Beyond oil battle, sanctions hit Iran's merchants

DUBAI, United Arab Emirates — A Tehran shoe factory is abandoned by its European leather suppliers. Iranian cooking oil manufacturers are operating at nearly half capacity because they can't get enough imported grains.

In Tehran's bazaar, many merchants refuse to sell Western goods purchased with dollars because the downward spiral of Iran's currency has eaten their profit.

While Iran's mainstay oil exports remain the centerpiece of Western sanctions - intended to wring concessions over Iran's nuclear program and ease Israeli threats of a military strike - the Islamic Republic hangs on as OPEC's third-largest exporter as it feeds the hungry energy markets in China, India and across Asia.

Less noted - but potentially more unsettling to Iran's leaders in the coming months - is the increasing pinch on the workaday economy: The commerce, transactions and trading that provide the paychecks and economic lifelines for millions of people.

Despite evidence the sanctions are hurting individuals, it appears that Iran's economy continues to stumble along in large part thanks to Chinese imports and oil flows to Asia.

But hardships such as slumping sales, scarcity of high-quality imports and difficulties in making international payments have left many merchants and factory operators fearing lean times ahead in an economy already squeezed: Inflation is above 20 percent, and employment is officially tallied at 13.5 percent, yet believed to be far higher by many analysts.

Such uncertainties, including prospects of more layoffs and closures, could possibly emerge as complicated fallout for Iran if the street-level economic players lose faith in the ruling system's ability to cope with the mounting sanctions and confront the threats from Israel. Throughout recent history, Iran's merchant class has been the tipping point in upheavals such as the 1979 Islamic Revolution or provided critical support to keeping the ruling system intact as during the widespread unrest after the disputed 2009 re-election of President Mahmoud Ahmadinejad.

The future of talks between Iran and world powers over Tehran's nuclear program, meanwhile, remain uncertain after several rounds without significant progress. The West and others fear Iran's nuclear enrichment labs could eventually lead to the production of atomic weapons. Iran insists its nuclear program is only for energy and medical applications.

"As long as Asian countries keep buying Iranian oil, then the ruling clerics have a buffer," said Mehrzad Boroujerdi, a Syracuse University professor who follows Iranian affairs. "The real weak link could be if people take to the streets to demand some action to ease their economic pain."

Last month, consumers staged a rare public protest in the northeastern city of Nishabur over chicken prices that have more than doubled this summer. So far, however, the grumbling over the sanctions' reach has not stirred major unrest as happened with attacks on gas stations in 2007 when Iran imposed limits on fuel at state-subsidized prices.

Iranians have found ways to work around various U.S. and international economic embargoes for decades - often responding by creating domestic industries such as automakers and appliance factories.

This time, though, many avenues are closed. Iran has been blackballed from the main international banking network, effectively leaving Iranian merchants and factories unable to buy goods abroad on Western markets. China and other Asian countries have stepped in with credit lines that have flooded Iran with even more Asian consumer products. But specific factory parts or materials are often unavailable or unable to meet specifications needed in Iran's assembly lines, which has long used European suppliers.

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