Raheb Homavandi / Reuters file

A money changer holds Iranian rial banknotes as he waits for customers in Tehran's business district in this January 7, 2012 file photo.

The United States, the European Union and the U.N. have imposed tough economic sanctions against Iran, blocking access to the international banking system and curbing sales of Iranian crude oil as a way to persuade Tehran to abandon its nuclear program.

As a result, Iran’s currency, the rial, is in a constant state of flux, but mostly on a downward trajectory. These days, it seems to fall in value against the dollar on an hourly basis. On Tuesday the currency hit an all-time low against the U.S. dollar, trading at 26,500 to the U.S. dollar on the open market, according to Persian-language currency tracking website Mazanex. 

“Our money is becoming more and more worthless every day,” said Sarvenas Sadi, an elderly woman doing her daily shopping in Tehran earlier this week.

She picked up a handful of limes and exclaimed, “These were 100 percent cheaper last year!”

Asked whether she ever thought she would see the currency devalue so much, she replied, “Never! I remember before the [1979] revolution $1 was worth 70 rial, now it’s worth 26,000! Who would have ever have thought!”

Iranians feel the pain of sanctions: 'Everything has doubled in price'

Did she think things would ever balance out and the price of goods would come down to what they were before. “Unfortunately I don’t think so. The thing with Iran is that once the price of something goes up, it never comes down again.”

So what’s the solution?  “Eat less limes,” she jokingly replied. 

AP

Two potential Iranian customers look at fabric bolts in Tehran's old main bazaar in this picture taken July 14, 2012.

Manufacturing hit hard
The financial situation is affecting people from all classes. Thousands of workers have been laid off and have not been paid back wages because companies have simply run out of money. Majid, a 32-year-old mechanic who used to work for a large car company was recently laid off and is owed six months’ salary.

“They are laying off people left, right and center. I doubt there will be a company left by the New Year,” he said, giving just his first name because of the sensitivity of the issue in Iran. Persian New Year will be on March 21, 2013.

The car industry, one of the biggest manufacturing sectors in Iran and a massive employer, has been affected dramatically; Iranian media have reported a 30 to 50 percent drop in car and component production in the past six months. Iran was the 13th-largest auto maker in the world in 2011, producing 1.6 million vehicles.

The Iran Khodro Company, the country’s leading vehicle manufacturer, had become the largest vehicle manufacturer in the Middle East, Central Asia and North Africa.  The company won the annual national prize for export activities in 2006 and 2007 with Russia, Syria, Turkey, Iraq, Azerbaijan, Ukraine, Egypt, Algeria and Bulgaria among their key consumers.

But higher prices, due to the soaring costs of components as a result of the sanctions, have caused a drop in demand.

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For instance, France's Peugeot Citroen halted shipments of vehicle kits for assembly in Iran earlier this year, saying international sanctions barring transactions with the country's banking system made it difficult to obtain sales financing.

Majid, the mechanic, said he is looking for work elsewhere but it is proving very difficult. “There are not many jobs going and it is getting me more and more depressed.”

Oil sales to travel - down
The oil sector has been hit hard too.  The Iranian Labor News Agency reported that a letter on behalf of 20,000 oil workers from across the country was sent to Labor Minister Abdolreza Sheikholeslami complaining that they had not been paid in months. The letter demanded an increase to the worker’s salaries of $120 to $285 a month, adding that at the current rate they were "way below the poverty line.” 

Mohammad Reza Bahonar, a prominent Iranian member of parliament, said oil exports in June-July had dropped to "around 800,000 barrels per day," according to a report by ISNA news agency. That’s a low not seen in more than two decades, and less than half the 2.3 million barrels per day exported just a year ago.

But Minister of Petroleum Rostam Qasemi was quoted by ISNA saying that overall oil production this year "will be the same as last year."

The strangling of the economy isn’t just affecting blue-collar workers.

Middle-class Iranians had become accustomed to foreign travel – to Dubai, a playground for Iranians only an hour and half away, Turkey, one of only a few countries that does not require visa’s for Iranians, and Thailand. But the cost of travel to any of these destinations is prohibitive to many.

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Maryam, a travel agent in Tehran who also only gave her first name, estimated that the number of travelers has been halved in a year. “The price of tickets and organized tours increased almost a hundred fold. They say that this will boost domestic holidays, but I think that is even too expensive for most people.”

