DUBAI (Reuters) – Every day Mohammad Hosseini feels pressured by soaring prices in Iran, his experience of hardship at odds with a rosy official target of 8% economic growth even with US sanctions still in place.
The retired teacher’s plight can be found across the Islamic Republic, where the deepening economic malaise is being felt after years of harsh US sanctions and Iranian misgovernment.
“We’re getting poorer every day. My salary isn’t even enough to pay bills and rent every month,” says Hosseini, who has three children and five grandchildren.
“After 30 years of teaching at school, now at 65 I have to drive a taxi to support my family,” he said. His monthly income is about $250.
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The economy is the biggest challenge for Iran’s ruling clergy, who fear a resurgence in protests that have erupted since 2017 from low- and middle-income communities angry at rising poverty.
And yet hard-line President Ebrahim Raisi has vowed not to tie the economy to nuclear talks with world powers, though the talks could remove most US economic brakes by reviving a 2015 pact to limit Tehran’s nuclear program.
Instead, his administration has promoted a “resistance economy” focused on self-sufficiency, trade ties with regional neighbors, and improving economic interactions with China and Russia.
However, many analysts believe Iran’s only ticket out of economic decline is to end US restrictions that have severely curtailed vital oil exports and increasingly isolated it from global markets.
Iran avoided total economic collapse thanks largely to oil exports to China and higher crude oil prices. But oil exports are still well below their levels before former US President Donald Trump re-imposed sanctions after he withdrew from the nuclear pact in 2018.
“While new deals with Moscow and Beijing will make headlines and strengthen Raisi’s hand at home, they will almost certainly be less than meets the eye,” wrote Henry Rome, an analyst at Eurasia Group.
“And they reflect no change in the two countries’ willingness to defy US sanctions or ignore Iran’s nuclear program.”
China, Iran’s biggest oil customer, is one of the few countries that continues to do business with Iran despite sanctions. But selling oil to China at a discount, analysts say, means earnings are falling short of their full potential.
The prices of staples like bread, meat, dairy and rice have skyrocketed in recent months. Meat is too expensive for many, it costs 40 dollars a kilo. The official inflation rate is over 40%. Some estimates are over 50%.
Prices for electricity, water and natural gas used in factories, cooking and heating homes have doubled.
A mother of three in Tabriz city, Mehrbanu, said she could only afford basic goods for her two children.
“My husband and I can barely afford to put food on the table,” she said, adding that her combined monthly income as a house cleaner was about $150. “How can we go on like this without having a steady job? We’ve lost a lot of our customers because they’re also cutting back on their spending.”
The Iranian economy shrank sharply after 2018 due to sanctions. It rebounded in 2020 and is on track for a second year of GDP growth of around 3%, according to the World Bank.
US oil and banking sanctions prompted Tehran to gradually violate the deal’s nuclear limits in 2019. Significant gaps have existed in the indirect talks to revive the pact since April.
“It’s an ongoing nightmare… Every day the pressure mounts. I had to close my tile factory in the city of Yazd. I couldn’t import materials, export tiles and the worst thing was that I couldn’t pay wages,” said businessman Hassan , 48, who wants to leave Iran with his family of four.
“Officials are in no rush to save the nuclear deal because they don’t feel the economic pain the way we do.”
The Iranian government has rejected forecasts by its critics that its economic policies will exacerbate social misery.
But a former senior Iranian official, who asked not to be identified, said Iran’s “revolutionary identity” cannot be preserved by running the economy on the basis of an ideology.
“With US sanctions in place, Iran’s economic problems will continue to worsen,” he said. “That means more strikes and unrest.”
Based on the assumption that sanctions would continue, Raisi’s budget targets economic growth of 8% for the next fiscal year, which starts in March. The government expects oil export revenues to increase by 9% and tax revenue to rise by 62%. Analysts are skeptical about such a forecast increase in sales.
However, the authorities’ defiant rhetoric resonates with some Iranians loyal to the establishment.
“To become an independent country, sacrifices must be made… We must give our president a chance to implement his plans,” said housewife Zahra Rezazadeh, 42, from the Iranian city of Mashhad.
State media regularly report on layoffs and strikes by state employees over low wages and by private sector workers who have been unpaid for months. Hundreds of factories have been shut down with sanctions restricting exports and sourcing raw materials.
According to authorities, only 10% of the Iranian workforce is unemployed. But many formal jobs pay starvation wages, meaning the true number of people without decent work to support themselves is likely much higher.
A slump in the rial, which has halved since 2018, has forced employers to slash payrolls. Raisi downplayed the impact of the sanctions, saying his government has no concerns about the value of the rial.
Raisi said in December his government had “successfully embarked on a policy to ensure economic stability and control prices”.
A Tehran bookstore owner, Mohammad, 51, disagreed.
“The authorities only talk and make promises, but in reality we are getting poorer every day,” says Mohammad, a father of two.
(Writing by Parisa Hafezi, Editing by William Maclean)
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