Hope Fades in Iran as U.S. Sanctions Bite

(Bloomberg) -- In sanctions-weary Iran, hope has become a rare commodity.

The U.S. offensive to cripple the Islamic Republic’s economy went full throttle on Monday, with renewed sanctions on buying Iranian oil, the country’s lifeline. Even before the latest measures kicked in, some imported products were disappearing from the shelves, with shoppers afraid that already-spiraling prices would put even basic supplies out of reach.

For Iranians, who saw a decade of crippling sanctions ease with the 2015 nuclear deal, it’s back to a grim future since U.S. President Donald Trump abandoned the deal in May. On top of the economic toll, the move has deepened political divisions, giving succor to hardliners who warned President Hassan Rouhani all along against negotiations with the U.S.

Hamid Saberi runs a mobile phone repair shop in a lower middle-class neighborhood of Tehran but has been moonlighting at a ride-hailing company to make ends meet as rising U.S. pressure hit the rial and sent prices soaring. Business has slowed so much that he’s now considering closing his shop and renting out the space.

“We’re under so much pressure right now. What can you do to prepare?” said Saberi, 38, who recalled doing six times as much business two years ago. “Running the shop is no longer worth it and neither is driving people around town.”

Plunging Rial

The rial has lost more than 70 percent of its value against the dollar since April, as expectations built that Trump would ditch the accord negotiated by his predecessor, European countries, Russia and China to curb Iran’s nuclear program in exchange for an easing of sanctions. Inflation has reached 16 percent.

Imported supplies, which can account for at least half of the goods in middle-class and wealthy neighborhoods, have become scarcer and, in some cases, prohibitively expensive. A strip of shops in the commercial Vanak district that used to house European fashion outlets such as Mango is now an empty hulk, the once-shiny store fronts dark and dusty.

Uncertainty over the future and fear that things are about to get worse prompted a bout of panic-buying in August as people stacked their spare rooms with imported goods like diapers, toilet paper or olive oil that they feared would soon disappear from shelves.

Authorities have warned shopkeepers and wholesalers against hoarding, with some caught holding back supplies to get better prices as the situation deteriorated. The government has banned exports of basic goods like tea, powdered milk and butter to avoid shortages at home and halted imports of some luxury products to conserve dollars.

Nasrin Arnavaz, a 55-year-old housewife, stopped buying red meat after prices doubled to around 600,000 rials ($4) per kilogram. Fresh fruit prices have quadrupled in some cases.

“There’s not much we can do about it,” said Arnavaz. “People used to keep a close eye on the foreign-exchange prices until recently and every fluctuation was a cause for concern, but the urgency has faded, as if we’re in a coma.”

Hoarding Supplies

Iranians have been on the receiving end of sanctions since the 1979 Islamic Revolution, and officials frequently refer with pride to the country’s ability to withstand privations.

The first round of sanctions banning Iran from buying dollars, trading gold and developing its car industry went into effect in August, but it’s the oil sanctions that are designed to really pinch. Even though the U.S. administration has granted waivers to eight countries, including major Asian buyers, exports are expected to drop more than 50 percent from recent peaks.

The Islamic Republic’s leaders have remained defiant, taking measures to deter currency speculation and close a black market that has flourished as dollar supplies have dried up. A notorious gold dealer known as the “Sultan of Coins” -- who took advantage of the differentials between the official and black market currency conversion rates -- was among three men sentenced to death in September in a warning to others.

Recognizing that economic hardship could prompt the kind of political discontent that prompted days of protests early this year, President Hassan Rouhani’s government is also preparing to hand out food baskets to Iran’s neediest. Food packages valued at 6 million rials per recipient will be distributed in three installments until the end of the Iranian year in March, with about half the population expected to benefit.

“One of the tricks of the enemy is to create pessimism and mayhem in the market and to promote rumors of goods shortages,” Sadegh Hosseini, the leader of Iran’s Revolutionary Guards in the western province of Ilam, told the Tasnim news agency last month.

Government Penalties

Not everyone is in crisis mode. Well-heeled Tehranians are still snapping up tickets for a star-studded local production of “Les Miserables” at a luxury hotel.

Iran’s first adaptation of Victor Hugo’s tale of 19th-century suffering, rebellion and redemption has become an easy target for conservatives, who all along argued that Rouhani’s engagement with the West would end in American perfidy. Tickets range from about $6 to $17, in a country where the average monthly household income is about $225.

The Espinas Palace Hotel where it’s being staged was a favorite stop for foreign political and trade delegations after the nuclear deal opened the door to one of the world’s few remaining closed markets. But contracts with the likes of Boeing Co. have been cut short, and imports of foreign cars plunged nearly 70 percent on year from March to May, mostly because the government banned imports to conserve precious foreign currency.

The government is working with European partners to the nuclear deal to keep banking and business channels open, but it’s been a slow process. Even before Trump’s election, multinationals had to tread carefully in Iran as some American sanctions were never lifted. Problems in Iran’s banking sector have heightened risks and Iranians lay some blame at the feet of a government accused of mismanaging the economy and wasting resources.

As Iran sinks back into isolation, Nazanine Roshan, 50, wonders what will become of the marketing company she and two partners have spent five years building.

“It’s just crazy to me how quickly things have changed,” she said. “If the nuclear deal had continued and if the investments had taken place, we’d be having a different conversation.”

©2018 Bloomberg L.P.