Iranian oil exports have fallen by more than 50% this year, according to Iranian officials and independent shipping trackers. U.S. and European officials said their moves to cut off those exports have been aided by ramped-up production in the U.S., Saudi Arabia, Iraq, Libya and other countries, which has helped keep global energy prices stable.
U.S. officials and analysts see Washington and its allies now in a race with Tehran to see what is achieved first—a balance-of-payments crisis in Iran or its acquisition of a nuclear-weapons capability. Tehran says its nuclear program is for peaceful purposes.
"The currency is dropping like a stone, there are riots, and Obama has harangued [Israeli leader Benjamin] Netanyahu not to bomb because there is time to economically cripple Iran," said Mark Dubowitz of the Foundation for Defense of Democracies, a conservative think tank that advises U.S. lawmakers on sanctions policy. "So if the economic cripple-date occurs before the nuclear red line, then great, economic warfare may work."
U.S. and European officials believe Western sanctions and the EU's oil embargo, instituted in July, are costing Tehran $15 billion in lost energy revenue every quarter. This, in turn, is helping to force down the government's foreign-exchange reserves, which were estimated to be between $90 billion and $110 billion at the start of the year.
U.S. officials also believe that the widening financial penalties on Iran are making it harder for Iran's central bank to gain access to as much as 30% of its reserves, which are invested overseas. Outside economists now estimate inflation is running as high as 70% annually.
These developments, said U.S. and European officials, explain why Iranian financial officials appear reluctant to try to prop up the value of the Iranian rial by selling dollars into the local currency market. Mr. Ahmadinejad has publicly criticized Tehran's financial planners for not taking these steps.