February 2, 2012: The government is doubling its defense budget (to about four percent of GDP) in the next year. This could cause problems, as the government budget is planned on the assumption that the economy will grow eight percent in the coming year, despite major new sanctions. Last year, economic growth, largely because of rising oil prices, was 7.3 percent. Last year's defense budget was $8 billion and this year is closer to $16 billion. In the last five years Iranian defense spending has more than quadrupled.

The new banking sanctions have made it very difficult to obtain dollars (the standard currency for foreign purchases). Iraq, which gets a lot of Iranian visitors (mainly as pilgrims to the many Shia shrines in southern Iraq), is seeing a 300 percent increase in Iranian currency brought in and exchanged for dollars. There is much less demand for Iranian currency, and the result is a much weaker (in comparison to foreign currency) Iranian currency.

These currency problems are particularly crucial when it comes to food. Iran imports 4.6 million tons of grain each year (in addition to the 21 million tons Iranian farmers produce) and right now about ten percent of that is in ships off the coast. The ships will not unload until Iran can make arrangements to pay for it. While on their way the international banking sanctions hit Iran, so that when the grain ships arrived off the coast they found that Iran could not pay. The ships are standing by, for a while anyway, until Iran can find the dollars (about $270 per ton) to pay for the grain. Iran will find the dollars, but will pay more for them, and Iranian bankers and officials will have to work harder to make it happen.

The sanctions make it more difficult for Iran to engage in foreign trade because Iran is now banned from the international banking system. Iran gets around that by paying bribes and fees to have foreign banks illegally handle Iranian banking transactions. There are limits on this, and if these outlaw banks get caught and punished severely Iran will end up paying a lot more and risking some of its cash and imported (or exported) goods being confiscated. Iranian leaders are not happy with this but there's not much they can do about it. The Iranian nuclear program is too important, and too popular with most Iranians, to shut down.  But ordinary Iranians will feel the pain. The billions of dollars in smuggled goods will sharply increase in price. A year ago, you could buy an American dollar for under 10,000 Iranian rials. Now, that same dollar costs over 11,000 rials and that is expected to rise even higher.  

Another UN IAEA (International Atomic Energy Agency) inspection team has arrived, but they will not be allowed to inspect nuclear weapons facilities (which Iran insists do not exist, but which IAEA has a list of). Three months ago IAEA issued a report accusing Iran of having a nuclear weapons program and provided lots of details. It appears that the IAEA had help from more than the few inspectors it is allowed to put inside Iran. The report describes a nuclear weapons research facility outside Tehran and the use of computer simulation to guide the nuclear weapon design process. IAEA believes Iran now has enough enriched (to weapons grade) uranium for three nuclear weapons but is still encountering technical problems in producing a workable weapon.

While UN investigators don't get much access to Iranian nuclear facilities these days, the IAEA has a lot of data and contacts inside Iran, and information (like satellite photos and agent reports) passed on by Western intelligence agencies. Thus IAEA estimates are taken seriously. These reports lead to stronger economic and military sanctions. While the Iranian military is largely an illusion (because of decades of sanctions) the impact on the economy is a more serious problem. The corrupt religious dictatorship fears a popular uprising, and what enrages Iranians the most is poverty amidst all the oil wealth. The senior clerics, their families, and key associates grab a disproportionate share of the oil money and do what they want. The Islamic conservatives have a good thing going but the more Iranians they anger the closer they come to another revolution. Things like the IAEA report don't help. Allowing some IAEA inspectors to wander around (to approved areas) for a week or so might help. It can't hurt.

January 28, 2012: The government has issued new rules for Internet Cafes. Users must present identification and records that must be kept for six months. In addition, security cameras are now mandatory. All this makes it easier for the government to discourage anti-government activity on the Internet. To further insure that all Iranians get the message three Internet users who made anti-government statements on the Internet have been condemned to death but not executed yet. The three probably will die, if only to remind the (several million) others. At the same time, all sorts of anti-government journalists are being hunted down and arrested. The government wants to encourage likeminded individuals to either shut up or get out of the country.

January 27, 2012: On the Pakistani border, border guards killed six Pakistani farmers and wounded two others, as the eight men drove their livestock along the border. Apparently the animals wandered across the border at night and the farmers went out to retrieve them. In the darkness Iranian border guards mistook the Pakistanis for smugglers. Or at least that's what Iran is telling the Pakistani government.

January 25, 2012: In Azerbaijan, police arrested two men and sought a third (an Iranian citizen) and charged them with terrorism. The three were planning to kill the Israeli ambassador and other local Jews. The plot was believed to be planned and paid for by Iran.

January 21, 2012:  The lifestyle police have declared Barbie dolls to be un-Islamic and banned them. Stores found selling the dolls are being shut. Parents now risk jail when trying to obtain forbidden Barbies on the black market. The dolls will also be a lot more expensive because of the increased economic sanctions.

The government backed down on its earlier threats to attack any American warships returning to the Persian Gulf.