Prices rise, patience thins in sanctions-hit Iran

ALI AKBAR DAREINI Associated Press Published:

TEHRAN, Iran (AP) -- A simple trip to the store in Iran these days offers a crash course in life under Western economic sanctions.

The prices of many imported goods -- from South Korean refrigerators to Turkish crackers -- can be double from last year. The money to buy them, meanwhile, has plunged in value against the U.S. dollar and other foreign currencies.

But there are no apparent shortages for those still willing to buy. Chinese products pour in to fill gaps left by European businesses and others that have left Iran's massive consumer market following economic sanctions over the Islamic Republic's refusal to rein in its nuclear program.

"You can find what you want," said Hasan Alaei, who imports food items mostly from China. "The problem is the cost of the imports have increased because of sanctions and the exchange rates."

It's places such as these -- electronics stores, supermarkets, auto supply outlets, Tehran's vast bazaar -- where the bite of sanctions is most visible even as the U.S. and Europe take aim at Iran's critical oil exports with new measures.

Iran's leaders have claimed there are still enough willing customers in energy-hungry Asia and elsewhere to counter Western oil sanctions. The more immediate troubles are brewing in the shops and markets where consumer discontent may dominate parliamentary elections March 2 and bring added pressures on Iran's ruling establishment.

So far, the leadership can be bolstered by widespread public support for the nation's nuclear program and the perception that sanctions display double standards by the West, which has not forced Israel to publicly disclose details about its arsenal. Israel is widely believe to have nuclear weapons capabilities, but it refuses to confirm or deny the speculation.

But a slumping economy -- already rattled by the removal of subsidies that drove up fuel prices -- has the potential to erode the backing for Iran's defiance of demands to halt uranium enrichment, which the U.S. and allies claim could lead to the production of weapons-grade material. Iran insists it only seeks reactors for energy and medical research.

"The evolving internal economic crises could become Iran's most vulnerable spot," said Patrick Clawson, director of research at the Washington Institute for Near East Policy. "It's one thing to stand against the world. It's another to feel pressure from the inside."

U.S. President Barack Obama signed an order Sunday that levied tough sanctions on Iran's Central Bank and its other financial institutions, intended to complicate the country's ability to conduct international commerce. The sanctions had been signed into law in December but were awaiting Obama's decision to put them into effect.

In an interview Sunday with NBC News, Obama said the United States was working in lockstep with Israel to resolve the crisis, "hopefully diplomatically," noting that sanctions were already having an effect in Iran.

"They are feeling the pinch. They are feeling the pressure," Obama told the network.

Some cracks are already showing in Iran's merchant class that has been a traditional base of support for the Islamic system. Importers are struggling with a slumping currency and suppliers are increasingly nervous about dealing with Iranian banks.

For Sharhriar Azadeh, owner of a shop that sells decorative items such as plastic flowers and glass figurines, it's meant raising prices between 30 percent and 50 percent because of the falling Iranian rial, which has been dragged down by a combination of panic over sanctions and government policies to sharply reduce bank interests that made holding rials less attractive.

The unofficial rate hovered around 18,000 rials to the dollar this week -- down from a high of more than 23,000 last month but still far from the rate of less than 11,000 about a year ago.

Siavash Yaghmaei, who runs an import-export business and also works as a customs middleman, said Iranian businesses are being forced back into a cash-only system because of concerns over the country's increasing economic isolation.

"We can't get any letters of credit because of the banking restrictions," Yaghmaei said. "Our trade partners know that. So they demand cash. And they want 100 percent of the cash before shipping the items."

Although the blow to everyday commerce is new, Iranians have been dealing with sanctions since shortly after the 1979 Islamic Revolution.

Its commercial aircraft fleet has many U.S.-made planes bought in the 1970s or earlier, including C-130 transport planes and Boeing 727s. Many are kept flying with rebuilt parts or ones cannibalized from out-of-service aircraft. The air force also keeps aloft 1970s-era planes such as the F-14 Tomcat.

The sanctions also have forced a culture of self-reliance and necessity that is often a point of praise for Iranian officials. Missile systems have been reverse- engineered models from China or North Korea. The domestic-made automobile known as the Paykan -- the workhorse of Iran's roads -- was fashioned after the British Hillman Hunter in the 1960s and remained virtually unchanged until it ceased production about a decade ago.

"Iran has been living under Western, U.S. sanctions for more than 30 years now," said the country's oil minister, Rostam Qassemi, at a news conference Saturday. "We won't retreat one iota from our position toward the West."

He lashed out at Europe for its decision last month to boycott Iranian oil imports, which account for about 18 percent of Iran's total sales. Yet he said that emerging Asian markets and others can compensate for any losses.

"The option of imposing a total ban on Iran's crude exports is non-enforcible. ... We have friends in the world and will assist each other," Qassemi said.

But one of Iran's closest allies, Venezuelan President Hugo Chavez, acknowledged last week that international sanctions have cut production at a jointly run auto assembly plant in his country.

"It's a problem to bring the parts ... even for us to pay the due amount in dollars" to an Iranian company, he said.