sanctions strengthens, Iran currency plunges 10%

Iran's currency value has fallen more than 10% in less than a week to record lows, after a US move to tighten financial sanctions against the Islamic republic.

The riyal lurched to as low as 16,800 to the dollar, down from 15,200 at the end of last week. It was valued at 10,500 just a year ago.

The slump was blamed on US sanctions which target the Iranian central bank. The White House move to blacklist any company or institution that trades with the Central Bank of Iran aims to make it harder for Iran to sell its oil.

Iran has threatened to close the Straits of Hormuz, through which one-sixth of the world's oil supply passes, if the west takes aim at its oil industry. The Iranian navy on Monday fired a second missile test in as many days in the Gulf, firing a long-range rocket that they claim could hit targets "hundreds of miles away".

"We have successfully test-fired long-range shore-to-sea and surface-to-surface missiles, called Qader (Capable) and Nour (Light) today," Deputy Navy Commander Mahmoud Mousavi told state television.

Despite his use of the term "long-range", the semi-official Fars news agency said the Qader's range was only 125 miles. No figure was given for the Nour.

Iran is about 140 miles at its nearest point from Bahrain, where the US Fifth Fleet is based, and about 625 miles from Israel. Its longest-range missile, the Sajjil-2, has a range of up to 1,500 miles.

"No order has been given for the closure of the Strait of Hormuz. But we are prepared for various scenarios," state television quoted navy chief Habibollah Sayyari as saying.

Iranian officials on Monday downplayed the new US sanction, with the economy ministry's Shamseddin Hosseini quoted as saying that targeting the central bank was an "unsuccessful choice".

President Mahmoud Ahmadinejad said last week his administration will do everything it can to stave off further steep depreciation in the riyal's value, signalling the use of hard currency reserves.

Oil sales have allowed Iran to build up a nest egg of tens of billions of dollars. The country earns more than $70bn from exporting crude oil each year, 80% of its annual foreign revenue.

Ahmadinejad has already come under fire for cutting subsidies on fuel and food. The step is aimed at reducing state spending while also distributing money directly to the poor. Critics contend the cuts will do little more than stoke inflation.

Reflecting possible fears about liquidity and the flight of hard currency, Iran over the past few months has restricted cash withdrawals and only allows those travelling abroad to take $2,000 a year.US sanctions already forbid imports of Iranian oil. France is pressing the EU to follow suit. Iran sells large volumes to China, India, South Korea and Japan but Italy, Spain and Greece are also big importers and an EU embargo would pile further pressure on the Iranian economy.

Guardian.co.uk