June 24, 2013: The election of the “moderate” Hassan Rowhani to replace Mahmoud Ahmadinejad has had some positive economic impact. In the last few days it got cheaper (costing only 30,000 rials, versus 35,000 rials before the election) to buy a dollar using the Iranian currency, the rial. But the cost of a dollar has fluctuated a lot since the new sanctions kicked in a year ago. Four months ago the rial hit an all-time low when it cost about 40,000 rials to buy one dollar. Eighteen months ago it only cost 12,000. Last September took 24,000 Iranian rials to buy one dollar on the black market. The official exchange rate is 12,000 rials, but there are severe restrictions on who can get dollars at that rate. Two years ago the market rate was under 11,000 rials per dollar. The trend is down, with dollars costing more and more rials as time goes by. The rising costs of imports (because you need more Iranian rials to buy dollars) means a lot of poor families cannot afford medicines. Even the hospitals are often short and the black market for medicines is back and booming. The middle class can’t buy a lot of consumer goods because of this and even the wealthy have to pay more for their goodies.

Iran is fighting back against the sanctions with smuggling, bribes, price-cutting, and litigation. Iranian lawyers recently won lawsuits in Japan and Britain against American sanctions on Iranian banks. The Americans litigate right back, but the Iranians are not giving up, not yet anyway. After all the Iranian leadership consider themselves on a mission from God.

The war in Syria, and Iran’s very public determination to see the Shia Assad government of Syria defeat its Sunni opponents, is costing Iran allies and a growing amount of money. Iran is now the Assads main financial backer. In addition to supplying a few million dollars-worth of military equipment and stationing several hundred advisers and technical experts in Syria. Iran has provided several billion dollars of economic aid to keep the government controlled portions of Iran going. Iran is also offering cash bonuses to Hezbollah men who agree to fight in Syria. More Iranian cash is being provided to give Syrian soldiers a 50 percent raise. Most of the Syrian Army has deserted or joined the rebels and those left are not terribly enthusiastic or effective. The Iranian trained Hezbollah militiamen are more capable infantry and that bothers the rebels a great deal. Iran is also offering bonuses for Iraqi Shia, who volunteer to fight in Syria for the Assads. These guys as not as skilled as Hezbollah, but they are enthusiastic and armed. Iran does not want ethnic Iranians (who are Indo-European and much hated by the Arabs, a Semitic people long abused by the Iranians) fighting in Syria, so cash and other forms of persuasion are being used to get Arabs to help out. Thus rumors of Iran sending thousands of their own troops to fight in Syria are very unlikely.

All this backing for Shia Arabs to fight in Syria has intensified the hostility between Sunni and Shia (and Iranians and Arabs) in the region. Iran started this decades ago when they proclaimed the goal of establishing a world-wide religious dictatorship by converting everyone to Shia Islam. This annoyed the Sunni majority (about 80 percent of Moslems) and put fear into most Arabs, because Islam was founded by Arabs and the idea has always been to convert everyone to Sunni Islam under Arab leadership. The Iranians have kept working on their goal, and that’s why Syria has long been receiving economic aid from Iran. Not because Syria is Shia (only about 20 percent of the population is, most of the rest are Sunni) but because the ruling family (the Assads) are Shia (or Alawite, which is sort-of Shia, and that’s close enough Iranian purposes). Iran also financed the growth of the Shia Hezbollah in Lebanon and the Sunni Hamas in Gaza. That last one backfired, with Hamas forced to openly oppose the Assads after their Sunni donors threatened to cut off aid and political support if Hamas did not get in line with other Sunnis and denounce Iran. Hamas spoke out against the Assads but tried to make nice with Iran. Hamas, despite Iran cutting off aid (some $1-2 million a month), is still trying to maintain friendly relations with Hezbollah in Lebanon.

