Iran Is Facing Its Soviet Moment and Possibly Its End  

Joseph Epstein, 08/30/26

On September 13, 1985, Saudi oil minister Ahmed Zaki Yamani announced that his country would stop propping up the price of crude. Prices collapsed, and the Soviet Union lost roughly $20 billion a year in hard currency—“money without which the country simply could not survive,” in the estimate of Yegor Gaidar, later Russia’s acting prime minister. Gaidar dated the collapse of the Soviet Union to that announcement.

Tehran is now in a weaker position than Moscow was in that autumn. The Islamic Republic is exporting almost no oil, its currency has lost nearly a third of its value since March, and it is rationing water and electricity to its own capital.

Treasury Secretary Scott Bessent announced a sweeping new sanctions campaign last week, Operation Economic Outcast, aimed at what remains of the regime’s revenue, with the stated objective of severing “every economic lifeline that sustains this tyrannical regime until Tehran stands alone.”

The Soviet case is the best available guide to what that kind of pressure can accomplish against a government already failing, and to how long it takes.

The pressure on Iran is already extraordinary. The rial traded at 2.02 million to the dollar on Sunday, down from 1.53 million in March, a 32 percent depreciation in under six months. Inflation is running near 90 percent by the Iranian government’s own Statistical Center, and the International Monetary Fund expects the economy to contract 5.4 percent this year.

Oil exports have stopped almost entirely: central bank governor Abdolnaser Hemmati has conceded that “we are not exporting oil,” tanker trackers have logged no Iranian supertanker crossing the Strait of Hormuz since July and floating storage has drained from 105 million barrels to fewer than 40 million.

The rest of the ledger is no better. Iranians are living with rolling blackouts and water rationing. Hezbollah is degraded, Hamas is gone, Assad has fallen, and the nuclear program is buried.

The supreme leader was killed in February and replaced by his son, a succession that satisfies no faction inside the system and commands no loyalty outside it. Four decades of regional adventurism and economic mismanagement have left the Islamic Republic weaker than at any point since 1979.

What makes this moment different is not the sanctions themselves. Washington has been designating Iranian entities for two decades with modest results. It is the architecture—three pressures applied at once, each closing an exit the others leave open. The U.S. Navy has been interdicting Iranian cargo since July, and Central Command reports redirecting 65 commercial vessels, disabling three and boarding two.

On August 19 the United Arab Emirates imposed an indefinite trade embargo after accusing Iran of firing ballistic missiles at its territory, closing the corridor through which roughly a third of Iran’s imports flowed—$21 billion in 2024, more than China and Turkey supplied combined—and through which Iranian firms had for years moved money past American sanctions.

Bessent’s designations then went after what was left: gold, aviation, shipping, digital assets. Retired general Mark Kimmitt called the Emirati embargo “even more significant than the embargo being put on by the United States.”

Any one of these Tehran could survive. Together they foreclose reconstruction. A regime cut off from the sea, from its warehouse in Dubai, and from the financial plumbing that served both cannot rebuild what the war destroyed—not the air defenses, not the missile plants, not the proxies, and not the nuclear program. That is a different objective from punishment, and it is the one worth pursuing.

What the loss of oil revenue did to Moscow is worth stating precisely, because it was not bankruptcy. The Soviet state paid its soldiers and its secret police until the end.

What it could no longer do was act. Grain production had stagnated while some 80 million people moved into the cities, and without oil revenue the Kremlin had to borrow from Western banks to feed them. “We are buying the grain because we cannot survive without it,” Soviet president Mikhail Gorbachev conceded.

When the Politburo weighed crushing Solidarity in Poland, and later reasserting control over the Baltics, its creditors made the price clear and Moscow backed down. The empire had become something the Soviet Union could not afford.

Washington saw the vulnerability and pressed it. National Security Decision Directive 66, signed in November 1982, targeted what President Ronald Reagan’s aides called Moscow’s strategic triad of technology, trade and credit, on the premise that energy exports funded everything the Kremlin did abroad.

None of which is to hand American policy total credit for 1991. Afghanistan drained Moscow’s treasury and its legitimacy, central planning had failed on its own terms long before Reagan took office in January 1981, and the nationalisms rising in the republics were beyond the Kremlin’s power to contain.

Economic pressure does not bring down a healthy regime. It adds weight to a system already under strain and narrows the choices available to the men running it.

The economic route works slowly and invisibly, which is why Washington chronically undervalues it. In 1985, Norman Podhoretz published an essay in Foreign Affairs titled “The Reagan Road to Détente,” accusing the most anti-Communist president of the century of drifting toward the accommodation with Moscow he had campaigned against.

Podhoretz, who died in New York last December at 95, was a serious man making a serious argument, but he was wrong. The campaign that was working produced no summits, no headlines, and no visible results for years.

