Feeling the effects

Two days after the storming of the British Embassy in Tehran, EU foreign ministers have added 140 further companies and 40 names of individuals to their blacklist. The new entries on the list are suspected of having been actively involved in Iran's disputed nuclear program. In a joint statement the ministers said Thursday that further measures were being considered, and that these would likewise be directed at Iran's finance and energy sector. This could mean an oil embargo or that Iran's financial system will be cut off from the West. French Foreign Minister Alain Juppe said there was agreement within the bloc that "much tougher sanctions than previously seen" were being worked on.

Tehran stays cool

While the West rattled its saber, however, Tehran remained composed, attempting to play down the embassy incident and the threat of sanctions. But this comes as more and more areas of Iran's economy have begun to feel the effects of the sanctions. The natural gas, oil, and petrol-chemical industries - Iran's most important export branches - are already suffering. According to figures published by the US Government Accountability Office, only 16 foreign companies are active in the sectors just named. By comparison, in 2010 that number was 43.

The massive exodus of foreign investors has impeded the modernization of natural gas power plants and reduced Iran's competitiveness. Now the calls from within Europe are becoming ever louder for a complete halt to imports of oil from Iran.

Production halt and layoffs

Not only big industry is feeling the effects of the sanctions, however. More and more small and medium-sized companies are complaining of a shortage of construction materials, above all "dual use goods," which can be used for both military and civilian purposes.

One example is the medium-sized Iranian company, "Hatef," an importer of chemical products and laboratory instruments. "Companies from Canada, the US or Great Britain don't even answer our emails anymore," a spokesperson for the company told Deutsche Welle. More and more companies are being forced to acquire their goods elsewhere, even if it means paying much higher prices.

What's more, Iranian banks have become increasingly isolated internationally as a result of the sanctions. They are less able now to provide transaction credits for imports and exports, leaving many companies with no other choice but to pay cash in advance for their desired articles. This option requires high liquidity, something many small and medium-sized companies lack. This results in a further reduction of production, said the "Hatef" spokesperson, which can be drastic and even lead to mass layoffs.

Hoarding of currencies

The decline in trust among Iranians in their own currency has led to their hoarding of US dollars or to investments in gold and other valuables in order to brace themselves for the consequences of the sanctions. This has led to record prices for foreign currencies, for instance the euro or the US dollar.

One way to acquire the highly desired dollar is via a foreign visa. Those with such a visa have the right to exchange currencies at lower rates. However, the number of visas issued is far higher than the number of trips actually taken. Many apply for the visa with the sole intention of selling the currencies on the black market.

Experts are still divided as to whether the heightened sanctions will bring Iran's economy and financial system to its knees. The vice president of Iran's chamber of commerce, Pedram Soltani, said recently that real problems will begin if Iran's important trade partners - China, the United Arab Emirates and India - were to subscribe to the sanctions.

Author: Sharam Ahadi / glb
Editor: Michael Lawton