Diplomat: Western Officials See Iran’s Economy Imploding Quickly

Western government experts estimate that Iran will run out of foreign exchange reserves in six months to a year,

WASHINGTON — Western governments believe that Iran’s economy is imploding so quickly that it could essentially collapse next spring under the combined pressure of international sanctions, an oil embargo and internal mismanagement by officials in Tehran, said a European diplomat here.

Western government experts estimate that Iran will run out of foreign exchange reserves in six months to a year, making it impossible for the Islamic Republic to sell products abroad and buy the imports it needs to continue its manufacturing sector and run public services, the European diplomat said.

Western governments have steadily tightened economic sanctions on Iran this year in the hope of crippling trade and setting off an economic crisis that will force leaders in Tehran to curb or abandon a nuclear program that the West fears is aimed at building a nuclear bomb. Tehran has remained defiant, insisting it is enriching uranium for peaceful purposes. Western officials believe that a full-scale balance-of-payments crisis could spark domestic unrest and threaten the regime’s survival.

The European Union this week added new sanctions on Iran’s energy, financial and natural resources sectors, moves likely to further drain Iran’s foreign currency reserves and accelerate the plunge in the value of its currency, the rial.

Sanctions have cut Iranian oil exports by half and curtailed Tehran’s ability to conduct international financial transactions, said the diplomat, who spoke to several reporters on condition of anonymity because of the diplomatic sensitivity of the subject.

Western governments have focused on calculating when Iran’s foreign exchange reserves will run low because they want to force the government to yield on nuclear development before it can enrich enough uranium and acquire sufficient knowledge to build a working warhead. Israel’s government believes that date could come late next spring; the Obama administration believes it may be several years off.

Other Western governments have avoided saying publicly when they think Iran will reach the crisis point.

Mark Dubowitz, executive director of the Foundation for Defense of Democracies, a Washington think tank that has pressed for tougher sanctions, said an economic meltdown would need to occur at least six months before Iran reaches the nuclear threshold. That would allow time for the economic shock to “cascade through the political system, and convince the leadership they need to change course… These guys are hard core revolutionaries,” said Dubowitz.

Cliff Kupchan, a former State Department official at the Eurasia Group consulting firm, said he believes it’s impossible to estimate when Iran’s economy will be disabled because so many complex factors are involved. Estimates of Iran’s accessible foreign exchange reserves vary wildly, from $30 billion to $110 billion, he noted.

“The numbers available to me don’t allow a prediction,” he said.

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