The measure of success is not a surrender ceremony or a date on which the regime falls. It is a government in Tehran that cannot afford to rebuild what was destroyed in February, cannot pay to reconstitute Hezbollah, and has to weigh the cost of every convoy and every centrifuge against a treasury it has no way to refill.

Desperate Putin Sends Guards to Help Conceal Humiliating Crisis

Laura Esposito, 08/21/26

Vladimir Putin has deployed Russia's National Guard to gas stations as the country's fuel crisis spirals into street brawls and scenes of public outrage.

With only enough gas and diesel for roughly 28 percent of gas stations across the country, according to a local monitoring site, more and more ordinary Russians have begun to sound the alarm publicly—only to quickly be arrested or hit with fines.

Five people were detained in Volgograd after filming a public appeal to federal authorities over the fuel shortage, while another man was detained and fined in Perm for planning a public protest.

The unrest is a result of Ukraine amping up its attacks on Russian energy infrastructure in a bid to force negotiations to end Putin's years-long war. Russians have faced massive gas shortages in recent weeks after long-range drone strikes hit oil refineries, with some drivers waiting in lines as long as 30 hours or more to fill their tanks. Last month, it was reported that the shortage had spread to at least 78 of Russia's 83 regions, affecting some 50 million people, the Telegraph reports.

Meanwhile, Putin has responded by deploying the National Guard (Rosgvardia) to patrol gas stations outside Moscow, amid local reports of fights breaking out at the pumps as drivers race to fill up before supplies run out. Russian officials have reportedly been comfortably filling up their own tanks.

At the same time, major fuel suppliers have reimposed limits on gasoline purchases, contradicting assurances from Putin and other Kremlin officials that the country's fuel crisis was easing.

"The situation will gradually improve," Putin said in mid-July, weeks after admitting that Ukraine's attacks on his oil refineries have resulted in Russia facing a "certain shortage" of fuel.

Deputy Prime Minister Alexander Novak offered a similarly upbeat assessment later that month, saying "the balance is now better, and the situation at gas stations is significantly better."

In August alone, Ukraine's drones have struck nearly a third of Russia's major oil refineries, the Telegraph wrote.

This is just the latest struggle Putin has faced since he launched his "special military operation" in February 2022. Also this week, Sochi, a Black Sea beach resort favored by Putin, was battered by a Ukrainian counter-offensive.

Now, the formerly pristine waters are laden with fuel, and the beaches, once packed with tourists, are deserted.

What's more, Russians are reportedly pulling billions from their bank accounts over fears that Putin could grab their money to fund his war as the tide appears to turn.

Depositors have pulled out nearly $3.4 billion in just the first two weeks of August—on top of a staggering $11.8 billion yanked in June and July.

"Drones are flying. Things are burning down. Nervousness is growing. And people's everyday wisdom may be kicking in that they need to have cash under their pillow and not somewhere in banks where it may never be returned," a former finance official told The Washington Post.


Laura Esposito, Breaking News Reporter
laura.esposito@thedailybeast.com

請參考：

* U.S. Treasury is paying $3 billion a day in interest on national debt, says the CBO—having spent $10 billion to prop up the currency of its top lender
* Japan, Bretton Woods 2.0, and the End of the Carry Era


Yen sinks as US-Japan intervention unravels

Currency’s continued decline will ring alarm bells in the White House over possible sale of American debt

Chris Price, 08/10/26

The Japanese yen has suffered its sharpest sell-off since February as an American attempt to prop up the ailing currency unravels.

The yen fell by as much as 1pc to 159 to the dollar on Monday, wiping out around half of its gains since last week, when the US treasury bought the currency for the first time in 15 years.

Japan's currency dropped to a 40-year low in July amid a wide discrepancy in interest rates between the two countries, with rates far higher in the US.

The decline will add to pressure on the Bank of Japan to raise interest rates to support its currency. It has also raised questions among investors about whether Donald Trump's administration will be forced to intervene for a second time to bolster the yen.

The latest fall will ring alarm bells in the US that its Asian ally could sell off its substantial holdings of American debt to further prop up the yen.

Such a move would push up the cost of US government borrowing, which is already under strain from the US's $40tn (£30tn) debt burden.

Seth Carpenter, the chief global economist at Morgan Stanley, said: "The US-Japan intervention does not change our outlook on the fundamental drivers of the yen."

The yen has fallen despite the Bank of Japan raising interest rates in recent years.

Rates have risen from negative 0.1pc in 2024 to 1pc today as the world's fourth-largest economy reflates after decades of malaise since the early 1990s.

