Iran: At long last, the soft underbelly is revealed

For the first time in four years, the US has a good card to play in threatening Iran. But its decision this week to try to sever Iran’s links with financial markets is revealing how successful Tehran has been in building those ties and how many friends it can claim.

In the past two months, Iran has been asking for payments for oil revenues and other exports in euros, not dollars. It is now believed to be conducting much of its foreign exchange transactions in euros or United Arab Emirates dirhams. The Government has also been reported to have been shifting its foreign-held assets out of dollars into euros. From one point of view, it is surprising that Iran should feel vulnerable: it is one of the world’s biggest oil producers; has a list of customers for that oil who are not about to walk away; and has enjoyed four years of unexpected high revenue from that production.
But President Ahmadinejad, whose critics at home attack him for economic mismanagement, is under pressure to return more of the benefits of the boom to ordinary Iranians, as he promised in his election campaign. Two weeks ago, in his budget for the coming year, he said that he planned to spend a fifth more than last year and to set aside more of oil revenues for infrastructure. Among other urgent needs, Iran is trying to invest more in oil refining. Because it refines so little of its own oil, it has to import petrol, and so in times of rising oil prices the Government has to pay huge subsidies to prevent ordinary people being hit by rising prices. That soaks up some of the benefit it receives from higher oil prices.

The Times