Iran's Hope Is Sanctions Relief, But Reality Is Struggling Economy

By Peter Kenyon

Published February 14, 2014 at 2:44 AM CST

Iranian President Hassan Rouhani says better economic times are coming. Though there is more confidence in his economic team than that of his predecessor, very little has changed on the ground so far.

Iran's economy may be struggling, but that doesn't mean everyone is suffering.

In a downtown Tehran restaurant, a well-dressed young man who asks to be identified only as Ahmad sits with a friend enjoying a water pipe of flavored tobacco.

Ahmad is a bit vague about what he does — first he says he's in the petrochemical business, then describes himself as an independent trader. He shares the general consensus that President Hassan Rouhani has brought a better atmosphere to the country but no real economic changes.

Ahmad's own problems, however, might not elicit much sympathy from most Iranians.

"The regulations definitely need to be changed," he says. "Take importing cars to Iran: The tariff is 105 percent on each car. I wanted to import two Mercedes, but you can only think about one."

Income inequality is one problem Rouhani faces, but the Iranian president says better economic times are coming for his country. Iranians are desperate to believe him, but beyond the marginal improvements that come with greater confidence in the new administration, very little has changed on the ground.

Iranians are pinning their hopes on a nuclear agreement and better relations with the outside world — achievements seen as difficult at best.

Another major problem Rouhani faces in lifting Iran's economy is the opposition of entrenched interests that profit from Iran's isolation. For instance, the powerful Revolutionary Guard is a major economic player.

One graduate student who gives only his first name, Arman, says things hit a low point under former President Mahmoud Ahmadinejad.

"What was really frustrating was the fact that nothing was ever going to get better, because the more sanctions there were going to be, the richer some people are going to get," Arman says.

Still An Economy Of Subsidies

In the poor neighborhoods of south Tehran, the economic struggles are more recognizable. Iran remains an economy of subsidies, although some direct cash payments have been replaced by food baskets for the poor. That does not sit well with those forced to stand in line in the winter cold. Even there, though, flashes of humor can be found.

An old man in a wool cap startles a reporter by shouting: "We chant 'Death to America' all the time! What are you doing here asking questions?"

But then as the men around him break into grins, he smiles and says, "Well, I guess you're OK then."

Mehdi — who also gives only one name — makes it clear that they may need help, but they don't like food lines. They know the difference between a poor neighborhood and a refugee camp.

"This is the fourth time I've come," Mehdi, 77, says. "They tell me to come back later, and then they say they've run out. It's not right."

Besides a slight easing of sanctions last month, Iran has benefited from the widespread conviction that Rouhani's economic team is far more competent than Ahmadinejad's. Greater confidence — along with limited success in nuclear negotiations with six world powers — has helped reverse Iran's brutal inflation rate, and steadied the Iranian rial somewhat against the dollar.

Doing more, however, will require the lifting of sanctions by further curtailing Iran's nuclear program, and that effort has enemies at home and abroad. Conservative Israeli and U.S. watchdogs such as United Against Nuclear Iran sound regular alarms that " the architecture of the sanctions regime is crumbling," largely based on an increase in trade delegations visiting Iran, and inflated Iranian predictions. President Obama says Washington will come down "like a ton of bricks" on those who violate sanctions.

Nothing To Do But Struggle

But inside Iran, people aren't seeing any improvements that would justify such concerns. Even the man in charge of making Iran's oil contracts more attractive to foreign companies is tempering expectations.

Oil ministry official Mehdi Hosseini says Iran needs a massive $150 billion in foreign investment in the coming years, and so far, companies aren't committing.

"We still have sanctions now," Hosseini says. "There are companies coming and going, but we can't sign contracts while the sanctions remain, and contract talks will take time."

For now, Iranians say, there's nothing to do but struggle on, recognizing that better times ahead depend on factors beyond their control.