Iran down plays sanctions, street feels the bite

By Farshid Motahari Jan 19, 2012, 2:06 GMT

Tehran - Iran's leaders are trying to downplay the impact of sanctions imposed by the West over the country's disputed nuclear programme, but ordinary people are starting to feel their bite.

'Just look at the exchange rate. No politician can manipulate that,' said a political analyst in Tehran, who declined to be named.

The Iranian rial has fallen almost 35 per cent against the dollar over the past two weeks. Iranians are rushing to buy foreign currency.

The United States this month announced a new round of sanctions against Iran, which is grappling with high inflation after earlier sanctions by the United Nations and European Union linked to its refusal to comply with demands to halt uranium enrichment.

The US Congress has approved sanctions that would allow the government to penalize firms and countries that do business with Iran's central bank, through which Iran sells its oil in order to fund its nuclear programme. Those sanctions have not yet been enacted.

The European Union is to consider an outright embargo on Iranian oil on January 23.

'It's all just psychological warfare. You can't simply place sanctions on Iranian oil exports,' said Foreign Ministry spokesman Ramin Mehmanparast.

Vice President Mohammad-Reza Rahimi issued a statement saying the sanctions will have no effect on the economy.

Their remarks stand in sharp contrast with the concern voiced by people on the streets of the capital Tehran.

'It looks really serious this time. If we already have these rates, what is going to happen once the sanctions are actually enforced?' a currency trader said.

'I have no idea how I'm going to control the prices,' said Taqi, a merchant who imports textiles from China and Turkey. 'I have to sell the goods at a higher price so that I can compensate for the exchange rate.'

Construction materials have also become more expensive, prompting a surge in real estate prices. 'I sold several homes in advance that were not yet finished. Now materials prices are rising, and my profits are gone,' said Hamid, a building contractor.

'All I know is that I suddenly have to pay a lot more for the same amount of shopping,' said Asam, a housewife.

A supermarket owner said: 'Instead of moaning, you should pray for things not to get worse.'

The Iranian parliament wants to ban informal currency traders on the streets, with the aim of shoring up the currency.

'Great idea,' said a currency trader when asked about the move. 'It reminds me of my schooldays. I used simply to rub out the difficult maths problems when I couldn't solve them.'

Oil exports generate more than 70 per cent of national income. Sanctions targeting the sector could have a devastating effect on the Iranian economy. The US government is pressuring China, India, Japan and South Korea, all of which rely on Iranian oil, to find other sources.

The US efforts have prompted Iran to warn its oil-producing Arab neighbours against offering to raise their output to offset lost Iranian supplies linked to an oil embargo.

Iran's leaders are also trying to restart nuclear negotiations with major powers - the United States, China, Russia, Britain, France and Germany - who want it to suspend uranium activities and cooperate with the United Nations nuclear watchdog.

The Iranian military has threatened to block the Strait of Hormuz, a strategic waterway in the Gulf where 35 per cent of the world's seaborne oil is shipped. The US government has said it would respond to any such action by Iran.

'In the event the Strait of Hormuz is choked off, the shooting would start first and then, perhaps, perhaps, the talking,' a foreign diplomat in Tehran said.

Iranian cities on the Gulf are particularly concerned about a possible military confrontation there.

'No, please, not another war,' said 58-year-old Rassoul of the southern port city of Khorramshahr, which suffered during the eight-year war between Iran and Iraq that ended in 1988.