The healing begins.

During the talks, U.S. envoy David Satterfield pointed to his briefcase which he said contained documents proving Iran was arming Shiite Muslim militias in Iraq.

“Your accusations are merely a cover for your failures in Iraq,” Iran’s chief envoy Abbas Araghchi shot back, according to an official familiar to the discussions who spoke on condition of anonymity because he was not authorized to release the information…

Labid Abbawi, a senior Iraqi Foreign Ministry official who attended the meeting, confirmed that an argument broke out between the Iranian and American envoys. He would not elaborate.

I had a daydream about Satterfield handing the Iranian envoy a photo of that missing general with a gag in his mouth and a red, white, and blue cowboy hat on his head. Which, admittedly, wouldn’t have been very nice considering their envoy was kind enough today to line up next to the Democrats in calling for a timetable for U.S. withdrawal. Expect to hear about that next week from the GOP when the House and Senate begin debate on the Iraq spending bill.

Meanwhile in Tehran, the Iranian economy is in a state of “meltdown”:

Despite a 20 per cent increase in the national budget last year, Mr Ahmadinejad had to go back to Iran’s parliament, the Majlis, six times to ask for more money. Government expenditure is extremely high and rising – a pledge to reduce budgetary dependence on oil supplements by 10 per cent each year has been thrown aside as the government has resorted to using the Oil Reserve Fund as its piggy bank. Commentators speculate that Iran has inadequate foreign currency reserves to negotiate the demands of the coming year.

In fact, the extent of government borrowing from Iranian banks is jeopardising the solidity of the Iranian banking system. The borrowing increased by nearly 50 per cent last year and this swollen government sector carries significant knock-on inflationary implications. The official target for inflation is 9.9 per cent but the current rate is thought to be at least 20 per cent, and rising. In certain foods it is closer to 40 per cent and some fresh vegetables are disappearing in Tehran.

A large part of this economic crisis is home-grown but the tightening of American sanctions must give the economic planners even greater head-aches. The US has become much more adept at using its financial muscle to persuade non-American banks to withdraw financing from its chosen enemies.

Good stuff at the link too about Iran’s oil clusterfark, but nothing you haven’t heard before. How bad has the situation become? This bad.

Touchy-feely rhetoric, hostility towards Israel, and now gas rationing. Exit question: Is Ahmadinejad the Persian Jimmy Carter?