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Originally published September 30, 2013 at 8:09 PM | Page modified September 30, 2013 at 9:41 PM

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Western economic sanctions taking toll on Iran

The New York Times

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TEHRAN, Iran —

The owner of a bus-manufacturing company here admits that he is a man who likes his routines, and so every day he continues to commute to his downtown office. There he orders cups of tea, barks orders to his factory foremen over the phone and signs a steady flow of papers his employees put on his desk.

“It looks like I’m working, right?” the owner, Bahman Eshghi, said, folding his hands. “No. In reality I am praying, either for a miracle to save our economy or for a fool to come in and buy my factory.”

For years, Iran’s leaders have scoffed at Western economic sanctions, boasting that they could evade anything that came their way. Now, as they seek to negotiate a deal on their nuclear program, the leaders are acknowledging that sanctions, particularly those applied in 2010 on international financial transactions, are creating a hard-currency shortage that is bringing the country’s economy to its knees.

This was evident in New York last week when Iran’s new president, Hasan Rouhani, emphasized the need to act swiftly to resolve the standoff over Iran’s nuclear program, perhaps in three to six months. While there may well be political reasons for him to be in a hurry, Rouhani and other officials admitted that the sanctions were hurting.

In repeated meetings during the week, Rouhani and his foreign minister, Mohammad Javad Zarif, said the government’s financial condition was far more dire than the previous president, Mahmoud Ahmadinejad, had let on.

Rouhani and Zarif did not publicly specify the severity of the cash squeeze. But Western economists believe the crisis point may be much closer than previously thought, perhaps a matter of months. Iran news outlets have reported that the government owes billions of dollars to private contractors, banks and municipalities.

Because of the sanctions, oil sales, which account for 80 percent of the government’s revenue, have been cut in half. While Ahmadinejad had asserted that Iran had $100 billion in foreign-exchange reserves, the total had shrunk to $80 billion by mid-2013, according to a new study by Roubini Global Economics, a research firm based in New York, and the Foundation for Defense of Democracies, a Washington group that advocates strong sanctions against Iran.

But even that vastly overstates the amount readily available to Iran. Three-quarters of the $80 billion is tied up in escrow accounts in countries that buy Iranian oil — the result of a U.S. sanctions law that took effect in February. Under that law, the money can be spent only to buy products from those countries.

Even gaining access to the remaining $20 billion is difficult — it has to be physically moved in cash because of Iran’s expulsion from the global banking network known by its acronym SWIFT, which had allowed the money to be transmitted electronically.

“They can’t repatriate the money back to Iran,” said Mark Dubowitz, executive director of the Foundation for Defense of Democracies. “This is the dilemma Iran finds itself in.”

The sanctions pose other problems.

Unable to arrange simple financing for business deals, executives are forced to transfer suitcases of cash through street-level money changers to shady bankers abroad. This is not only costly, with middlemen exacting fees every step of the way, but also dangerous, the cash making a tempting target for thieves.

Lower-level officials here and businesspeople are even more alarmed than the leadership, with some saying Iran’s economy is already on the verge of collapse.

Businesspeople in Iran have seen this coming and have been adapting, said one economic analyst, who asked not to be named to avoid trouble with the government.

“But the government is slow and way too optimistic in their predictions,” the analyst said. “Now they are starting to feel the full force of what has been unleashed on them.”

The sanctions have introduced numerous distortions into everyday life. For example, Iran is allowed to use money it earns from oil sales only to buy products from the purchasing country. As a result, Iranian supermarkets are filled with low-quality Chinese products, while several infrastructure projects are being built by Chinese companies, rather than Iranian.

“We don’t have an oil-for-food program like Iraq,” the analyst said. “We have an oil-for-junk program.”

One economist, Mohammad Sadegh Jahansefat, said the government had been taken hostage by countries benefiting from the sanctions — particularly China, which he called the worst business partner Iran had ever had.

“China has monopolized our trade — we are subsidizing their goods, which we are forced to import,” he said, adding of its work in the energy industry: “They destroy local production and leave oil and gas projects unfinished so that no one can work with them.”

The state’s dire financial straits are especially tough on contractors and their workers. Akbar, 50, a building contractor from Isfahan, said a big state foundation had not paid $40,000 it owed him.

“I will never again work for the state,” he said. “We just can’t trust they will pay up.”

Iranian business families are used to dealing with the roller coaster that Iran’s economy is. Patience is key, said Ali Khalilpour, 34, who operates a chain of sports apparel stores with his father.

“We have fired many people, lost dozens of stores and lots of money following the collapse of the national currency,” he said.

There were times when the rial would fall 20 percent in value in a few months while the Khalilpours owed the equivalent of millions of dollars to Western sports brands in Dubai. They were forced to absorb the loss.

“It’s is hard, but some things are beyond your control,” Khalilpour said, before finding a silver lining.

Most of his competitors have gone bankrupt, he said, leaving the field to his family.

“We have faith that good times are finally coming to this country,” he said. “When they come, we will be the biggest player in the market.”

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