Analysis: Iran economy far from collapse as sanctions tighten

Wed Feb 20, 2013 9:36am EST
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By Andrew Torchia

DUBAI (Reuters) - Hossein Ahmad, an Iranian who runs a jewelry shop in wealthy Dubai, marvels at the spending power he sees on show during his monthly trips to Tehran, a year after U.S. sanctions largely froze Iran out of the global banking system.

Shops in the Iranian capital are crowded. Finding a seat at good restaurants can be difficult. And the ski resorts in the mountains north of Tehran continue to attract Tehran's glamorous and well-heeled.

"The economy has problems with the sanctions, yes. But it's still working," he says. "It isn't as bad as people outside the country think."

Sanctions are clearly having an impact; the country's oil revenue has been slashed and other trade disrupted; a weak currency has sent the prices of some imports soaring, destroying jobs as some factories using imported parts have folded.

But they are not close to having the "crippling" effect envisaged by Washington. The Iranian government has found ways to soften the impact, and Iran's economy is large and diverse enough to absorb a lot of punishment.

So at talks next week with the world's major powers in Almaty, Kazakhstan, Iran seems unlikely to feel under overwhelming pressure to back down on its disputed nuclear program, which the West suspects is a cover to make weapons.

"The government had a long time to prepare for economic war," said Mohammad Ali Shabani, an Iranian political analyst based in London. "If you're talking about collapse, that is not happening."


An Iranian pilgrim shops at a market in Kerbala , 110 km (70 miles) south of Baghdad January 23, 2013. REUTERS/Mushtaq Muhammed