A currency crisis is one of the most destabilising developments that can afflict a modern society. It reflects failing confidence in the government even as it undermines the basic functioning of the state. Those who can, move abroad or exchange their local cash and other assets for something safer. Those without such options take to the streets – with unforeseeable consequences. This is why the precipitate fall in the value of the rial is of a different order from Iran's many other recent tribulations.
How far the rial's collapse is a result of Western sanctions and how far it is the cumulative effect of economic mismanagement can be debated. President Ahmadinejad's claim that sanctions are responsible need not be taken at face value: political leaders under pressure will always seek a foreign scapegoat. But with Iranian oil sales down by an estimated 45 per cent since the start of the year, despite the stratagems Tehran has employed to evade them, sanctions would seem to be starting to bite.
If embargoes are playing a part in, or actually causing, the currency collapse, however, this poses a question of its own. The sanctions were imposed, and recently toughened by an EU ban on oil imports, to punish Tehran and force it to come clean about its nuclear intentions. The threat of military action is held somewhat vaguely in reserve. But a combination of fierce national pride, divided leaders, and a population – at both the elite and popular levels – discontented and fearful of the future risks producing a response that is the very opposite of that desired.
Sanctions remain infinitely preferable to armed force. But unless they penalise the right people, they risk unintended, even disastrous, consequences. The international focus to date has been on the perceived threat from a nuclear Iran. Other scenarios must now be considered: one is of a defiant and desperate people even more reluctant to bow to Western demands; another is the messy collapse of the state. The West needs to plan for all contingencies.