Whatsoever ye sow...

High oil prices are flooding Iran with oil cash. As such, it is in Iran's interest to keep oil prices high. However, the confrontation that Iran has brought upon itself is hurting Iran in other ways.

Yet Iran's economy is in serious trouble, in spite of its huge oil revenues. And the Iranian people, suffering from crushing unemployment and inflation, may soon grow weary of his regime sacrificing their butter for guns.

The U.N. should take heed. Imposing economic sanctions against Tehran would further isolate it and perhaps build enough internal pressure to force Tehran to comply with international demands to stop uranium enrichment.

Since Ahmadinejad's election last year, there has been a massive flight of capital from Iran. Many investors are nervous about the showdown over the country's nuclear program and have chosen to reinvest their funds in more stable markets such as nearby United Arab Emirates.

Thousands of companies owned by Iranians are now operating in Dubai and elsewhere outside of Iran. Even the normally active real estate market in Tehran has softened. The Hoover Institution estimates that more than $200 billion has already left Iran. Tehran, desperate for capital, began withdrawing assets from European banks earlier this year.

The nuclear crisis isn't the only thing on investors' minds. They're also worried about Ahmadinejad's anti-market policies.

For one, he's stopped cold previous reforms to privatize Iran's economy. Tehran already runs roughly 80% of the economy, and Ahmadinejad has redirected investments to the public sector. His first budget, approved by the Iranian parliament last month, ramps up government spending by 25%.

Private banking is in a severe crisis, according to Hoover. Since the president decreed banks should be a monopoly of the state, Tehran has been lowering interest rates. There are fears that inflation, already at 14%, could skyrocket.

It's said that Ahmadinejad wants to outlaw interest altogether to comply with Islamic law barring usury. Some orthodox bank managers have already announced a moratorium on lending.

The president has also suggested the stock market is a form of gambling and also is "un-Islamic." Not surprisingly, Iran's stock index has surrendered nearly a quarter of its value since Ahmadinejad was elected last June.

An excellent article by Michael Rubin and Patrick Clawson in the current issue of the MERIA Journal looks at conditions in Iran today. The purpose is to draw parallels with Iran before the 1979 Revolution, but Rubin and Clawson point out the rot that is eating away at Iran's society.

And there is yet a third labor challenge, namely, women. According to Iranian government census data, in 1996, Iran had 1.8 million working women compared to 13.1 million women home-makers. In 2000, for the first time, more women than men were admitted to universities. The trend has since accelerated. International experience suggests that as women's educational standards improve, more women will want jobs. If the percent of women who want jobs rises from 15 percent to 25 percent--the current rate in Tunisia, and if GDP grows only at its recent average 4.5 percent a year, then unemployment will reach 23 percent in 2010, even assuming state enterprises remain grossly overstaffed. There is little indication that the political elites are willing to undertake the reforms needed to make effective use of the country's labor potential. The extra resources from the oil boom have not to date been used for job-creating investments; little is being done to promote a more favorable environment for private sector development; and the difficulties women facing in private sector employment remain unaddressed. It would seem that instead of making reforms the political elite is more comfortable with the "solution" of rising emigration rates, especially among the well educated.
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Labor unrest is also boiling. It was national strikes in key industries--oil, telecommunications, and banking--which finally brought down the shah's government. In recent years, the Islamic Republic has again had to face labor discontent. Textile workers in Isfahan, teachers in Tehran and, in January 2006, bus drivers have walked out on strike.[37] While workers complain about unpaid wages and high-level corruption, though, the labor unrest is not as widespread as it once was. Given the lack of strike absent funds to help support workers' families, wildcat strikes are likely to spread to key industries such oil and manufacturing. The same economic discontent which brought Ahmadinezhad to power now threatens him since, despite the high oil income, he has not been able to deliver on his populist promises- his response has been to make many new promises for development projects as he tours the country, but there simply is not the money to pay for the projects he is promising.

Severe international sanctions might be enough to dislodge the Iranian regime, but to be effective, all the major players would have to cooperate. Russia and China show no signs of allowing such sanctions, and so the world continues to tiptoe towards a brink.