This was evident to me last month flying back to Tehran from London via Dubai. Usually the flight from Dubai to Tehran is jammed, but not this time. Business and first class were full with the super-rich of Iran, but 70 percent of the plane which makes up the economy class was almost empty.

Expected to get worse
Mehdi is a young entrepreneur who imports computers and accessories who also spoke on the condition of anonymity. He said people are just not buying in Iran right now. His biggest wish was that the value of the rial would just stay fixed against dollar – even if it was at an unfavorable rate – just so consumers would know how much things would cost in a weeks’ time, a day or even in the next few hours.

While the sanctions have certainly taken a major bite out of the economy and are hurting people from all walks of life – it does not seem to be making the government authorities buckle. If anything it seems to have stiffened the government’s resolve and things are set to become even more difficult in the not too distant future.  

Britain, France and Germany are urging their European Union partners "to further step up the pressure" on Iran. Further sanctions targeting the Islamic Republic's energy, finance, trade and transportation sectors are expected to be formally adopted on Oct. 15.

Slideshow: Everyday life in Iran

At schools, in shops, and on the streets of big cities and small towns, daily life plays out in Iran.

Launch slideshow

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The United States, the European Union and the U.N. have imposed tough economic sanctions against Iran –- blocking access to the international banking system and hurting sales of Iranian crude oil -– as a way to persuade Tehran to abandon its nuclear program. 

In the short term, the harsh sanctions have had an impact on Iran’s economy -– inflation has gone through the roof, and the unemployment rate is staggering, especially among young Iranians. Prices of consumer goods have doubled, tripled, even quadrupled in some cases, according to consumers. 

The business community is in disarray, and as things keep getting worse, it’s all people are talking about.

Reuters

CLICK ON THE GRAPHIC ABOVE TO ENLARGE THE IMAGE. Iran Sanctions: Key areas affected by sanctions imposed by the international community against Iran.

Barely getting by 
At the Tajrish Bazaar in North Tehran on a recent afternoon, Ahmed, a 31-year-old unemployed man, poured his heart out to me. Speaking on the condition of anonymity, as all those interviewed for this story did because of the political sensitivity of speaking out in Iran, he told me his story. 

He said he has been unemployed for the past year, doing odd jobs, and that he barely makes enough to feed himself, let alone his wife and children. The lack of jobs and the extraordinary rise in food prices have hamstrung him. But he was most worried about what the crippled economy is doing to the youth of Iran, who he said are turning to crime and drugs if they can’t find work. 

In Iran, appearance is everything. How you dress and wear your beard says a lot about your politics. 

As I talked to Ahmed, who was dressed in Western-style clothes, another man looked on disapprovingly. He had a full dark black beard and was dressed in conservative black clothes. He was listening to everything Ahmed said and wanted to talk to us, although he declined to give us his name.

He said that people like Ahmed were making excuses and were lazy. He argued that the economy had become tougher, but no more so than the Iranian people were used to over the years. He blamed the U.S. for the bad economy, accusing President Barack Obama of unfairly trying to squeeze Iran. But he said that in the end, the rough economic times had taught Iran to be more self-reliant. 

“We need to tighten our belts for now and weather this storm with the West as we have always done. And we will be victorious again,” he said.

New sanctions' real impact
The most recent international sanctions have targeted Iran’s crude oil and banking sectors. In addition to harsh U.S. measures, 27 countries in the European Union agreed in January to ban Iranian oil imports –- giving countries until July 1 to terminate their deals. They also put a freeze on assets belonging to the Central Bank of Iran and a ban on trade in gold and other precious metals.  

Anthony Cordesman, who holds the Burke chair in strategy at the Center for Strategic and International Studies and is a long-time Iran watcher, said that despite years of sanctions against Iran, the most recent ones have had the greatest impact –- partly because they target banking.

The banking sanctions “have had the most popular, or broad, impact. Right now Iran can’t even operate on the international clearinghouse.”   

“I think that this is the first time that sanctions have really had a major bite. Up to now, they have all been fairly limited,” said Cordesman.  “But beginning in November, and it’s just beginning to bite, you can’t bank internationally effectively, you can’t move money. You don’t have a stable conversion rate –- but the rial [Iran’s currency] is way down, so your savings are of very uncertain value unless you’ve invested in property.  You don’t know what’s going to happen to your business. You have to be very cautious about how much money you can spend on a marriage for your children or their education.” 

