Amid Iran's Economic Woes, Sanctions Begin To Bite

There is growing evidence that the most recent economic sanctions imposed on Iran are beginning to hurt.

The Islamic republic is having difficulties finding international banks to handle the revenue from its oil sales -- and those sales appear to be shrinking. Meanwhile, a recent dramatic drop in the value of Iran's currency has left many people shaken.

At the same time, the government of President Mahmoud Ahmadinejad is removing subsidies that could lead to price increases on everything from bread to gasoline.

There hasn't been a moment since the triumph of the Islamic revolution in 1979 that Iran's government has not faced sanctions imposed by the U.S. and more recently by the U.N. Security Council. But over the years, it seemed that sanctions had little effect on Iran's economy.

Now the U.S. is putting enormous pressure on banks in Europe, Asia and the Middle East to stop cooperating with Iran. The effort is paying off, says Nader Hashemi, an Iran expert at the University of Denver.

"The sanctions that have been placed on Iran, which are the most comprehensive sanctions ever, are starting to bite and starting to deeply affect the functioning of the economy and the life of the average citizen," he said.

The most dramatic evidence was the sudden drop in the value of Iran's currency, the riyal, a few weeks ago. It took everyone by surprise, from the average citizen on the street to the leaders of Iran's Central Bank.

The bank was forced to intervene in the currency market to stabilize the riyal, prompting questions about Iran's foreign currency reserves and whether its oil exports are dropping.

For the moment, the riyal has been stabilized, but the episode left everyone jittery.

"The effect has been on the Iranian people, not on the regime," Sadegh Zibakalam, a professor at Tehran University, recently told Al Jazeera English. "Time and again, Ahmadinejad and other Iranian leaders actually say that sanctions have made us stronger.

"Ahmadinejad has actually in a very Machiavellian way ... been trying to manipulate the sanctions to his own favor."

Nevertheless, numerous international companies -- from Europe, Turkey, India and elsewhere -- are now refusing to buy Iran's crude oil or to supply Iran with gasoline and jet fuel.

In addition, now comes the possibility that economic subsidies will end.

Iran's government has been subsidizing the price of basic foods and fuel for decades. But it looks like the cost of subsidies is now so high, they could soon bankrupt Iran's government.

Ahmadinejad has put a bill before the parliament to remove subsidies, but many in the parliament are opposed.

Farideh Farhi, an analyst of Iranian affairs at the University of Hawaii, says the bill has made everyone nervous.

"People are very worried that prices are going to go up," he said. "And they also assumed that the price of the dollar is going to go up. So everybody started effectively buying dollars, even normal housewives."

To soften the impact, Ahmadinejad wants control of the revenues that will be saved in order, he says, to make direct payments to the poorest of Iran's citizens -- to those most affected by inflation, which is already on the rise. These payments began last week on a small scale in several rural provinces.

Many in parliament, including conservatives, do not want Ahmadinejad to have that power, fearing that cash payjments to people will buy loyalty.

Hossein Askari, an expert on Iran's economy at George Washington University, says he believes a crisis is coming for Iran's economy.

"I absolutely believe that the impact of reduced oil revenues and the cost of the subsidies is really squeezing the government of Iran," he said.

As the economic pressure builds, many are questioning whether Iran's government has the skill to manage the crisis. Just look at how the government has handled the subsidy issue so far, said Farhi, the University of Hawaii analyst.

"The way the government has approached the issue, not giving enough information to the population about how much money they are going to get, how fast the prices will be liberalized, has created a very tense environment inside Iran," he said. "Where everybody is very worried about whether or not they can manage their economic situation."

Some believe the government is deliberately withholding accurate information about the state of the economy. Already some in the government have accused citizens of hoarding and economic sedition.