Tight Times in the Grand Bazaar

Are Iranians really feeling the pinch of U.S. and international sanctions on their economy?

TEHRAN — In the Grand Bazaar, throngs of customers stand aside to make way for porters as they doggedly pull rattling metal carts. They carry carpets and leather shoes, keeping goods pulsing in and out of the Iranian capital's commercial artery. Shelves are stocked with foreign and domestic products alike, from Lindt chocolate to counterfeit Nike slippers.

If you listen to the talk in Western capitals, harsh international sanctions on Iran's energy and banking industries are well on their way to bringing the Islamic Republic to its knees. And there is no doubt that staggering levels of inflation, a heavily devalued currency, and soaring unemployment have taken a toll on general living standards. In conversations, it often seems that all Iranians can talk about is the economy.

"Things have become much more expensive the past five to six months," says a shopkeeper who, like most interviewed for this article, asked not to be named for fear of government retribution. "It's because we're not selling any oil," he says, blaming Western sanctions for his travails.

Despite the hardship, however, Iran is far from the breaking point. Six months after the United States and the European Union hit Iran with the harshest sanctions regime ever, life in the Islamic Republic still trudges along.

In the bazaar, a 2-foot-long loaf of fresh barbari bread costs 6,000 rials ($0.20), as it did six months ago. Government efforts to curtail rising prices on some staples include ramping up grain imports, mainly from the European Union. Energy prices have shot up, but are still low. The monthly energy bill for a small household in Tehran runs around $15 to $20. Kebab eateries are bustling during lunch time. "Khoob nist, bad nist," traders here generally reply when asked how business is going -- "not good, not bad."

Historically, Tehran's bazaar played a critical role in Iranian uprisings. So when bazaaris protested in October over the devaluation of the rial, some Western media got on their toes, ready for a dawning Persian Spring. U.S. State Department spokeswoman Victoria Nuland said that "clearly the Iranian people are demanding better from their government" and that the United States was "watching the situation very closely."

But if Western policymakers thought the bazaari protests would lead to broader calls for regime change, they were wrong. The protests lasted only a day, and the Grand Bazaar quickly returned to its usual, bustling self.

Deeply ingrained memories of past uprisings are one reason that very few Iranians think the sanctions will push people to rise up against the regime. The situation today is still much better than during the destructive Iran-Iraq War in the 1980s, when people survived on food coupons. And with the memory of the bloodshed, and for many the disappointment, of the 1979 Islamic Revolution in the back of their minds, there is little thirst inside the country for another attempt to overthrow the regime.

"We already had a revolution 33 years ago," says Ali, 27, a veteran activist. "It's Iranian popular culture for fathers and mothers to tell their children: 'We made a mistake.'"

Ali helped organize some of the Green Movement opposition protests after the fraudulent 2009 presidential election. The brutal crackdown that followed is another factor that has killed any fervor for unrest. The opposition was scattered to the wind in the years that followed, and most activists were silenced, were imprisoned, or fled the country.

"There are no opposition networks, no authority left," says Ali. He explains that though the repression of the Green Movement may have been less deadly than repression of Arab Spring uprisings, the regime has continued to persecute, monitor, and arrest activists, effectively keeping Iranians in a vise of fear.

"Sometimes, news about hunger strikes in prisons comes from the government itself," he says. "They have an interest in showing that things are worse than they might be in reality."

That's not to say Western sanctions haven't dealt a serious blow to the Iranian economy. The Islamic Republic has suffered at least a 40 percent drop in oil exports in 2012, and its international financial transactions have also been constrained by the sanctions regime. In March, SWIFT, a network handling most international money transactions, blocked 30 Iranian banks from using its services. After a third round of nuclear talks between Iran and the great powers broke down in June, the European Union cut oil imports from Iran, and the United States banned the world's banks from doing oil transactions with Iran. Japan, India, South Africa, and Turkey have decreased crude imports, in part because of pressure from the United States. Chinese imports, too, have seen a slight dip due to contract disputes.

These historically unprecedented economic measures have been responsible for eroding the country's foreign exchange reserves and undermining confidence in the rial. In the unofficial market, the national currency has plummeted from roughly 15,000 rials to the dollar in the beginning of 2012 to roughly 33,000 rials this Jan. 10, unleashing inflation of at least 40 to 60 percent. The situation has also created a shortage of drugs and medical supplies, which led to the sacking of Health Minister Marzieh Dastjerdi, a convenient scapegoat.

