Trump’s Threats Are the Least of Iran’s Worries
(Bloomberg) -- Less than a year ago, Amir was at a soiree at the Brazilian embassy in Tehran, exchanging business cards with shoe makers eager to sell to a market of 80 million Iranians.
The product of the evening’s schmoozing still lines the walls of his stores: Brazilian flip-flops and bath slippers. But now the footwear is subject to a government ban on foreign imports as Iran tries to stifle the impact of U.S. President Donald Trump’s withdrawal from the nuclear deal, which had opened the door for new suppliers.
“A lot of retailers have already closed down and I’m selling the stock that I have left,” said Amir, 27, standing behind the cash register in his small shop in a shopping arcade in an affluent area of northern Tehran. “Once I’ve sold everything, I’ll probably be unemployed,” he said, declining to be identified by his full name because of concern about speaking with foreign media.
The fiery exchanges between Trump and President Hassan Rouhani this week heightened fears among Iranians that things are only about to get worse.
Since Trump pulled the U.S. from the accord in May, Iran’s currency has hit record lows on the black market and foreign companies including Peugeot parent PSA Group and Total SA have been scaling back operations. What remains are the deep structural weaknesses in Iran’s economy that were compounded by embargoes, corruption and cronyism over the decades. Banks are crippled by bad loans because of years of poor regulation.
Sanctions that were lifted under the nuclear deal are now set to return within days, while Trump warned Rouhani not to threaten the U.S. or suffer the consequences. Record temperatures, meanwhile, have led to power outages in big cities and water shortages that have triggered protests. Iranians say they’re worried the government is overwhelmed by the scale of events.
“Rouhani’s government has no real understanding of the extent of what’s going to happen and what will happen with these sanctions,” said Saeed Laylaz, a pro-reform economist who has advised the government. “The people have lost their trust and they are craving efficiency — they don’t care if it comes from men with beards or neckties.”
Instead, the leadership is just trying to keep a grip on things, he said. “The strategy is firefighting,” said Laylaz. “They’re dealing with crises as they happen.”
There’s little to suggest that Rouhani’s position is under any serious threat, but the rapid deterioration of people’s prospects would leave any leader vulnerable, let alone one where Islamic conservatives wield such power. The cleric is a little over a year into his second term and has been trying to forge unity with hardliners who always opposed the nuclear deal.
Many Iranians, though, blame U.S. foreign policy as deliberately destructive and ridicule the Trump administration’s stated aim of helping Iran in the longer term by bringing the country back to the negotiating table. They see themselves as collateral damage in a geopolitical game of chicken.
“When you’re doing everything you can to destroy the economy, how is that supporting us?” said Parisa, 32, who runs a women’s fitness center she opened with a friend in October last year. “I think the people feel trapped between Trump’s politics and the way leaders here are handling things.”
Frustration with the government, especially among reformists who voted for Rouhani, is growing. There’s talk among some lawmakers of a new generation of Iranians being introduced to the war-time food coupons and rations that characterized life during the conflict with Iraq in the 1980s.
Parisa, who voted for Rouhani, said she put plans on hold to expand her business because of the plunging currency. Most of the equipment she needs, such as weights and yoga mats, is imported, she said, also declining to be identified by her full name.
Aliasghar Rezaei is another who wants Iran to chart a different course. Under the scalding Tehran heat, he steers his lumbering Iranian-produced Peugeot 406 through the city’s uptown traffic. Rezaei ran a garment factory for 35 years. He shut it a year ago and started working for a ride-hailing app.
“There’s no hope in general and it feels like we’re at the end of the line anyway,” said Rezaei, 58, who supported the 1979 overthrow of the shah. “I fought for the revolution and I probably still would, but something has to change.”
The government has tried to restore some order in the economy and show it’s in control.
Rouhani exposed some of the illegal practices among importers and rooted out a number of government-linked networks that had been controlling car imports for profit. Several officials at the Ministry of Industry, Trade and Mines were arrested this week. Rouhani has instructed his deputies to expedite efforts to tackle graft and is expected to shake up his cabinet.
After the rial’s sharp decline as Iranians clamored for hard currency – the euro is worth 100,000 rials in unregulated markets, according to Tasnim news agency, compared with about 40,000 rials last year – the government tried to halt panic-buying. It imposed a fixed price on the dollar, limited currency sales to travellers and closed foreign-exchange outlets.
But the policy back-fired because some businesses exploited the difference between the central bank’s fixed rate and illegal black market rates while others floundered.
Seyyed Ali Jafari returned to Iran in 2014 from the United Arab Emirates a year after Rouhani’s election. The prospect of sanctions removal and a rapprochement with the west threw up an opportunity to build an Internet business and target foreign companies that wanted to advertise online in Iran, he said.
Four years later, Jafari and his business partner are now considering applying for visas and leaving the country after their client base was decimated, particularly since Trump tore up the U.S.’s part in the nuclear deal. They’ve lost the data center that housed their server because they can’t pay the operator and are left trying to cater to a small group of domestic customers, Jafari said.
“Our targets for revenues and page impressions and for gaining foreign clients have all fallen apart,” Jafari said. “The situation for our company has worsened considerably since May. The currency problems, the complete lack of any access to dollars and foreign currency means we can’t find any in the market at all. We’ve lost foreign clients and suppliers.”
Tight controls on dollar and euro supplies and the banning of purchases of non-essential commodities from overseas mean that scores of suppliers and retailers are struggling to survive.
Shoe retailer Amir has helped run the family business, which has three stores in the Iranian capital, since he was a teenager. He said he can’t remember a time where things have felt more precarious and uncertain. A shipment of shoes was blocked by Iranian customs a month ago and is stuck there, he said.
“The whole country is in a state of stress,” he said. “It’s like everything’s at a standstill.”
©2018 Bloomberg L.P.