Iran’s Economic Troubles Mount As New Sanctions Are Made Ready

Faced with piles of riyal bank notes that grow bigger but more worthless every   day amid the panic over the country’s mounting nuclear crisis, they are   turning to the one currency that has weathered every twist in Iran’s   turbulent history – the sekkeh, or gold sovereigns first minted in   ancient Persia in 500 BC.

“The riyal is falling so fast that it’s impossible to do business in it,”   Mr Fathi, 35, a stationery merchant, told The Sunday Telegraph last   week.

“We can’t agree any proper deals with other firms because within an hour   or two, the prices of everything may have changed. The government has   limited the amount of other currencies we can use, so everyone is using gold   instead.”

The switch to gold is partly due to the crude vote-buying policies of   President Mahmoud Ahmadinejad, who has fuelled rampant inflation by handing   out cash to millions of households to offset recent subsidy cuts on fuel.

But the underlying reason is his regime’s obsession with another, less stable   metal – the uranium 235 that the West believes it is secretly enriching for   a nuclear bomb.

On Monday the price Tehran pays for continuing that programme will spike   sharply too, when European Union foreign ministers meet in Brussels to   approve a ban on importing Iranian crude oil – a stiff blow to a regime   whose vast energy wealth has long kept it afloat.

The new sanctions come just three weeks after the US President, Barack Obama,   signed a law that effectively allows Washington to ban any country that buys   Iranian oil from access to the US financial system.

The parallel US and EU measures, the toughest to date, follow the failure of   almost a decade of negotiations, which most diplomats believe has Tehran has   simply used to buy extra time. Now, with the regime thought to be within a   year of nuclear weapons capability, and mounting fears that Israel will   attack before then, the West is gambling that economic pressure may   ultimately succeed where political pressure has failed.

“This is a serious move to tighten the pressure on Iranand bring them back to the negotiating table,” said one European   diplomat. “It is designed to hit them where it hurts, significantly   reducing their oil revenue.”

On the streets of Tehran, the smog-filled, mountain-ringed Iranian capital,   the sense of impending crisis is already clear from the queues in the gold   and money changing shops in the sprawling bazaars.

Since October, as new sanctions came to seem ever more likely, the riyal has   slid from around 10,500 to the dollar to nearly 18,000 last week, sometimes   by as much as 500 riyals per day. The result has been a run on both dollars   and gold.

The government has responded in typically authoritarian fashion, restricting   how many dollars an individual can buy, and sending plain-clothes police to   arrest anyone dealing on what is now a booming black currency market – but   to little avail. At the few authorised foreign exchange shops still selling   dollars, demand is so great that other currency dealers have started hiring   people to queue in line for them, according to residents of the Iranian   capital talking through intermediaries to The Sunday Telegraph.

“I was paid 150,000 riyals (£5) to stand in line for a currency dealer,”   said one day labourer. “There were 20 to 30 others like me in this line.”

The gold market has been the same: sovereigns, which used be bought mainly as   wedding gifts, are fetching around 7,750,000 riyals (£274) for a   quarter-ounce, twice what they cost in 2010. In three days alone last week,   said Mr Fathi, their price rose 15 per cent.

Combined with inflation rates of at least 20 per cent, mass bankruptcies have   ensued. Half the firms on Tehran’s biggest industrial estate have gone bust,   according to the Iranian Labour News Agency.

“My business has almost been totally ruined because transferring money   from Iran to foreign sellers has become very hard,” said Naser   Alikhani, 42, who runs a print machinery firm. “I’m moving what remains   it abroad and laying off all 15 staff in my Tehran office.”

Iranian import firms also find it impossible to get outside lines of credit,   and the costs of illegally-imported luxuries, such as Apple I-phones, have   risen by a third in recent weeks. Some shops are now finding it more   profitable to stockpile goods rather than sell them, exacerbating the   shortages, and Iranians are watching with alarm as their savings peter away.

“I have lost 40 per cent of my savings in the past three months and 40   per cent of the value of my home due to the falling riyal,” said Marjan   Babaei, 48, an arts dealer. “The government blames this on sanctions   but I think most people feel its mainly to do with mismanagement and   corruption.”

The economic picture will darken even more with the new sanctions on oil   sales, which, thanks to high global prices, have earned Mr Ahmadinejad’s   government some £350 billion in revenues over the last five years. Although   the EU boycott will take up to a year to bite because of grace periods given   to debt-laden Greece, Spain and Italy – Iran’s biggest EU oil customers – to   find new supplies, it could eventually rob Tehran of a fifth of its oil   sales and perhaps a higher share of its oil income.

Analysts point out that through the use of complex front companies, and simply   lowering their prices, the Iranian regime will probably always find buyers   for its oil, just as Saddam Hussein’s Iraq did. But by forcing them to sell   at ever lower rates, Mr Ahmadinejad’s income will be significantly dented.

Whether it will help bring about a change of Iran’s political direction is   another matter.

Parliamentary elections are due in March, but supporters of the reformist   Green movement, who were jailed in their thousands after 2009’s disputed   elections, are either banned from standing or unwilling to do so on   principle, fearing a fraudulent contest again.

And despite the “Arab Spring” felling regimes elsewhere in the   Middle East, Iranian faith in the power of street politics is at an ebb. “The   way the regime cracked down on the opposition leaves no hope of any change   in the near future,” said Ali Rezai, 28, an engineer. “Although if   it is ever revived I will join in again.”

Instead, the main threat to Mr Ahmadinejad comes from factions within his own   hard-line camp, in particular that of Ayatollah Ali Khameini, the unelected “Supreme   Leader”. Mr Ahmadinejad has accused Mr Khameini’s aides of deliberately   escalating confrontation with the West, hoping that new sanctions will ruin   the economy and discredit him.

The power struggle is less about ideology and more about the growing threat   the clerical class sees from Mr Ahmadinejad and his neo-conservative camp.

Rather like the Protestant zealots of 17th century Europe, the   neo-conservatives regard the clerical class as corrupt and over-privileged,   and query its untrammelled power.

Yet neither side are much interested in compromise with the West on the   nuclear issue. Indeed, for many, another spell of the kind of battle and   sacrifice experienced during the brutal 1980-88 war with Iraq is just what   is needed again to keep the Islamic revolution pure and free of Western   temptation. By that yardstick, even a disintegrating currency and a   bankrupt-ridden economy is unlikely to change their minds – in turn, making   it all the more likely that the Israeli prime minister, Benhamin Netanyahu,   might back a pre-emptive Israeli strike.

“At the end of the day, Netanyahu doesn’t want to be remembered as the   man who let Israel face the existential threat,” said Mark Fitzpatrick,   Iran expert at London’s International Institute for Strategic Studies.

He said it was far from certain, though, whether Israeli or even the much   heavier “bunker buster” bombs being developed by the US could   penetrate the most secure Iranian nuclear sites such as the new facility at   Fordo, which is buried 80 metres beneath a mountain. A failed attempt would   bring the worst of all scenarios: massive Iranian retaliation across the   Middle East, and extra justification for Tehran to continue the program as a   defence against future aggression.

Right now, however, most ordinary are concentrating on their more immediate   battle for survival.

“I was only a child when the war with Iraq finally ended, but I remember   those days very well, and it’s horrifying to think about another war coming,”   said Mr Rezai. “But with the economy as it is, nobody can even plan for   tomorrow, never mind the future.”

Iranians quoted in this article asked for pseudonyms to be used.