Tick-Tock Tehran

There have been two big stories about Iran in recent weeks. One is that Iran's currency, the rial, is in freefall. The other is that Iran's nuclear program is in overdrive. So the question becomes: Which one will blow up first?

A report earlier this month from the Washington, D.C.-based Institute for Science and International Security (ISIS) warns that Tehran may be closer than even the Israelis think to enriching uranium to about 90%, the grade needed for a nuclear weapon. According to the ISIS study, the Iranians could combine their stockpiles of civilian- and medium-grade uranium to produce a bomb's worth of 90% uranium in about two to four months.

That doesn't put Iran within sight of a bomb, at least not yet. “Iran would need many additional months to manufacture a nuclear device suitable for underground testing,” the report says, “and even longer to make a reliable warhead for a ballistic missile.”

But this judgment assumes that Iran seeks to have a sophisticated nuclear weapon from the get-go, rather than a crude “gun-type” bomb of the sort that leveled Hiroshima, and which would be much simpler to produce. The judgment also assumes that Iran has no more enriched uranium than what the International Atomic Energy Agency reports it has. Yet Tehran has a record of nuclear deceit. Intelligence analysts shouldn't assume that absence of evidence means evidence of absence.

Then there's the Iranian economy. The Obama Administration is pointing to the recent sharp drop in the rial—down about 80% against the dollar in the last year, including a 40% tumble over a single weekend in September—as evidence that sanctions are having a devastating effect and could tilt Tehran away from its nuclear ambitions.

But while Iran's economy is undoubtedly in bad shape, that has less to do with sanctions than with ordinary economic mismanagement. The government botched a subsidy reform last year, in which it tried to compensate for the elimination of fuel subsidies with cash handouts. Years of loose monetary policy have led to an annual inflation rate estimated by economist Steve Hanke to be approaching 200%. Last month's abrupt devaluation was largely the result of a government crackdown on black market currency traders.

It's true that sanctions have hit some Iranian businesses, especially those that rely on imported parts. Sanctions have also cut sharply into the regime's oil exports, down to about a million barrels a day from 2.25 million a year ago. But while exports are down sharply, revenues are off only 17% since 2010, thanks to higher oil prices. Iran is expected to earn $53 billion in oil revenues in 2012.

That doesn't mean the Iranians can rest easy. Economic forecasting by the Foundation for Defense of Democracies suggests that on current trends Iran could exhaust its foreign-exchange reserves, currently estimated at about $90 billion, by July 2014. The date could probably be moved forward by a massive intensification of sanctions, including an end to the waivers the Obama Administration has been handing out to any country that reduces its consumption of Iranian energy. Tighter money from the Federal Reserve would also go far to reduce commodity inflation, as it did during Paul Volcker's tenure in the early 1980s.

Yet forcing a balance-of-payments crisis on Iran doesn't mean it will abandon its nuclear ambitions. As Mark Dubowitz of the Foundation for Defense of Democracies notes, sanctions on Iraq and South Africa also caused balance-of-payment crises without immediately toppling the regime. Countries don't have the same pain threshold, and the Islamic Republic has shown it's prepared to impose a lot of suffering on its own people to achieve its goals.

There is also a risk that sanctions, instead of slowing Iran's nuclear programs, might accelerate them. The lesson from the nuclear breakouts of Pakistan in 1998 and North Korea in 2006 is that international condemnation for going nuclear is short-lived while the gain in diplomatic leverage is great. Pyongyang was removed from the U.S. list of terrorism sponsors within a couple of years of its first nuclear test in 2006—and by the Bush Administration, no less.

In last week's Vice Presidential debate, Joe Biden insisted the U.S. has plenty of time to deal with the Iranian nuclear threat. The only people who should take comfort in that judgment are Tehran's mullahs.