Most Palestinians (who tend to be Sunni or Christian) have come out in favor of the Syrian rebels. Hamas has run Gaza since 2007, and Hezbollah has been a major factor in Lebanon for over 25 years. Despite the Iranian connections, both Hamas and Hezbollah are Arabs and both exist mainly to destroy Israel. Iran is being discreet about this but could not afford to ignore Hamas support for the Syrian rebels (who are now fighting Hezbollah gunmen along the Lebanese border). Hamas also admits that a few of its members have unofficially joined to fight alongside Hezbollah inside Syria. Palestinians in Gaza and the West Bank tend to back the rebels. But nearly a million Palestinians in Lebanon and Syria are split, with nearly half of them backing the Assad government in Syria. This has also upset Iran, which has generously supported Palestinians for decades. Iran is finding that Hezbollah is not eager to sacrifice its reputation in the Arab world just to please its patron. So Iran is giving Hezbollah more money and anything else its leadership wants. The Sunni Arab nations in the region are warning Hezbollah that this support for Iran could have dire consequences down the road. For the moment the Hezbollah leadership is remaining loyal to its paymaster. But many rank-and-file Hezbollah are not so sure. Sunni Arab nations are working on that doubt, seeking Hezbollah leaders who might be amenable to new leadership for their organization and new sources of financial support.

The war between Arabs and Iranians is heating up no matter what the Iranian leadership does. In Iraq Sunni Arab terrorists are targeting Iranian pilgrims (most Shia religious shrines are in southern Iraq) and dozens have been killed this year. In Egypt Iranian tourists are welcomed again and several have been murdered recently by Egyptian Sunni Islamic terrorists. Despite the need for more tourists there, Iranian visitors run into more and more hostility simply because they are Iranian and Shia.

June 22, 2013: Arab states meeting in Qatar agreed to provide all necessary support needed by the Syrian rebels to overthrow the Assad government. Iran criticized this by pointing out that many of the rebels are allies of al Qaeda. But this is seen as hypocrisy by Arabs as Iran has long backed its own brand of Islamic terrorism, often against Sunni Arabs.

June 20, 2013: The recent American announcement that it would became a major supplier of weapons to the Syrian rebels caused a collapse of the Syrian currency (the Syrian pound). Last December, when Iran announced it was giving Syria a billion dollar line of credit, it cost 150 Syrian pounds to buy a dollar (the main currency for international trade). Two years ago it only cost 70 pounds. But since the American announcement the rate has been heading for 200 pounds. So the Syrians announced they would begin using the Iranian line of credit to buy Syrian pounds and get the rate down. That worked, for the moment, with the cost of a dollar heading towards a hundred pounds. The problem is that a growing number of Syrians, especially Assad supporters, are losing faith in the ability of the government to defeat the Sunni rebels or to maintain the viability of the Syrian currency. Many merchants will not touch the Syrian pound anymore and demand dollars or some other reliable currency.

June 14, 2013: Hasan Rowhani, the most moderate of the eight candidates the senior clerics (the “Guardians Council”) allowed to run for president today has won the election. It was an impressive victory as he got 50.7 percent of the vote. The turnout (about 72 percent of eligible voters) was higher than expected and people saw Rowhani as the best person to fix things. All the presidential candidates were known loyalists to the clerical dictatorship. The Guardians Council banned 30 female candidates and declared that women could not run the country under any circumstances. The Guardians Council banned many male candidates, a move directed at several troublesome candidates who might have won. This even included a senior cleric, Ayatollah Akbar Hashemi Rafsanjani, who had served as president before (1989-1997) but was known to favor reforms. Current president Mahmoud Ahmadinejad cannot run again and his personal favorite candidate was also banned.

Rowhani was widely believed to be more capable than Ahmadinejad when it comes to fixing the economy, mainly because Rowhani has demonstrated an ability to work out compromises. Rowhani is also expected to keep quiet about the corruption among the families of the senior clerics and concentrate on the welfare of the Iranian people as a whole. Rowhani is also expected to resist efforts to shut down the Iranian nuclear weapons program. Rowhani has always insisted that the nuclear weapons effort did not exist, which is at odds with what you hear on the Iranian street and from UN weapons inspectors.  

Egypt has decided to cut diplomatic relations with the Assad government in Syria and back the rebels. Egypt also called for a no-fly zone over Syria, meaning NATO aircraft taking on the Syrian Air Force, with some token help from Arab air forces. Egypt also condemned Hezbollah for actively joining with Assad troops to attack rebels.