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Bombs vs butter dilemma for Iran

world Updated: Jun 11, 2010 00:04 IST
Ian black

Iran’s economy is in serious trouble even without new UN sanctions — and western governments are hoping the new burdens being imposed on the Islamic republic will at least raise the cost of maintaining its nuclear programme.

President Mahmoud Ahmadinejad has insisted Iran will not bow to pressure, but he is facing low or zero growth, rising unemployment, high inflation and, crucially, reduced earnings from the hugely dominant oil and gas sector, the source of 80 per cent of all state revenues.

Oil prices are down 16 per cent from this year’s peak, reducing the regime’s ability to buy support. Iranian oil production has also declined, from 4.1m barrels a day in 2008, to a current rate of 3.5m – a loss of 8 per cent a year. Exports are also correspondingly down.

No one expects the economy to collapse but the sanctions are likely to have a psychological impact, not least because of the support of Russia and China, and cause problems for the regime, which is about to mark the first anniversary of the disputed presidential elections and the mass protests that followed.

Iranian statistics are notoriously unreliable but even official figures paint a grim picture: inflation is down to 9.8 per cent from a peak of 30 per cent during Ahmadinejad’s first presidency. Of Iran’s 73 million people, more than 10 million live in “absolute” poverty and another 30 million in “relative” poverty, according to Iran’s statistics agency.

Locally produced milk in Mashhad is so expensive that a yoghurt plant imports powdered milk from New Zealand.

Industries are being hollowed out and workers laid off in the face of cheap foreign imports controlled by influential businessmen. State employees have seen their purchasing power eroded by inflation.

The new sanctions do not directly target the energy sector — but ominously it is identified as a key source of financing for the nuclear programme.

The Guardian