WASHINGTON — U.S. and Western pressure on Iran is squeezing its economy, feeding the inflation and joblessness that have swelled under its controversial president, Mahmoud Ahmadinejad.
Trade figures and other data have begun to reflect deepening economic isolation taking place as a result of U.S.-led efforts to penalize Tehran for what the United States alleges is the pursuit of nuclear weapons and sponsorship of terrorist groups.
For example, Iran's imports from Germany fell 14% in the first eight months of 2006, the German-Iranian Chamber of Commerce says. European Union countries account for 40% of Iran's imports, and Germany is Iran's largest European supplier, providing machinery, steel and electrical equipment, along with other goods.
German government export credits, used to finance trade, also fell by a third last year and are expected to drop again this year, said Ulrich Sante, a spokesman at the German Embassy in Washington.
"People who want to pursue legitimate commerce with the West will see that the policies Ahmadinejad is pursuing are leading to isolation and painting a more bleak economic future for the country," said Stuart Levey, U.S. Treasury undersecretary for terrorism and financial intelligence.
The United Nations Security Council imposed sanctions on Iran in December after Tehran failed to suspend uranium enrichment. The sanctions block exports that can be used in Iran's nuclear and missile programs and freeze assets of officials linked to those programs.
Separately, the Bush administration has cut off two Iranian banks from access to the U.S. financial system and dollar-based transactions on grounds that terrorists and weapons programs used accounts at those banks.
The United States has had no diplomatic relations with Iran and has restricted trade with Tehran since 1980, when Iran took U.S. Embassy personnel hostage.
Iran's economic challenges include:
•Banking restrictions. A half-dozen European banks have ended or restricted dollar dealings with Tehran to avoid jeopardizing business with the United States. Mohammad Jafar Mojarrad, vice governor of Iran's Central Bank, said most of the lenders continue dealing with Iran in other currencies.
Peter Pietsch, spokesman for giant German bank Commerzbank, said the institution halted dollar transactions with Iran on Jan. 31 but still conducts transactions with Iranians in euros.
Credit Suisse, a major Swiss-based financial services firm, stopped taking new clients in Iran in late 2005 "in light of the developments in the country … as well as to safeguard our reputation," spokeswoman Esther Gerster said.
•Rising import costs. Saeed Laylaz, a Tehran business consultant, said exporters require Iranian buyers to deposit the full amount of a transaction to obtain letters of credit, and that has added 8% to 12% to the cost of imports.
•Declining oil production. Oil Minister Kazem Vaziri-Hamaneh told the Iranian Student News Agency last year that Iran's annual oil output had declined by half a million barrels per day as the country struggled to pump from aging fields. Iran produces 3.9 million barrels per day and exports 2.4 million. Roger Stern, an economist at Johns Hopkins University, has predicted that Iranian oil exports could decline to zero by 2015 without a significant increase in investment or a decline in domestic consumption.
Mojarrad said Iran was taking steps to encourage new investment. He cited a $10 billion deal signed last month by Spain's Repsol and Royal Dutch Shell to develop an offshore Iranian field.
The Iranian economy continues to grow at a rate of more than 5% a year in inflation-adjusted figures, Mojarrad said. He said sanctions will hurt Americans more than Iranians by undermining the use of the dollar as a reserve currency, depressing its value and making U.S. imports more expensive.
Even before the latest sanctions, the Iranian president's rhetoric — calling for Israel to be destroyed — and defiance on the nuclear issue appeared to have a chilling effect on investment and trade.
Iran faced "a cooling off of the business environment in the last year because of the nuclear issue and the rhetoric" of Ahmadinejad, said Adam Pener of the Conflict Securities Advisory Group, a Washington-based consulting firm.
Laylaz said the sanctions have added to problems caused by Ahmadinejad's free-spending policies. Inflation — officially 12%, according to Iran's Central Bank — is likely to rise to 15% this year, Laylaz said.
Unemployment was 11.5% in the year ending in March, 1.2% higher than the previous year, according to the Iran Statistical Center. Food prices rose by a third from March to August, the cost of housing went up 14%, and the cost of medical care increased more than 18%, said Iran's Karafarin Bank, which provides overviews of the Iranian economy to the International Monetary Fund.
Joblessness rose in spite of a 37% increase in Iran's hard currency earnings, derived mainly from oil. Iran's oil revenue was $50 billion last year. Oil revenue, taxes on oil and other oil-related income financed more than 70% of Iran's government spending, according to Karafarin Bank. -- Yoshie <http://montages.blogspot.com/> <http://mrzine.org> <http://monthlyreview.org/>