A Sick Economy Is Forcing Tehran’s Hand in Nuclear Deal Talks

(Bloomberg) — Diplomats striving to restore the Iranian nuclear deal are getting a helping hand from the country’s deteriorating economy, as growing hardship piles pressure on top officials in Tehran.

Living standards sharply worsened during the nine months that world powers and the government of Iranian President Ebrahim Raisi haggled over how to lift US sanctions and roll back Tehran’s advancing uranium-enrichment program.

Amid the growing public anger, ruling hardliners appear to have given ground, dropping a demand that the US remove Iran’s elite military forces from its list of foreign-terrorist organizations. There are still substantial obstacles, but European and American officials seem more optimistic that an accord’s within reach.

What’s certain is that Iranians are exhausted by surging prices that are in part fueled by sanctions and poor management of the economy. Inflation hit 52.5% in June compared to a year ago, according to official figures, one of the fastest paces on record. From May to June, price gains rose 13.2 percentage points.

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“What the people want from us is an outcome from these negotiations,” said Iranian Foreign Minister Hossein Amirabdollahian. “They’ve said, you’ve talked and negotiated for long enough.”

As the holder of the world’s No. 2 natural gas and No. 4 crude reserves, Iran’s largely shielded from energy prices that soared following Russia’s invasion of Ukraine. But the costs of key imported foods have been elevated by the war, and soared higher in May when the government stopped providing importers with heavily subsidized foreign currency.

The practice was introduced after the Trump administration exited the nuclear deal in 2018 in an effort to stabilize exchange rates. But well-connected businessmen were accused of exploiting the cheaper dollars to make huge profits via the unregulated market.

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In Tehran, the retail price of red meat has jumped more than 90% from a year ago, while basmati rice is up over 200%, according to Bloomberg calculations. Inflation has been fanned by a slump in Iran’s rial, which lost a quarter of its value to the dollar on unregulated markets in the year to June, weakening to record levels. It rallied when Tehran’s response to an EU proposal to resurrect the nuclear deal was deemed “constructive” on Aug. 15.

Teachers, pensioners, oil-refinery workers, engineers, farmers and bus drivers protested over prices, stagnant wages and chronic corruption during the last year. Police and judicial officials linked a spike in theft and burglary to the rising cost of essential goods, Iranian Students’ News Agency reported.

“General economic conditions, not just limited to inflation, are for sure driving Iran to make a deal,” said Cyrus Razzaghi, founder and chief executive of Tehran-based business consultancy Ara Enterprise.

The International Monetary Fund forecasts growth of 3% this year, significantly lower than Iran’s oil-producing regional peers.

“We have five million government workers whom we consider as part of our middle class who are now living on the poverty line,” said Saeed Laylaz, an economist and former adviser to reformist ex-President Mohammad Khatami.

The sanctions imposed on Iran by then-President Donald Trump in November 2018 severed the economy’s oil lifeline and eliminated already feeble foreign investment. Iran responded by accelerating its atomic program in a standoff that roiled the oil-exporting Persian Gulf.

By August 2020, Iran’s exports of crude and gas condensate had plunged from 2.5 million barrels a day to an estimated 133,000, according to data compiled by Bloomberg, most bought by China.

Raisi responded to the US penalties by expanding ties with allies in Moscow and Beijing, and imploring Iranians to greater self-sufficiency. He’s also imposed new taxes on merchants, prompting protests in Tehran’s Grand Bazaar, a traditional pillar of support for the Islamic Republic’s establishment. Monthly cash handouts for the poorest were raised.

Bahram, 48, a trained psychologist, says he makes ends meet by working two jobs unrelated to his skills — including driving for a ride-hailing app in Tehran.

“You can’t really survive, even with two or three jobs anymore,” he said, asking not to be identified speaking to foreign media. “Everything goes back to sanctions one way or another.”

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