Via Stratfor (subscription required), an insightful analysis of Iran’s current economic dilemma as the price of oil — Iran’s main source of revenue — has plunged dramatically in recent months.  As the article notes:

“…Iran’s central bank has given permission to banks to issue foreign currency debt instruments as part of an effort to attract capital from overseas, the Iranian semiofficial Fars News Agency reported Dec. 15. The central bank announced that the ceiling for the certificates of deposits (CDs) would be $1.33 billion, with maturities ranging from one to five years. It also announced that the CDs can be denominated in euros, yen or dirhams (the currency of neighboring United Arab Emirates). The interest rate on issued CDs would amount to the interbank-offered rate for the relevant currency, plus a maximum of 3 percentage points.

Iran is in a precarious position given that the price of oil — the export of which accounts for 80 percent of the country’s earnings — has dropped by more than $100 a barrel from record highs in July due to a drop in demand tied to the global recession. During times of low prices, most oil-producing states issue bonds and secure loans using their oil as collateral to pay creditors until oil prices rebound. Iran, however, has been an international pariah for the past three decades due to its radical foreign policy, so it has forfeited these options.

Even were there no financial crisis, Iran lacks the option of turning to Western financial institutions, especially in light of recent moves by the United Nations and the European Union to follow the U.S. lead by prohibiting business with Iranian banks. Russia and China are Iran’s only sources for foreign financial assistance, but the international credit crunch has both Moscow and Beijing using their cash to maintain liquidity at home. As a result, Iran has been forced to look into issuing debt instruments.

While theoretically a sound approach, for the aforementioned reasons, Iran is not going to rake much cash through this method. The Iranians themselves aren’t too confident of the outcome, which would explain the stated goal of securing a little more than a billion dollars — a meager amount, especially given that the Iranians have some $82 billion in reserves. In such a situation, it is unlikely that foreign investors seeing opportunities dry up elsewhere will come rushing to Iran. Even Iranian expatriates are unlikely to be interested in sending money back home despite the option of multiple currency denominations for the CDs, as this would require a huge leap of faith that Tehran will ensure a return on such investments.

The Iranian government is well aware of this, and is thus trying to get Iranian recipients of foreign remittances to invest in these CDs. Here again, the Iranians face a major problem given the high level of inflation (officially just shy of 30 percent) and the unemployment of 10 percent. This makes it unlikely that the Iranians receiving remittances from expatriates will have spare cash to invest in these financial instruments, which they, too, are likely to view as a bad investment.

A recent statement from a senior state bank official underscores the extent of Iran’s economic problems. In early November, Iran’s deputy central bank governor for economic affairs, Ramin Pashaei, warned that the average price of a barrel of oil should remain above the $60 mark for the remainder of the end of the current Iranian year (which ends in mid-March 2009) for the country to avoid “big problems.” For his part, Iranian President Mahmoud Ahmadinejad has faced growing criticism from across the Iranian political establishment for his foreign and economic policies that have exacerbated an already bad situation.

Between its rising domestic woes and its overextension on the foreign policy front from Lebanon to Iraq to Afghanistan, the Iranians cannot continue to press ahead with their regional ambitions for long without resolving their chronic status as international pariah. Before that reckoning comes, the sliding economy is bound to affect the outcome of the presidential election in June 2009.”