索引：

flying geese structure：「雁行(理論)」結構
OECD：「經濟合作暨發展組織」，簡稱「經合組織」。
STEM：「理工科」(科學、技術、工程、及數學)

Subsidies Do Not Explain China’s Competitiveness

Kai Guo, 07/17/26

Like every major economy, China uses industrial policy, and its subsidies have mattered. But subsidies are no longer the most convincing explanation for Chinese firms’ emergence as global leaders in industries that used to be the exclusive domain of advanced economies.

BEIJING—Chinese firms have achieved global leadership in industries once assumed to be the preserve of advanced economies: electric vehicles, batteries, industrial robots, solar panels, and AI—to name just a few. The standard explanation for this success is that the Chinese state subsidizes production, an argument that has now been given the institutional weight of a major OECD report.

This particular report matters because its conclusions are likely to shape policy debates well beyond the OECD itself. Yet the subsidy story is incomplete and increasingly inadequate. Like every major economy, China does use industrial policy, and its subsidies have mattered. But subsidies are no longer the most convincing explanation for Chinese firms’ growing competitiveness. The OECD is applying an old framework to an economy that has changed.

The report’s first weakness is methodological. The OECD’s estimates rely heavily on the concept of “below-market borrowing,” treating loans priced below China’s Loan Prime Rate as subsidized finance. But the LPR is not a preferential policy rate. It is closer to an average commercial lending rate in China’s banking system.

The arithmetic is revealing. China’s five-year LPR is around 3.5%, while yields on 30-year government bonds are roughly 2.2% and ten-year bonds around 1.7%. A firm borrowing near the LPR is paying far more than the sovereign itself. Treating such lending as subsidized finance risks converting ordinary commercial borrowing into statistical evidence of government support.

The data tell a similarly awkward story. Evidence from more than 5,300 listed Chinese non-financial firms shows that the bulk of bank lending still flows to state-owned enterprises in traditional sectors such as infrastructure, utilities, and construction. Many of China’s most competitive firms, by contrast, rely increasingly on retained earnings, equity financing, and capital markets.

The timing is no less important. Between 2023 and 2025, subsidy intensity among listed new-economy firms declined substantially, and not by accident. While rising local-government debt sharply constrained local authorities’ capacity to provide support, the Chinese government’s push to build a unified national market sought to curb local protectionism and subsidy competition among regions. Thus, China’s emerging industries achieved their strongest gains during a period when subsidy intensity was declining, and when local governments’ budget constraints were hardening.

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The same interpretive problem appears in discussions of China’s current-account surplus. Its recent increase is often read as evidence that China has doubled down on export-led growth. But the simpler explanation lies in the domestic economy. After the property downturn, investment weakened more than national saving, and since the current-account balance is the difference between saving and investment, the surplus widened almost mechanically. Much of the adjustment reflects a property cycle, not a deliberate export strategy.

How does one explain China’s competitiveness, then? The answer does not lie in a single policy, but rather in the interaction of industrial organization, human capital, innovation, and market scale.

China now contains multiple stages of industrial development within one national market. Frontier metropolitan areas coexist with vast manufacturing networks, which creates an internal “flying geese” structure—moving some production to lower-cost inland regions—that spans much of the industrial value chain. Products can be designed, tested, manufactured, and commercialized within a single integrated ecosystem before being deployed across a market of more than 1.4 billion people.

Scale alone is not the point. The advantage lies in the interaction between scale, supply chains, competition, and technical capacity. Dense supplier networks shorten feedback loops, large domestic markets accelerate commercialization, and fierce competition forces firms to innovate and improve quickly. The resulting industrial strength reflects structural capabilities, not subsidies.

Human capital is equally important. China produces roughly 3.6 million STEM graduates and 1.3 million engineers per year—more than any other economy. This high-skill workforce then improves manufacturing processes, absorbs and adapts technologies, solves production bottlenecks, and increasingly supports innovation. China’s greatest industrial asset today is probably not financial capital, but engineering capital.

A subsidy-centered explanation of Chinese competitiveness misses all of this. It focuses on policy instruments while underestimating the industrial ecosystem in which firms operate. It counts government support but gives too little weight to technical talent, market scale, supply-chain depth, and the speed with which Chinese firms move from adoption to innovation.

China still faces serious challenges, of course. It needs higher household consumption, better resource allocation, and a lower external imbalance. But addressing these problems will not weaken Chinese firms. Deeper capital markets, stronger domestic demand, and a more unified national market will more likely than not reinforce many of the capabilities that have underpinned their rise.

The OECD is right to examine China’s industrial policies. But the real question is not how much China subsidizes its firms. It is how much those subsidies have translated into China’s industrial success. Subsidies were never the whole story, and as China’s economy has evolved and grown more competitive, they explain far less than the OECD assumes.