Trade Crude Oil

Tehran, Iran David Rosenberg / The Med – For ordinary Iranians, the pain they have wrought by sanctions is already palpable in the form of spiraling inflation and shortages. But Iran’s leaders, and not a few outside observers, say that if Western leaders are counting on consumer distress to pressure the government to abandon its nuclear ambitions, they will be disappointed.

The sanctions knot got pulled a little tighter on Monday as U.S. President Barack Obama gave American banks new powers to freeze assets linked to the government in a move aimed at closing loopholes in existing sanctions that Tehran has exploited. Officially the sanctions are targeted at the government, but observers say the widespread distress they are causing suggests Washington and Brussels hope they will spur change in Iran from the bottom up.

“It’s hurting the middle class, innocent people. But the question is will this result in the people in the bazaar, the businessmen, withdrawing their support for the regime and would that be enough to change this regime?” asked Hossein Askari, a professor of international business and affairs at George Washington University.

They might, he told The Media Line, but the economic-pain threshold that might turn them against the government is likely to be very high because the public supports the government’s nuclear program, the target of the sanctions. “That is something what Iranian people want. The Iranian people are supportive of what government is doing,” Askari said about the nuclear program.

Iranians were traumatized by the use of chemical weapons by Iraq during the two countries’ seven year war in the 1980s and want to ensure that they are never vulnerable again to weapons of mass destruction, although officially Tehran insists its nuclear program is for peaceful purposes.

Iran’s leaders are politically vulnerable. They are in the midst of an internecine power struggle that pits President Mahmoud Ahmadinejad against the country’s supreme leader, Ayatollah Sayyed Ali Khamenei. An alleged $2.8 billion bank fraud, which observers say is being orchestrated by the Khamenei camp against Ahmadinejad loyalists, is about to go to trial, Prosecutor General Gholam-Hossein Mohseni-Ejei said last week.

Parliamentary elections are slated for March 2. Although reformists have been effectively barred from competing, it could serve as a magnet for street protests like those that followed the disputed 2009 election. A low turnout would embarrass the government at a time when it is seeking to project national unity in the face of crisis, analysts said.

Iranian consumers face another blow later in March when the second phase of 2010 subsidy cutbacks goes into effect. The next round will reduce energy subsidies and eliminate cash handouts for some 3 million affluent families.

But Iran insists it will be able to weather the ban on its oil imposed by the European Union last month and being followed by others to one degree or another. Brig. Gen. Mohammad-Reza Naqd, the commander of Iran’s Basij Force, said on Monday that 80 percent of Iran’s oil is unaffected by the EU measure and that rising prices will compensate it for the lost revenue from Europe.

“Another benefit of the sanctions is reducing Iran’s imports, encouraging the people to turn to economical products. Two hundred thousand new jobs will be created with every $1 billion reduction in imports, so the country will witness a significant fall in unemployment,” he asserted.

Gary Hufbauer, a fellow at the Peterson Institute for International Economics, told the Reuters news agency that the sanctions against Iran are among the toughest of the past half century, but he estimated that they would cut its gross domestic product by no more than 10 percent. China and India, which together buy about a third of Iran’s oil, have said they will not join the sanctions on Iranian oil.

Right now, however, the economy is feeling the pinch. The rial, Iran’s currency, has plummeted in value, forcing Iranians to scramble for dollars. The unofficial rate is currently around 18,000 to the dollar this week, compared with 11,000 a year ago. Officials have cracked down on foreign currency trading and blocked access to websites showing real-time exchange rates. It is no longer possible to search the Internet with keywords like “dollar.”

Inflation is officially at 20 percent, although economists think it is higher. In a sign of distress, Iranian buyers have defaulted on payment for about 200,000 metric tons of rice from their top supplier India, Reuters reported on Tuesday, citing Indian exporters and rice millers.

A Gallup poll of Iranians taken in December and January captured in numbers the extent of the sanctions suffering for Iranians in the street. Almost half of Iranians (48 percent) reported there were times in the past year when they did not have enough money to buy food their families needed, more than triple the 15 percent rate in 2005, the U.S. polling organization said in a report released on Tuesday.

Nearly two-thirds said they believed the latest round of sanctions will hurt the livelihoods of Iranians, Gallup said.

“I’m out sabbatical leave from the University of Tehran and I cannot wire money there. Since the rial has depreciated it makes living here more expensive,” said Seyed Mohammad Marandi, who is currently in Lebanon. But he expressed confidence that Iran would gradually redirect its economy away from the West and to the emerging powers of Asia.

“As new policies are formulated things will move back toward normal, especially as Iranian traders will completely stop trading with Europe and focus on Asia, Latin America and Africa,” Marandi told The Media Line. “In the long term it hurts the West more than Iran. They will lose any foothold they have in the country.”

Analysts said Western leaders may be overestimating the level of opposition to the government and the readiness of Iranians to give backing to Western demands. The Gallup poll found evidence of that, with the approval rate of the U.S. and European leadership among Iranians range between 7 percent and 13 percent.

“Such figures demonstrate that Iranians’ protests against their own leadership should not be construed as support for the West — and that Western leaders need to monitor the unintended effects sanctions may have on Iranians’ lives,” Gallup analyst Steve Crabtree wrote.

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