Tuesday, March 19, 2013

Iranian Economics: Sanctions and Sports Cars


Increasing economic sanctions, and Iran’s strict refusal to abandon nuclear development programs have lead to a sharp destruction of the Iranian economy. As BBC reported in January, “Gholam Reza Kateb, an MP on the national planning and budget committee, said the country's economy as a whole was in trouble” (BBC 2013). In fact, Iran’s economy is in such a state of trouble it has been estimated that their revenue from oil has dropped nearly 45%. Further, the rial (Iran’s currency) has “lost more than 80% of its value since 2011” (ibid. 2013). Yet in the face of these economic disasters the Iranian government refuses to make concessions, and has claimed that they are able to bypass U.S. sanctions. As Albawaba Business reported yesterday, “On Thursday, a powerful cleric taunted the U.S. administration, vowing that economic pressure could never force Iran to abandon its nuclear programme” (Albawaba Business 2013). While the government stands their ground, the Iranian middle class has attempted to find ways to insure their economic security.

Oddly enough, one way that Iranians have found economic safety has been through investments in luxury vehicles. As rials decrease in value it becomes increasingly more dangerous for Iranians to hold onto their money, causing them to invest in vehicles made with foreign parts that increase in value. The Economist states, “They have become even less affordable for the poor. But middle-class Iranians buy them as investments as cash savings lose value because of inflation and the currency collapse. Iranians with government links are making a mint” (The Economist 2013). These individuals with government ties have capitalized on investments by buying cars at a lower exchange rate than the unofficial rate, and turning around to charge propped up prices within Iran. As one Iranian luxury car dealer relays in The Economist, ““With this economy, it’s not the time for real business,” he says, passing a holdall of cash to an assistant. “They just want quick deals”” (ibid. 2013).

If this trend continues, Iranians face two primary issues in the near future. First, the disparity between the Iranian upper class and the lower class will increase dramatically. As lower class individuals have no ability to place their money in any form of investments, the little money they do hold will continue to be worth less and less. This chain reaction will greatly increase the level of poverty. Secondly, the Iranian government and those that are tied to the government gain an increasing feeling of security, even though this solution merely temporarily ameliorates the problem. Oil exports had previously helped the theocratic government stay in power, meaning their economic shelter is slowly collapsing. While the government can use the money from these imports to pay for certain things, as economic hardship among the majority of the population increases so to will protests and calls for change. In light of the upcoming elections and the highlighted economic plight, political instability may be looming in Iran.

"Economic sanctions not forcing Iran to change."Albawaba Business. 18 Mar 2013: n. page. Web. 18 Mar. 2013. <http://www.albawaba.com/business/iran-sanctions-478014>.

"Iranian oil revenues 'drop 45%' because of sanctions."BBC News. 7 Jan 2013: n. page. Web. 18 Mar. 2013. <http://www.bbc.co.uk/news/world-middle-east-20942138>.

"Iran’s economy: Islamist Maseratis." Economist. 16 Mar 2013: n. page. Web. 18 Mar. 2013. <http://www.economist.com/news/middle-east-and-africa/21573610-profiteers-dominate-market-cars-islamist-maseratis>.




4 comments:

  1. Is this actually a thing? Wealthy Iranians are "investing" by spending their money quickly on luxury cars? Luxury cars values drop dramatically and not to mention are available almost everywhere, so it's not like there is a huge demand for them. I don't think that the disparity will get worse... The rich are investing in a material that only loses value and does not hold high demand, and the poor have money that is diminishing in value as well. I think that this won't really result in a dramatic increase in the disparity. Yes, the poor of Iran don't have much of a way to hold the value of what they have saved, but if one of the major ways for rich Iranians to save there money is to buy expensive luxury cars that drop in value, both socioeconomic classes are losing money.

    ReplyDelete
  2. Is this actually a thing? Wealthy Iranians are "investing" by spending their money quickly on luxury cars? Luxury cars values drop dramatically and not to mention are available almost everywhere, so it's not like there is a huge demand for them. I don't think that the disparity will get worse... The rich are investing in a material that only loses value and does not hold high demand, and the poor have money that is diminishing in value as well. I think that this won't really result in a dramatic increase in the disparity. Yes, the poor of Iran don't have much of a way to hold the value of what they have saved, but if one of the major ways for rich Iranians to save there money is to buy expensive luxury cars that drop in value, both socioeconomic classes are losing money.

    ReplyDelete
  3. "Cars are becoming more expensive because they are made with foreign parts which keep on rising in price"

    "This has only encouraged people to buy cars. They have become even less affordable for the poor. But middle-class Iranians buy them as investments as cash savings lose value because of inflation and the currency collapse"

    Both of these quotes from the Economist article should answer your questions.

    ReplyDelete
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