Why Has the Decline in the Value of the Rial Accelerated?

Two days after the public opposition of the Supreme Leader of the Islamic Republic to negotiations between Tehran and Washington, the exchange rate of the US dollar in the free market of Iran jumped by more than six thousand tomans, surpassing 92,500 tomans. Ali Khamenei described negotiations with the Trump administration on February 8 as neither 'wise,' nor 'intelligent,' nor 'honorable,' citing 'experience' as the reason. Since Donald Trump's victory in the US presidential election, the Iranian rial has fallen by 30% against the dollar, but the pace of the dollar's rise has intensified in recent days. It is not exactly clear how far the decline in the rial's value will continue, but the Planning and Budget Organization had even predicted in 2021 that if sanctions were not lifted, the dollar rate would peak at 110,000 tomans in 2025 and 285,000 tomans in 2027. When the Planning and Budget Organization of Hassan Rouhani's government made this estimate in October 2021, the dollar was at 28,000 tomans. Four years later, the reality of the currency market shows that even this government agency's estimate was overly optimistic; the exchange rate was supposed to reach 70,000 tomans by the end of this year, but it has now exceeded 91,000 tomans. Undoubtedly, the political decisions of Iranian and American leaders regarding negotiations and the prospects for reviving the JCPOA have a significant psychological impact on currency market fluctuations; a topic that has been clearly demonstrated in recent days with the signing of a 'Presidential Memorandum' of maximum pressure policy against the Islamic Republic by Donald Trump and Khamenei's subsequent opposition to negotiations with the US. Sudden jumps in the exchange rate in Iran's free market were also observed during two missile attacks by the Islamic Republic on Israel and speculations about the dimensions of Israel's retaliatory actions. However, the point is that as the danger of an Israeli attack on Iran's economic and energy infrastructure subsided, the exchange rate adjusted much less than the jump it had experienced and even resumed its upward trend after a while; a matter that indicates the Islamic Republic's severe inability to supply the currency demanded by the market and that the reins of currency market balance have effectively slipped from the government's hands. It seems that the government is facing an escalating crisis regarding the inflow of currency from non-oil goods and oil exports. For example, to solve the problem of currency transfers from non-oil goods exports, since last fall, the government has encouraged traders to import gold instead of currency, and in the first ten months of this year, gold ingot imports have surged 3.5 times compared to the same period last year, reaching 81 tons, equivalent to six billion and 300 million dollars. This means that a trader who until yesterday was trying to deliver currency for exported goods, whether through remittances, currency exchange centers, direct currency exchanges with importers, or direct currency imports to the country, is now instead importing gold into the country. However, a more important point is the decline in Iran's oil revenues since this fall, coinciding with the second extensive missile attack by Iran on Israel and subsequent sanctions on 45 oil tankers involved in smuggling Iranian oil to China by the Biden administration. During Biden's four years in office, Iran significantly increased its oil exports, but following the sanctions on dozens of oil tankers carrying Iranian oil this fall, it faced a decline in exports. Statistics from oil tracking companies indicate that Iran's daily oil export volume dropped from 1.9 million barrels in September 2024 to about 1.3 million barrels in the last quarter of that year, and in January of this year, this figure was also below 1.6 million barrels. Such a significant drop in oil export volume and the increased cost of transporting it, given the recent months' US sanctions on dozens of tankers associated with Iran, have impacted the country's foreign exchange revenues. Half of the approximately 500 tankers that have been involved in smuggling Iranian oil in recent years have not yet been sanctioned, and if the Trump administration takes extensive action to sanction these so-called 'ghost fleet' or 'dark fleet' tankers, significant logistical problems will plague the Islamic Republic; especially since China last month also banned the entry of sanctioned tankers into the Shandong port, the largest receiving terminal for Iranian oil. On February 7, the United States announced financial sanctions against an international network accused of transferring Iranian oil to China, which included three tankers. This indicates that the Trump administration has already begun stringent measures against the Islamic Republic.