By Jon Leyne

BBC News, Tehran

Iran has an inflation rate of 25% and counting Amidst the financial wreckage around the world, one government is celebrating. Watching the global gnashing of teeth, the Islamic Republic of Iran is enjoying the ride. "We are very happy that America's economy is in jeopardy and they are paying the price for their misdeeds. God is punishing them." That is the verdict from Ayatollah Jannati, one of the most senior clerics in Iran. President Ahmadinejad has pronounced on the collapse of global capitalism, and announced that Iranians should stand ready to manage the world. If there is a Persian word for "schadenfreude", this is it. And for the moment, Iran does seem to be above the fray. Shares on the Tehran stock exchange, while down slightly in recent trading, have increased in value by 20% during the year. In fact, to walk the floor of the Tehran Bourse, you could be excused for thinking you are in a parallel universe. It looks like a normal stock exchange, with a vast computerised screen dominating the room and traders working from computer to phone to computer. It is surely only a matter of time before the laws of gravity reassert themselves on the Iranian economy

But share prices have been almost entirely unaffected by the credit crunch. Stock market insiders told me what they were more interested in was the progress of a government privatisation plan, and other domestic factors. Bahrom, a stockbroker watching the trading floor, explained that the crisis presented opportunities for Iran. He advised foreign investors to take a good look at the market here. Another stockbroker said the market here was more about politics than economics. Any foreign investors tempted to join the party should be warned that foreign investments need government approval, in a process that takes at least a month - and that is probably an optimistic assessment. Oil economy Iran, of course, is proud of going against the global trend. Ayatollah Jannati says the West is being punished for its misdeeds This is the only economy in the world - indeed possibly in world history - in which you can borrow money from the bank and then receive a higher rate of interest by depositing it in the same bank. Mr Ahmadinejad, who says he is proud of his ignorance of economics, also seems to believe the laws of supply and demand do not apply to the Islamic republic. He insists the excess amounts of cash in the economy, excess liquidity, is in no way to blame for the spiralling rate of inflation - 25% and counting. In this particular case, however, it is surely only a matter of time before the laws of gravity reassert themselves on the Iranian economy. The direct impact of this financial crisis in the US for the Iranian people, could actually be more than for the American people

Saeed Leylaz, economist Despite a growing industrial sector, and other attempts to diversify, Iran is still overwhelmingly dependent on its massive oil and gas reserves. According to the BP survey, taken together this country has the largest combined oil and gas reserves in the world, and it is the world's third largest oil exporter. Iran's oil minister said his country earned $70bn (£41bn) from oil exports last year - the vast majority of both its export earnings, and of government revenue. But with oil prices already down to around $60 (£35) a barrel from their peak, and still falling, that must be bad news for Iran's finances. Day of reckoning In theory, in the good years Iran puts surplus oil revenue into a stabilisation fund. However, Mr Ahmadinejad's government found no trouble spending the money, even as oil approached $150 (£88) a barrel. The majority of Iran's revenue comes from oil It is not clear how much, or even whether any, of that windfall made it into the deposit account. Instead, as Mr Ahmadinejad toured the country he sprayed out money to the provinces and local villages. Vast contracts have been awarded to the Revolutionary Guards. Unspecified amounts have been given, lent, or "invested" with Iran's friends both in the Middle East and in Latin America. What has happened to the money - you hear ordinary Iranians asking. Now the day of reckoning may be approaching. "The direct impact of this financial crisis in the United States for the Iranian people, could actually be more than for the American people, because of the oil price, and our dependency on oil income," explained Saeed Leylaz, one of Iran's most outspoken and independent-minded economists "If the oil price for Iranian oil will be $75 to $80 a barrel, we will lose $50bn US dollars (a year) and that means we are losing between $700 and $800 per head." We are in a recession. No-one wants to buy

Alireza Jahan, estate agent In fact, Iranian oil, which trades slightly cheaper than the lighter crudes that set the world benchmark, is now close to that price, and looks set to fall further. Already, even in plush north Tehran, you can see the signs of economic downturn. There has been a huge property boom, with many grand old villas being replaced by luxury apartment blocks. But building work is beginning to grind to a halt. One estate agent told me that prices were down 20% from their peak. Hundreds of thousands of apartments are reported to be lying empty. "We are in a recession. No-one wants to buy. Demand is very low and there are many properties for sale," said the agent, Alireza Jahan. No-one will have too much sympathy for Iran's property elite. And most Iranians will be delighted at falling rents and property prices. For them, life has been tough for as long as they can remember, with high inflation and unemployment. Social trouble The president could be unable to give out money during campaigning But this decline in the value of property could be the first sign of a wider economic downturn that could have important social and political implications for Iran. Mr Leylaz spelt out what low oil prices could mean to Iran and its government: "It means more liquidity, and more economic problems, more inflation. A worse social gap, and social troubles for the country." For Mr Ahmadinejad, there is the serious possibility of the money running low, just as he runs for re-election - in a vote expected to be next June. If there is no cash left to distribute, the fervour of his supporters could be severely tested. And if oil prices do hit rock bottom, that could also change the international picture. Until now, one of the biggest constraints on the West, as it challenges Iran, has been the danger of pushing oil prices through the roof. Without that problem, many new possibilities open. All of this will take some months to play out. For the moment, the money is still coming in, and Iran's rulers can enjoy watching the world demoralised and distracted. But however much the Ayatollahs celebrate the downfall of global capitalism, it could yet be that capitalism, eventually, bites back.



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