranian urban household, which spends $316 a month, is gradually being priced out of the rental market.
Not only rents but foodstuffs, fuel and other essentials have registered double- or triple-digit price increases during recent months, according to fragmentary reports trickling out of the country. The government's 25% inflation figure cannot be correct. The German Suddeutsche Zeitung's Tehran correspondent wrote on June 17, "Price increases follow one another in batches. After the prices of rice and detergent suddenly jumped by a multiple, tea prices have their turn. In just a few days different types of tea have become 300% to 700% more expensive." It is too early to speak of hyperinflation, but the the Iranian bazaar already presents with symptoms of incipient hyperinflation. How do households survive?
"Iranian urban households spent an average of 35 million rials (US$$3,700) for current annual living expenses (about 2.9 million rials per month)" in fiscal year 2005-2006, reports the country's central bank, of which just under 30% bought food. But it also reports that "urban households had an annual average gross income of 31,674 thousand rials [US$$3,423], about 2,640 thousand rials per month, out of which 74.6% was the share of money income and 25.4% was the share of non-money income."
These are the most recent data available from the central bank, which does not explain how it is possible for households to spend more than they earn in a country that has no consumer credit (nor for that matter what "non-money income" involves). Part of the explanation seems to be that every poor Iranian has a part-time job, from selling black-market gasoline to prostitution. The latter appears to be the most lucrative source of extra household income. Some 300,000 prostitutes ply the streets of Tehran, or one out of 10 of the city's female population of child-bearing age,  according to the most frequently cited sources (see Jihadis and whores Asia Times Online, November 21, 2006.)
In addition, tens of thousands of Iranian women are working as prostitutes abroad, notoriously in the Gulf States, but in Europe and Japan as well. The US State Department recently downgraded Iran to a "Level III" country, that is, one that does nothing to suppress the trade in female flesh.
Prostitution incorporates such a large proportion of Iran's marriageable females as to accelerate the country's demographic decline, which by 2030 will leave Iran with as high a proportion of pensioners as Western Europe, just as its oil reserves run out. Unlike Norway, which entrusted its oil windfalls to a national trust under professional management, Iran has allowed the political class to steal its patrimony.
The Persian pocket empire never had a government or a civil society: it only had a court and a bazaar, which are incapable of managing the affairs of a modern society. There is no political party, no social movement, in fact no form of popular organization of any kind capable of handling $350 million a day of oil revenue at present prices.
"Regime change" is a buzzword among Western strategists, but it is not at all clear what sort of regime might replace the court-and-bazaar combination that has characterized Persian politics for the past 2,600 years. Apart from a thin crust of Western-oriented students in the larger cities, the Iranian population remains sullenly dependent on state subsidies as well as its own cupidity.
Apart from oil, Iran exports mainly fruits and nuts. Its most talented people have emigrated, leaving behind only the leeches of the bazaar who hope to grow fat on state oil money. Its demographic problems are insoluble. It has no employment to offer its last generation of young people, half of whom have no visible employment, and no way to support a rapidly aging population. I am in no position to judge the likelihood that the Twelfth Imam of Shi'ite soteriology will reappear in the near future, but it is a fair assertion that nothing else is likely to steer the Persian pocket empire out of the ditch. Western analysts start with the premise that a solution exists for every problem, and set out to find it. I do not believe there is any way to save Iran from terminal dysfunction; it is only possible to prevent Iran's problems from turning into a disaster for the region.
It is no surprise that Iran's leaders remain obsessed with Shi'ite revolution. Larijani told the Islamic Coalition Party on June 19, "The jihadi forces of the Lebanese Hezbollah and the Palestinian Hamas are the pioneers of change in today's world," Iran's official press agency reported. Larijani added, "Interpreting the moves made within the Islamic World as terrorism under such conditions that the Islamic society enjoys the pride of having jihadi combatants is a grave mistake, since those groups are the soldiers of Almighty Allah." IRNA continued:
Larijani reiterated, "During the course of the 33-day war [in 2006] the global arrogance invaded against an oppressed nation with all its might having assumed that they could in confrontation with the jihadi combatants fighting for Allah's sake crash them fatally."The fact that Larijani holds a doctorate in European philosophy and has authored books on the philosopher Immanuel Kant impressed political observers in Germany, that is, until he spoke at the annual Munich Conference on Security in February 2007. As Der Spiegel reported, "Larijani was cornered. In his answer he talked about an 'overreaction' to the Holocaust. In any case, he said, 'That's a historical matter,' which has 'nothing to do with us'. He was 'neither for, nor against' the idea that the Holocaust had really occurred, saying it was an 'open question'. He thus delicately danced around a straight denial of the Holocaust, which is illegal in Germany. If Larijani had voiced the well-known opinion of his own president, Mahmud Ahmadinejad, he could have been arrested."
He reiterated, "The US Secretary of State had at that time directed the March 14 group to disturb the internal situation, assuring them that the Zionists, backed by the US, too, would wrap up the work of Hezbollah, and that was their strategic mistake." The parliament speaker said, "The Lebanese nation, in the framework of Hezbollah, resisted against the United States and Israel so that even their friends confessed to their defeat."
Larijani said, "The sagacious stands adopted by [Hezbollah leader] Seyyed Hassan Nasrallah regarding the recent developments in Lebanon revealed the plots hatched by the arrogance and they begged assistance from the small country Qatar, where they yielded to the presence of Hezbollah in Lebanon."
He considered all such jihadi victories as fruits of the martyrs' pure blood, arguing, "The martyrs were those who changed the conditions and were involved in deciding the fates of nations." (Emphasis added)
Adhmadinejad is a boor from the back streets of Tehran, while Larijani is the polished son and the son-in-law of two ayatollahs. No matter; German universities during the 1930s were crawling with Kant scholars who enthused for Adolf Hitler. Larijani's enthusiasm for the blood of martyrs as the determinant of national destiny is not a philosophical, but an existential view, and Iran is one of the few venues in the world in which existential despair is sadly justified.
1. Assuming that the distribution of female population in Tehran is the same as that in all of Iran. According to United Nations population data, in 2005 half of Iran's women were between 15 and 44 years of age.