Iranians brace for war as feud with West reaches ‘critical point’


Economists and businessmen say that after years of erratic economic policies by the government of President Mahmoud Ahmadinejad, each new round of sanctions aimed at Iran’s key oil income increases fears of an overall economic meltdown. (ATTA KENARE/AFP/GETTY IMAGES)
January 5, 2012

At a time when U.S. officials are increasingly confident that economic and political pressure alone may succeed in curbing Iran’s nuclear ambitions, the mood here has turned bleak and belligerent as Iranians prepare grimly for a period of prolonged hardship and, they fear, war.

This stark contrast has been evident in the Iranian capital this week as a top military commander declared a “critical point” in the country’s long feud with the West and ordinary Iranians stocked up on essential supplies. Merchants watched helplessly as the Iranian currency, the rial, shed more than a third of its value, triggering huge increases in the prices of imported goods.

“I will tell you what this is leading to: war,” said a merchant in Tehran’s popular Paytakht bazaar who gave his name only as Milad. “My family, friends and I — we are all desperate.”

The sense of impending confrontation is not shared in Washington and other Western capitals, where government officials and analysts expressed cautious satisfaction that their policies are working.

Former and current U.S. government officials did not dismiss the possibility of a military confrontation but said they saw recent threats by Iranian leaders — including warning a U.S. aircraft carrier this week not to return to the crucial Strait of Hormuz — mainly as signs of rising frustration. U.S. officials say this amounts to vindication of a years-long policy of increasing pressure, including through clandestine operations, on Iran’s clerical rulers without provoking war.

“The reasons you’re seeing the bluster now is because they’re feeling it,” said Dennis Ross, who was one of the White House’s chief advisers on Iran before stepping down late last year. With even tougher sanctions poised to take effect in weeks, the White House had succeeded in dramatically raising the costs of Iran’s nuclear program, he said.

“The measure, in the end, is, ‘Do they change their behavior?’ ” Ross said.

The Obama administration is readying new punitive measures targeting the Central Bank of Iran, while leaders of the European Union took a step this week toward approving strict curbs on imports of Iranian petroleum in hopes of pressuring the nation to abandon what they say is a drive to develop nuclear weapons. Iran says its nuclear program is for peaceful energy production.

State Department spokes­woman Victoria Nuland deemed as “very good news” the E.U.’s commitment to shutting off the flow of Iranian oil to Europe.

“This is consistent with tightening the noose on Iran economically,” Nuland told reporters Wednesday. “We think that the place to get Iran’s attention is with regard to its oil sector.”

In Tehran, that tightening is being felt by millions of people. Economists and independent analysts say the sanctions have aggravated the country’s chronic economic problems and fueled a currency crisis that is limiting the availability of a broad array of goods, including illegally imported iPhones and life-saving medicines.

While dollar injections by the Central Bank of Iran in recent days appeared to stabilize the rial, foreign-exchange traders said Wednesday that they were not selling dollars because the rate set by the bank was “artificial.”

In a move that underscored a lack of options in quelling the currency crisis, Iranian authorities resorted to ordering money changers to post much lower exchange rates for dollars in their shop windows Wednesday. Authorities also blocked Web sites that listed real-time rates, according to Khabaronline, a Web site critical of the government.

In Tehran, where public support for the government has dwindled since it cracked down on large opposition protests in 2009, many blame Iran’s leaders and their policies for the sanctions, as well as for the country’s increasing international isolation and tensions with the United States.

Economists and businessmen say that after years of erratic economic policies by the government of President Mahmoud Ahmadinejad, each new round of sanctions aimed at Iran’s key oil income increases fears of an overall economic meltdown.

“It’s basic economic law,” said Jamshid Edalatian, a retired professor of economics, former banker and member of Iran’s chamber of commerce. “When people start worrying about the future, they start buying strong currencies to use in difficult times, and right now everybody is baffled and confused over the future.”

Confusion abounded this week in the Paytakht shopping center, which is Tehran’s main computer bazaar. The price of the Apple iPhone 4S, reexported from nearby Dubai, United Arab Emirates, and highly prized by many young Iranians, had surged, like most other imported products. The phone now costs 35 percent more.

The money changer involved in most of the merchants’ purchases from Dubai also had disappeared with more than a million of their dollars after the rial suddenly collapsed. “Nobody is buying or selling,” said Nader Kamali, who owns a cellphone shop. “How can we live like this?”

The pain extends to the country’s large industries. According to the Iranian Labor News Agency, high prices for commodities and raw materials, caused by the rial’s plunge, have led to the closure of 50 percent of businesses in the biggest industrial zone near Tehran.

The rial slid as the government ended another year of record oil sales that have brought in nearly $500 billion over five years. Authorities have sought to distribute some of the wealth, bringing liquidity to unprecedented levels.

Ahmadinejad has allowed domestic energy prices to rise and ended massive state subsidies. But, at the same time, he has sought to ease the pain through direct state aid, paying 60 million Iranians nearly $40 a month.

The moves have spurred inflation over the past year, raising the prices of food, rent, utilities and highway tolls, squeezing the average urban family’s monthly income of about $550.

Edalatian, the economist, called for harsh measures to weather the storm caused by the sanctions and erratic government policies. He said the government should restrict nonessential imports such as cars and televisions and take over the foreign-currency market.

“More sanctions are coming,” he said. “We must be prepared.”

Among those complaining about the rial’s drop were producers of medicine, importers of foreign cars and food, and truck drivers on international routes. In some cases, they decided to stop working because they could no longer make a profit.

Siavash Saadat said he did not know how he was going to pay for the goods he ordered from India for his Mina pharmaceutical factory.

“We either have to close down or I will be forced to lay off workers,” he said.

Warrick reported from Washington. Special correspondents Somaye Malekian and Ramtin Rastin contributed to this report.

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