Iran's middle class feels squeeze of sanctions

February 24, 2013

Saeed, the manager of a corner store in central Tehran, oversees a shop crammed with packaged food, toiletries and paper products. But he said his middle-class customers increasingly pass on imported items such as British-made Ahmad tea, advertised as “the most exclusive tea in the world,” whose price in Iran has nearly tripled in two months.

“This tea is now just too expensive for most people,” said Saeed. “I can’t even afford it myself anymore, so how can we expect customers to buy it?” Like others interviewed, he did not want his last name published for fear of government reprisals.

Even amid escalating U.S. sanctions over Iran’s nuclear program — the latest round of penalties took effect earlier this month — store shelves are stocked, cafes are packed, and the government appears relatively stable. But as inflation tied to sanctions drives down the value of the Iranian rial, some of the loudest complaints are coming from members of the robust middle class, who can no longer afford the imported goods and foreign travel that they grew used to when petrodollars streamed into Iran.

As the economy reels, Iran’s leaders, who take pride in having ended the deep poverty that reigned in the country for much of the 20th century, have prioritized alleviating the woes of the poor masses through subsidies of staples and direct cash payments. But they have done little for the middle class, which expanded dramatically after Iran’s 1980s war with Iraq and the oil boom years of the last decade.

Now, the question of whether to try to maintain that prosperity or continue to focus on the needs of the poor has become the subject of a key political debate.


Sanctions affect Iran’s oil trade (The Washington Post/Source: International Energy Agency)

In the meantime, the service workers, small business owners and civil servants who make up the middle class — about 50 percent of the population, according to some estimates, though data are unreliable — complain that they have had to alter the spending habits that a currency buoyed by record oil revenues allowed.

The blow, so far, is mostly psychological. For many, out are the foreign cellphones, tablets, cosmetics and international vacations, whose values are pegged to the dollar. Domestic products widely perceived as inferior are in.

“So many things I used to get for my family and for the people whose houses I clean, I’ve just stopped buying,” said Mahnaz, a domestic worker who listed Pantene shampoo and foreign-made instant coffee and nail polish as items she has recently eliminated from her shopping cart.

Sanctions on Iran’s oil sector have cut revenues in half in the past year and propelled the fall of the rial, though some analysts speculate that Iran’s central bank has also engineered the dive to strengthen its foreign currency reserves. In January 2012, the informal, street market rial-to-dollar rate was 16,000 to 1; today it is 37,000 to 1. The latest round of sanctions is making it even more difficult for Iran to access international oil revenue.

“Never before have we seen our money lose so much of its value so quickly, and it has affected our economy deeply,” said lawmaker Ezatollah Yousefian Molla, a member of the parliament’s planning and budget commission.

Yet there is little sign that the middle class is intensifying pressure on the state, as some international sanctions advocates hope might happen. According to a Gallup poll released Feb. 7, nearly one-third of Iranians surveyed said they were suffering, but almost half blamed the United States for sanctions.

“It really doesn’t matter whose fault the sanctions are, we’re just tired,” said Mahnaz, 52, who works as a housekeeper to pay her daughter’s graduate school tuition in Germany.

Next week, Iran’s government will make direct deposits of about $20 to more than 70 million people to help them cover costs associated with the Iranian new year holiday in March, when Iranians buy gifts for one another and prepare elaborate meals with expensive ingredients such as pistachios.

For the rural poor, the funds will be a welcome boost. But the amount will make little difference for many urban Iranians, who make up nearly three-quarters of the population.

“Purchasing power is definitely on the decline, because wages and income are not keeping up with inflation,” said Kevan Harris, a Princeton University sociologist who researches Iran’s economy and travels regularly to the country. “It may be that many families are consuming at the levels of 10 years ago compared to the boom times of 2006 to 2009, and that requires some hard decisions.”

In Tehran’s vast bazaar, where local residents shop as they have for more than a century, the narrow lanes are still packed with consumers making holiday purchases. Merchants and shoppers line up at the many small restaurants that have fed the daytime rush for decades.

Hessam, 28, who has helped run his family’s restaurant since he was a teenager, said business is surprisingly good. Despite a 50 percent markup on prices, profits are up over the past year.

“Everyone has to have lunch, and eating out is one of the last pleasures available to us,” Hessam said.

But customers often complain about the soy filler in his kebabs and the Pakistani or Indian rice he serves, the latter of which Iran receives in trade for oil. The rice is among the few imported items Iranians consider inferior to the domestic version.

“I tell them that if our kebabs were 100 percent meat and our rice was Iranian, I’d have to triple my prices,” Hessam said. “And if they keep complaining, I just blame it on sanctions.”

Iranians’ continued spending is not unexpected, said Djavad Salehi-Esfahani, an economics professor at Virginia Tech University. Due to inflation, he said, bank deposits in Iran are losing approximately 10 percent of their value annually.

“If you have high inflation and you don’t give people a way to keep the value of their money, they will spend it,” Salehi-Esfahani said.

Many Tehran residents now prefer to shop at one of the capital’s 24 Shahrvand department stores, which are under the supervision of the Tehran municipality and offer more regulated prices and quality control.

Last fall, as the value of the rial swung wildly, importers stopped distributing goods to the shops out of concern that fluctuations would cut into their profit margins. The aisles were nearly empty of imported appliances, fueling fears about potential shortages. Once currency rates stabilized in December, nearly all the goods returned — but at even higher prices.

“We have everything again, but fewer people can afford LG and Samsung products,” said Hamid, 32, a stocker at the Shahrvand in Tehran’s Argentine Square. “For the first time, most shoppers are seriously considering buying Iranian brands.”

Traveling abroad, which became available to millions of Iranians during the oil boom, is also further from reach.

An all-inclusive week-long trip to Thailand now costs nearly four times as much as it did in 2011. Purchasing the foreign currency needed to spend on vacation has risen at the same rate.

At the Persepolis Travel Agency in Tehran, where the walls are covered with posters of exotic scenes from India, Brazil and Malaysia, the telephones have practically stopped ringing.

“We’re not even advertising foreign new year’s tours this year, because they are so much more expensive than before,” said Asal, who has worked at the agency for the past three years.

“It’s nothing like when I started in 2010,” she said. “The phone rang nonstop, and we were sending people all over the world.”

This year, travel agents said, Iran’s domestic tourist destinations were fully booked for holidays a month earlier than in past years.

Saeed, the corner store manager, said he hopes he still has enough time to make reservations — but for a vacation inside Iran.

“I used to go to Thailand or Malaysia for the new year holidays, but this year the prices are just too high. I may go to Kish instead,” he said, referring to an Iranian resort island in the Persian Gulf.

Jason Rezaian has been The Post’s correspondent in Tehran since 2012. He was previously a freelance writer based in Tehran.
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