Iranians Feel The Bite Of Tougher Sanctions

Iranians wait to enter a currency exchange shop in Tehran on Jan. 3. The Iranian rial fell to a record low against the dollar in early January after President Obama signed a bill imposing fresh sanctions on the country's central bank.

hide captionIranians wait to enter a currency exchange shop in Tehran on Jan. 3. The Iranian rial fell to a record low against the dollar in early January after President Obama signed a bill imposing fresh sanctions on the country's central bank.

Morteza Nikoubazl/Reuters/Landov

No nation has been sanctioned so frequently, and so thoroughly, as the Islamic Republic of Iran. For more than 30 years, the country has been under some kind of punitive economic measure.

The goal has been to prevent Iran from receiving and using the billions of dollars in oil profits that finance its nuclear program.

But none have been tougher, according to President Obama, than the sanctions his administration has imposed on Iran's banking system.

The evidence suggests that these sanctions have made it difficult for Iran to carry out international transactions. And they have forced ordinary Iranians into activities that under other circumstances might be called money laundering.

Two Perspectives

Until recently, sanctions imposed on Iran — by the United States and by the U.N. Security Council — have not changed Iran's determination to expand its nuclear activities.

But on the last day of December, Obama signed into law a bill that could ban foreign banks from operating in the United States if they carry out transactions with the Central Bank of Iran.

That step came after several years of sanctions tightening, according to the president.

"What we've been able to do over the last three year is mobilize unprecedented, crippling sanctions on Iran," Obama said.

That pressure has forced many, perhaps most, international banks to think twice about doing business with Iran.

"Iran is feeling the bite of these sanctions in a substantial way. The world is unified. Iran is politically isolated," Obama said.

Of course, that's not the way Iran's supreme leader, Ayatollah Ali Khamenei, sees it.

"Obama has said he will bring Iran to its knees through sanctions," Khamenei told a national television audience a few days ago. "This is a delusion. They call these paralyzing sanctions — for the past year? We've been under sanctions for 30 years."

Despite the supreme leader's words, there's no doubt the current sanctions have been disruptive for the government and for many of Iran's people, says Muhammad Sahimi, a professor at the University of Southern California who writes regularly for the website Tehran Bureau.

"It has greatly tightened and restricted the freedom that the Iranian government needed to carry out all these transactions," Sahimi says. "And that in turn, of course, has affected the lives of ordinary Iranians."

Growth In Money Smuggling

The most dramatic development has been the collapse of Iran's currency, the rial. Over the past few months, it has lost more than half its value against the dollar, sparking a panic that saw Iranians desperate to flee the rial and turn their holdings into hard currency.

A customer buys Iranian gold coins at a currency exchange office in Tehran. The loss in the rial's value has led Iranians to take their money out of the country — even by speedboat across the Persian Gulf. i i

hide captionA customer buys Iranian gold coins at a currency exchange office in Tehran. The loss in the rial's value has led Iranians to take their money out of the country — even by speedboat across the Persian Gulf.

Raheb Homavandi/Reuters/Landov
A customer buys Iranian gold coins at a currency exchange office in Tehran. The loss in the rial's value has led Iranians to take their money out of the country — even by speedboat across the Persian Gulf.

A customer buys Iranian gold coins at a currency exchange office in Tehran. The loss in the rial's value has led Iranians to take their money out of the country — even by speedboat across the Persian Gulf.

Raheb Homavandi/Reuters/Landov

This has put enormous pressure on Iran's foreign currency reserves. As a result, Sahimi notes, the government imposed stiff restrictions, under penalty of imprisonment, on how much foreign currency ordinary Iranians can hold or send out of the country.

"So it has become very difficult to many Iranians to actually either send any money to outside Iran or sell their assets in Iran and get it out of Iran," Sahimi says.

Ordinary Iranians have become money smugglers, hoarding their dollars, filling suitcases with cash, and traveling out of Iran to make deposits into international banks.

Some people have even resorted to taking stashes of cash by speedboat across the Persian Gulf at night to make their deposits in banks on the other side.

One of the most popular destinations is Dubai, says Hossein Askari, an expert on Iran's economy at George Washington University. Its banks have bowed to U.S. pressure to forgo dealings with Iran's government, but not with individual Iranians.

"And when you get on the other side, many countries, especially in Dubai, nobody asks you any questions," Askari says.

China And India Loopholes

At the government level, banks in India and China are still doing business with Iran. China imports a great deal of Iran's oil, so it has established accounts for Iran in China amounting to billions of dollars.

But China reportedly has imposed exorbitant fees and restrictions on these accounts, a development just now becoming known in Iran, says USC's Sahimi.

"That is beginning to change the perception, even within Iran, whether China is really Iran's strategic ally or is just taking advantage of the situation," he says.

For the sanctions to be fully effective, the United States would have to move to close loopholes like this. Askari is skeptical.

"I don't think the United States will do that with Indian banks. And I am 100 percent sure it will not do with Chinese banks," he says.

Between the U.S. and China, especially, there is too much at stake. So in the end, the sanctions are tough — but probably not watertight.

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