Iranians celebrate Nowruz under harsh sanctions

Tehran, Iran – Just like every other year, people across Iran this week prepared to mark Nowruz – the millennia-old Persian New Year celebrations – by thoroughly cleaning their homes, going shopping and planning big family visits.

But under harsh circumstances created by reimposed US sanctions and exacerbated by local mismanagement, some aspects of Nowruz were markedly different as Iranians celebrated on Thursday.

First and foremost, this year’s Nowruz was defined by rampant inflation. The Central Bank of Iran stopped disclosing inflation figures several months ago, allegedly to resolve a discrepancy with figures reported by the Statistical Center of Iran. But unofficial estimates put the inflation rate at higher than 40 percent.

Like many other Iranians, Roya Sabet, is being confronted with sky-high inflation on a daily basis. 

For this year’s Nowruz dinner, the 53-year-old Tehran resident decided to cut back on spending by not shopping for a traditional haftseen table, which includes seven items that start with an “S” in Farsi and is usually complemented with other items.

Instead, she opted for a dish of stuffed fish.

“But even buying the ingredients for that dish didn’t come easy for me since the total price was about three times what it was a year ago,” said Sabet, who now takes care of her disabled husband in addition to managing a demanding day job working at a government ministry.

Currency crisis

In May 2018, President Donald Trump withdrew the United States from Iran’s nuclear accord with world powers, a landmark deal Iranians hoped would be a turning point for the harsh conditions experienced after years of multilateral sanctions.

By the time the first tranche of unilateral US sanctions were reimposed as part of a “maximum pressure” campaign in early August 2018, a currency crisis was already in full swing in Iran.

The crisis had in April prompted Iranian President Hassan Rouhani‘s government to “unify” the country’s dual exchange rates in a bid to halt the sharp decline of the rial. 

The forced single-rate policy unravelled in the months that followed, with rates soaring in the unofficial market. The government, however, has held on to the unified rate despite calls to eliminate it by pundits and the private sector.

In April, Rouhani vowed that the subsidised foreign currency allocation policy would stabilise prices of essential goods through the remainder of the Iranian year, but the holes in the plan became clear soon enough.

Even as the rial regained some lost ground in late 2018, consumer prices failed to rebound due to price rigidity and uncertainty about the future. Foodstuffs and medicines exhibited some of the sharpest price increases during the Iranian year that just ended.

As the Parliament Research Center found in a report published last month, the price of essential goods as a category increased by 42 percent during the first three quarters of the previous Iranian year ending December 21. It outpaced the consumer price index, which increased by 40 percent.

Even though analysts do not expect Iranians to go hungry, large portions of the public appear to be seriously rethinking their spending habits while always keeping in mind how much they can dispense with to be able to hold out until the next paycheque. 

Prices of red meat, chicken and fruits and vegetables have all soared. Quality meat is especially emerging as a semi-luxury item that has grown beyond the reach of many average Iranians. While about 300,000 rials – about $7.14 at the official exchange rate – would fetch one kilogram of red meat this time last year, the current price is about four times that amount. 

Meanwhile, the sight of hundreds of people standing in long queues for hours at dawn just to get their monthly allowance of frozen meat at cheaper government-approved prices has become a fixture in recent months.

Prices of trail mix, a type of snack mix that is a Nowruz fixture, have also surged. Shop owners have increasingly found that customers mostly ask them for cheaper mixes that exclude more expensive items such as pistachios.

‘Economic war’

Technically, the US sanctions do not target essential goods, but have frozen the banking channels facilitating them. Sanctions also specifically targeted Parsian, a major Iranian bank clearing humanitarian trade.

Rouhani has on multiple occasions denounced what he has called an “economic war” waged by Washington against the Iranian people.

Earlier this week, he announced that Iran would file legal cases against US officials who imposed sanctions and would pursue the matter in international courts.

In October last year, the International Court of Justice (ICJ) handed Iran a symbolic victory when it ordered Washington to lift sanctions impacting humanitarian trade and civil aviation. Tehran had complained to the ICJ in July 2018 that the reimposed sanctions violate the 1955 Treaty of Amity.

US Secretary of State Mike Pompeo responded to the ICJ ruling by terminating the treaty that was signed before the Islamic Revolution.

Meanwhile, despite the establishment of INSTEX, the special purpose vehicle designed by European powers to trade with Iran in spite of US sanctions, and its Iranian mirror entity, STFI, it is expected that it will take time for the mechanism to become operational.

In the meantime, the Rouhani government has endeavoured, not always successfully, to manage things at home.

In the Iranian year that just ended, his administration allocated some $14bn-worth of cheap currency to sustain the flow of essential goods at reasonable, stable prices. But as both the general public and statistics can attest, that policy failed to realise its main goal. 

Easing the pressure

Looking ahead, the administration has two paths forward for the new year. 

It can either insist on using the subsidised rate of 42,000 rials per each US dollar or opt to use the around 90,000 rial rate of the NIMA integrated currency system for imports and exports.

An “electronic coupon” distribution system is also on the table.

Initially, government officials had signalled that they wished to continue with the former strategy for another year. However, in recent weeks there have been strong indications that the policy will be revised.

As a number of politicians and economic experts have pointed out, the government will be better advised to scrap the subsidised rate and instead boost the monthly subsidised cash handout programme to allow citizens to decide how they wish to spend their share.

As was also admitted by Central Bank Governor Abdolnasser Hemmati in a statement posted on Instagram on March 9, the subsidised currency allocation policy has mostly benefitted middlemen, contributing to corruption and rent-seeking activities.

Finding the window of opportunity open, these intermediaries grabbed cheap currency to import essential goods, but instead hoarded goods or sold them at the open market rate.

The distribution strategy of that $14bn, in addition to easing the flow of foreign trade, is expected to have a significant role in easing the pressure felt by average Iranians this year.

Even as multiple Democratic US presidential nominees have already stated they wish to re-enter the Iranian nuclear deal, potentially easing sanctions, what is highly likely is that the situation will remain unchanged – if not deteriorate – as long as the Trump administration continues its policy against Iran.

Against all this, the lingering uncertainty about the future is expected to continue affecting Iranians’ daily life – as it has with the refreshing and out-with-the-old mentality of Nowruz, too.

Whereas the holiday is usually a time to focus on all the good that awaits in the future, Iranians say it is becoming harder to do away with feelings of frustration and anger.

“The situation hasn’t fully stopped us from holding out hope for the new year, but we know we have some more difficult times ahead,” Sabet said.

“I can only sympathise with what other families are going through”.