He added that we really won’t begin to see the full impact of the sanctions until summer, when they have all gone into effect.  “So everyone knows it’s getting worse, but no one knows yet how serious.” 

Vali Nasr, the incoming dean at the Johns Hopkins School of Advanced International Studies, explained how these sanctions differ from 30 years of sanctions that mostly targeted imports into Iran. 

Slideshow: Everyday life in Iran

At schools, in shops, and on the streets of big cities and small towns, daily life plays out in Iran.

Launch slideshow

“The new set of sanctions targeting Iran’s oil industry, central bank, ability to conduct international financial transactions, are of a different nature largely because they are going after the government’s source of income –- the ability to sell oil or receive money for oil,” said Nasr. “So these have had an impact because they have caused extensive inflation inside Iran. They’ve caused the government to scrap a variety of projects, which has caused unemployment.  

“There is no doubt that economic hardship has become much more pronounced. And there is on top of that a layer of uncertainty. So there is significant economic hardship that is hitting the lower rung of society and the Iranian middle class,” said Nasr.
 
Back in Tajrish Bazaar, Roya, a well-dressed woman in her 60s wearing a Hermes scarf for a hijab and carrying a Louis Vuitton bag, explained how even she is being hit by the economic uncertainty. While she is a wealthy Iranian living in the leafy suburbs of affluent North Tehran, she said her purchasing power has been halved by the struggling economy. 

“Everything has doubled in price,” Roya said. “My son lives in Los Angeles, and it’s cheaper to go shopping there -- amazing. Things have become difficult for me even though I am among the better off Iranians. I can’t imagine how difficult it is for folks downtown.” 
When I asked her what the solution was, she replied sarcastically, “That’s for the country’s economists to figure out.”

Close to the bone
For international relations analysts, like Cordesman and Nasr, getting reliable information on what’s going on in Iran is very difficult. Both analysts said that basically all of their information on the impact of the current sanctions is anecdotal. 

“You have to rely on anecdotal information especially because the Iranian government does not have an interest in revealing how painful the sanctions are. They may admit that they are hurting, but they don’t want to put numbers out there,” said Nasr. 

But it’s not all doom and gloom for the regime. President Mahmoud Ahmadinejad often touts during public events that Iran has a record $90 billion in foreign exchange reserves, as well as untold reserves of gold, silver and precious stones. 

Even though experts estimate that Iran has seen a decline in sales of about 300, 000 barrels of oil per day as a result of the sanctions, this has been offset by a 15 percent rise in crude prices. 

And the effect and pain of sanctions have not been distributed evenly. While blue-collar workers in downtown Tehran can expect to eat meat once a month only as a treat, North Tehran is awash with Mercedes and Porsche SUVs costing as much as $500,000 after the import tax has been paid.    

Will the sanctions achieve goal?
So the question remains as to whether the sanctions will achieve their goal: curtailing Iran’s nuclear program.

“The sanctions have had an impact of getting Iran to the negotiating table. Iran came to Istanbul [the site of the latest diplomatic talks] with much more seriousness than in the past,” said Nasr. 

But he added that the sanctions alone won’t be enough for Iran’s leaders to give up a program they have invested heavily in –- both financially and in terms of building the nuclear program as a point of national pride.  “Just because the Iranian public dislikes this regime –- that does not mean that they dislike the nuclear program. They don’t see this as the regime’s nuclear program, they see it as Iran’s nuclear program,” said Nasr.  

In order for the sanctions to work, Nasr explained, the U.S. and other parties at the table need to give something back -– otherwise it would just seem like Iran is surrendering to the West’s demands, not an easy sell at home. 

“Until now, the whole approach has been stick-heavy and carrot-poor. And the sticks are very explicit and the carrots are vague. And maybe that was necessary to get their attention and to show that we meant business. But now going forward -– [the U.S.] can’t ask [Iran] for concrete concessions –- like stop this, stop that -– but not put concrete things on the table, like this sanction will be lifted.  If all the concessions are on the Iranian side and what they get is just a promissory note, I don’t think it will fly.”   

“End of the day, these two countries have not had a single thing they’ve agreed on or done together in the last 30 years. So you couldn’t expect them to actually be able to conclude a deal without some sort of reciprocal, trust-building, concrete steps going forward.”

Msnbc.com’s Petra Cahill contributed to this report. 

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