Iranian leaders are beginning to acknowledge the extent of the damage sanctions have caused
Iranian Revolutionary Guards drive a speedboat in front of an oil tanker at the port of Bandar Abbas in July. Falling oil exports, sliding currency, soaring inflation, slipping industrial output and rising unemployment -- just some of the economic woes Tehran blames on ever-tougher international sanctions it is enduring over its nuclear drive. © Atta Kenare - AFP
Iranian leaders are beginning to acknowledge the extent of the damage sanctions have caused
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Laurent Maillard, AFP
Last updated: October 12, 2012

Iran blames economic woes on tougher sanctions

Falling oil exports, sliding currency, soaring inflation, slipping industrial output and rising unemployment -- just some of the economic woes Tehran blames on ever-tougher international sanctions it is enduring over its nuclear drive.

After long denying that sanctions were having any effect, Iranian leaders are now beginning to acknowledge the extent of the damage, denouncing what they say is an "economic war" against the Islamic republic.

But even as the European Union readies a new set of measures, Tehran continues to breathe defiance, vowing not to yield to pressure to abandon its ambitious nuclear programme.

World powers suspect Iran's nuclear enrichment actuivities mask a drive for atomic weapons, despite repeated denials by Tehran.

"These sanctions are barbaric. This is a war against a nation... But the Iranian nation will defeat them," Iran's supreme leader Ayatollah Ali Khamenei said in a speech broadcast on state television on Wednesday.

His comments came after Iran was shaken by the collapse of its currency, with the rial losing nearly 40 percent of its value in a matter of days in the foreign exchange market, triggering angry protests in Tehran.

On Thursday, the rial was trading at 33,000 to the dollar compared to 22,000 at the end of September and 13,000 at the start of the year.

The fall of the rial quickly caused a sharp increase in prices of several consumer products, accelerating inflation which officially was estimated at 27 percent in August but was probably twice as high in reality, according to experts.

The crisis is primarily due to a Western embargo on doing business with Iranian banks which has been in place for the past two years, which has severely hampered the repatriation of Iran's petrodollars.

An oil embargo slapped on Iran at the start of the year by the United States and the European Union was a final blow: the export of Iranian crude oil halved, falling to about one million barrels per day, in turn leading to a fall in crude production.

Despite denials by Iran, it production fell to around 2.7 million barrels per day in September against 3.5 mbpd at the start of the year, according to estimates from OPEC.

Banking sanctions have also had a major impact on industries importing raw materials or spare parts, such as the automotive sector.

The industry has seen production fall by 42 percent since a decision in March by French major Peugeot, one of the main partners in Iran's automobile industry, to cut output.

The entire automobile industry, employing some 500,000 workers has been affected, causing layoffs and plant closures among subcontractors, say industry experts.

It is difficult to accurately assess the impact of industrial and social sanctions as the Iranian media, under orders from the government, does not publish information deemed contrary to the national interest.

The International Monetary Fund, which tracks official indicators, expects a 0.9 percent fall in Iran's gross domestic product in 2012 because of international sanctions, and a 25 percent jump in unemployment between 2011 and 2013.

This fast deterioration of the situation has revived tensions between the conservative groups who are in power in Iran, with opponents of President Mahmoud Ahmadinejad criticising his government for being unable to stem the crisis.

The all-powerful Khamenei said the sanctions had created "problems" for the country, and that "some mismanagement" of the draconian measures was adding to those problems, such as collapsing of the rial.

US and British leaders have welcomed the crisis, hoping it would make Iran more flexible in nuclear talks with world powers -- stalled for three years.

Analysts, however, say the survival of the regime is not yet threatened, stressing that the Islamic republic remains a wealthy country.

"People are unhappy with the economic situation," but even with oil revenues halved, "the regime has enough to survive," says Thierry Coville, of the French Institute of International and Strategic Relations.

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