As new European Union sanctions targeting Iran’s vital oil industry took effect Sunday and inflation continues to spiral, ordinary Iranians are bracing for worse times ahead.
One of them is Ali, a fruit vendor in Tehran, interviewed by the New York Times (NYT) on Sunday.
“Who in Iran can afford to buy a pineapple costing $15?” Ali asked as people hurried past his displays of colorful fruit.
But according to NYT, Ali is not complaining. He is in fact making a killing thanks to his other source of income: currency speculation. “At least the dollars I bought are making a profit for me,” he said.
The new embargo that took force on Sunday is aimed at strangling Iran’s oil exports its main source of income. It also threatens to make the inflation even worse. With the Iranian currency, the rial having lost nearly half its value in the past year against other currencies, consumer prices are going through the roof, officially by 25 percent annually, but according to economists, probably even more than that.
The ban by the 27-member EU on the purchase of Iranian oil dealt the Islamic republic its second economic setback in days, following fresh U.S. sanctions that prohibit the world’s banks from completing oil transactions with Iranian banks. Combined, the measures significantly ratchet up the pressure on an Iranian economy already squeezed by previous rounds of sanctions.
The EU, which accounted for around 18 percent of Iran’s oil exports, said earlier this week that all contracts for importing Iranian oil will have to be terminated from Sunday. Also, European companies will no longer be involved in insuring Iranian oil.
At first glance, Tehran is the same metropolis it has long been. It is the city where German luxury car manufacturer Porsche sold more cars last year than anywhere else in the Middle East. City parks appear immaculate and streetlights are hardly ever broken and supermarkets are brimming with imported products.
But increasingly the economy in Iran centers on speculation. The winners seize any opportunity to make money fast on currency plays while losers watch everything they own disappear.
The diminishing ability to be able to sell its oil the shrinking foreign currency reserves and President Mahmoud Ahmadinejad’s inconsistent economic policies have all contributed to an atmosphere where Iranian citizens, banks and business and state institutions fend for themselves.
“The fact that all those Porsches are sold here is an indicator that some people are profiting from the bad economy,” Hossein Raghfar, an economist at Al Zahra University told NYT. “Everybody has started hustling on the side, in order to generate extra income … Everybody is speculating.”
Some people, like Ali the fruit vendor, exchange their rials for dollars and other foreign currencies as fast as they can. More sophisticated investors invest their cash in land, apartments, art, cars and other assets that will rise in value as the Rial drops.
For those on the losing end, however, every day brings more bad news. The sharp price rises are turning visits by Iranian homemakers to their local supermarkets into nerve-racking experiences, with the price of bread, for example, increasing 16-fold since the withdrawal of state subsidies in 2010.
Since the EU first announced its embargo in January, Iranian government figures show the prices milk and meat have risen around 20 percent, while the price of chicken has jumped some 80 percent.
“My life feels like I’m trying to swim up a waterfall,” said Dariush Namazi, 50, the manager of a bookstore. Having saved for years to buy a small apartment, he has found the value of his savings cut in half by the inflation, and still falling. “I had moved some strokes up the waterfall, but now I fell down and am spinning in the water.”
Fully aware of the burden the inflations has placed on families, Ayatollah Ahmad Khatami, an adviser to Supreme Leader Ayatollah Ali Khamenei, said last week that the price hikes are “a matter of pain” for Iran. But he also urged people not to complain, telling them: “If you say ouch, the arrogant ones will say they have achieved their goal. So be patient, and make them regret it.”
Western sanctions have hurt, economists say, particularly in denying Iran access to foreign currency reserves. However economists also agree that much of the damage to the economy has been self-inflicted as a direct result of the Ahmadinejad government going on an import spending spree after oil revenues started hitting record levels from 2005 forward.
With the government buying so many goods from abroad, many domestic producers were forced to lay off workers and shut down factories. That, in turn, has made Iran more vulnerable to international sanctions, they say. Companies that might have helped produce goods to replace those blocked by sanctions have long since gone out of business, as the owners shifted their wealth to speculation, building and selling properties, foreign currency or raw materials.
In one of the factories still operating, Manoucher, a 60-year-old engineer turned industrialist, recalled that only a decade ago being a factory owner in Iran meant not only a secure income but also social admiration as a job creator and someone who was building Ithe country’s future.
“Nowadays, it means you are a loser,” Manoucher was quoted in the New York Times as saying.
Business was extremely bad, he added, mainly because the government company he sells his products to had not paid its bills for six months. “I blame myself for feeling that speculation was beneath me,” he said. “My family and all my business partners would be rich now had we invested in building, lands and foreign exchange.”
These days in Iran, even state jobs don’t hold much security. On Thursday, an official within Iran’s elite Islamic Revolutionary Guards Corps admitted in an interview with the corps’ own publication, Sobh-e Sadegh, that the government had been late in paying soldiers their wages.
Many economists however argue that even without Western sanctions, Iran’s economy would be in trouble, with a legacy of inflationary oil spending and budget-busting state subsidies of food, gasoline and other basic items that encouraged overconsumption and the steady erosion of the country’s industrial base.
On Sunday Iranian news agency Mehr suggested that Iran could make use of hard currencies other than the U.S. dollar and the euro, form its own insurance syndicate to replace foreign companies that withdraw from the market, store up oil in tanks for later sale so as not to cut production, or simply reduce oil production to save its reserves for the future.
(Written by Sara Ghasemilee)
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