Currency Volatility Tracker

Decline of Iranian Rial Shows Power of U.S. Sanctions

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Since 2010, Iran's currency, the rial, has lost 326% of its value against the dollar making it the seventh most devalued currency in the world.

Eight years of economic and financial sanctions by the United States and to some extent the European Union have taken a tremendous toll on Iran's currency. 

In Februrary 2010, the hard-line Islamist government of Iran, one of the world's most oil-rich nations, began the process of enriching uranium allegedly as fuel for a nuclear reactor. That fateful decision has proven costly as Iran's currency has been battered in recent years under a barrage of U.S. sanctions that first began in 2011 and have continued each year with varying degrees of severity. 

The Iranian rial sank to a record low against the U.S. dollar on Friday closing at 42,215 rials to the dollar, a 17 percent decline from the 36,060 rial value at the start of the year.  But more significantly, since 2012, the rial has declined 276 percent against the dollar (see accompanying graph), which ranks seventh among the world's currencies with the largerst declines against the greenback.  The black market rate is closer to 60,000 rials to the dollar.

The persistent decline in the rial over the course of six and a half years illustrates the paralyzing effect that U.S. and to a lessor extent European sanctions have had on Iran's economy, which contracted from $587.2 billion in 2012 to $393.4 billion in 2016, a decline of 33 percent.  In fact, sanctions have been so debilitating that the rial has not had one quarter of positive value against the dollar since 2014, according to CreditPulse currency data.

The big drop occurred back in July 2013 when the Iranian government loosened its currency peg and allowed the currency to float at market levels.  The rial then proceeded to go from a value of 12,293 to 24,778, a decline of 102%, in one week.  By the end of the year, the rial had declined by the largest amount of any world currency against the collar, 102%, and was the world's most volatile at 25.4%. The only period of stability for the rial was 2017 when the dollar declined 7.5%.

The latest decline in the rial is no surprise as it comes on the heels of a momentus decision by President Donald Trump to pull out of the controversial nuclear agreement between the U.S. and Iran reached in 2015 that lifted most U.S. and international sanctions against Iran just as they were having their greatest impact.  American companies such as Honewell International and General Electric, which have been operating in Iran under humanitarian exemptions, now have until November 5th to wind down their operations or risk penalties.

Over the years, Iran's efforts to establish a nuclear weapons program has resulted in a barrage of sanctions that began with legislation passed by the United States Congress in December 2011 that gave the U.S. government the power to sanction any foreign bank that processed payment transactions with the Central Bank of Iran.  From that point forward, and with European Union sanctions following the next year, Iran's economy has been under constant sanctions pressure that has reduced the value of Iran's currency 326 percent since 2010.

The U.S. sanctions, which include currency restrictions, have been particularly hard on Iran because of the country's dependence on oil exports and the main valuation and transactional currency in the oil industy is the U.S. dollar so restrictions place on Iran to exchange the dollar have hurt not only Iran but any other companies attempting to do business in the country.

Total SA, a $150 billion oil giant based in France, Royal Dutch Shell, based in The Netherlands, and Spain's Repsol SA are the three major oil companies that have been involved in developing Iran's oil industry.  In March 2011, Repsol voluntarily delisted from the New York Stock Exchange just before possible enforcement action from the U.S. Securities and Exchange Commission (SEC) regarding the company's involvement in Iran.