It is common to hear Iranians bash their politicians for economic mismanagement and corruption. Working as a chauffeur at Tehran's domestic airport, Farzaneh, 38, also moonlights as a driver of a shared taxi. "These are worth nothing," she says, waving her hand at the spread of rials on the dashboard. Regulated by the government, taxis have been barred from raising their prices, so instead, Farzaneh, a divorced mother of one, works two jobs. "Every 40 hours, I sleep once," she says to the passengers in the cab, who nod in sympathy.

Many Iranians, however, don't just blame the Islamic Republic for the dire economic conditions -- they blame the financial sanctions, which they view as hostile as any armed attack. With seven months left in office, President Mahmoud Ahmadinejad has tried to save his legacy by harnessing these grievances. As part of a comprehensive economic reform, the government offers almost all Iranians 450,000 rials per month (now worth roughly $13.50) to compensate for higher energy prices, a measure that has also helped drive inflation. For a low-income family with a few children, that amount can come close to a monthly income.

For a long time, Iranian politicians denied that the sanctions had any effect, but that narrative changed recently. Ahmadinejad, who has come under fiery internal criticism from parliamentarians for the state of the economy, redirected blame toward Iran's foreign antagonists. "A clandestine, vast, and heavy war has been waged [against Iran] on the global scale," he said.

In addition, the government has managed to halt the price hikes on essential goods and services like bread, cooking oil, most meat products, and public transport. Iranians now have to rely on the government not just for cash handouts but also for goods they have normally been accustomed to, further insulating the regime from revolt.

"People are becoming more dependent on the government for everything," says Ali, the activist. "Why would they rebel against this government?"

Working against Ahmadinejad is the unemployment rate, which analysts believe may be over 20 percent -- caused in part by a 30 percent slump in domestic car production since last summer. Iran hasn't amassed a large external debt, but the government is increasingly facing problems paying back its creditors.

Najma, 29, says that the government owes the engineering company he works for 70 billion rials ($2.1 million). "The situation is first of all caused by sanctions, but the government is not a good manager either," he says over a cappuccino at a coffee shop in affluent north Tehran.

Here, even the well-off concede that sanctions are biting -- but not to the bone. Reihane Vahid, 32, a theater director, says her family can no longer travel to Europe for vacation. Instead, they make do with flying to Kish Island, a popular tourist destination in the Iranian waters of the Persian Gulf. "We are a long way from taking to the streets," she admits.

As is usual in times like these, hardship for some spells profit for others. Those with ties to the regime have stood the best chance of enriching themselves. Top officers in the Islamic Revolutionary Guard Corps (IRGC) have allegedly amassed great wealth through smuggled goods, including everything from alcohol and cigarettes to flat-screen televisions. Even Ahmadinejad has accused the IRGC of profiteering. A few crafty types also find ways to make a profit independently.

"You can get poor in one day; you can get rich in one day," says a currency dealer in a small hookah cafe in the old center of the city. With one house in the rich neighborhood of Gisha and one in Canada, he manages to take advantage of the volatile currency trade by transporting foreign cash between continents.

"I don't even work. I have people for that," he says, sipping tea while sucking on a sugar cube. "It's like a game of blackjack. The dealer always wins."



Party in the KSA

Behind high walls, the kingdom's restrictive Islamic laws don't apply.

HOFUF, Saudi Arabia — Fifty men and women were arrested on New Year's Eve in a coffee shop in the Saudi city of Jeddah, according to local news site Sabq. Their crime: They were together.

The arrest, unfortunately, is business as usual in Saudi Arabia. The kingdom is an absolute monarchy that practices a strict interpretation of Islam where the mixing of unrelated men and women is forbidden. Members of the Commission for Promotion of Virtue and Prevention of Vice, sometimes known as the religious police, patrol the streets of the country to ensure that gender segregation is observed. Women must wear a black cloak, called an abaya, when they are in public, and they are not allowed to drive. Selling and consumption of alcohol is illegal.

But there are places in Saudi Arabia where the conservative country's rules don't seem to apply. It's one of Saudi Arabia's many paradoxes: The government builds gated, liberal communities and promotes them as an attempt to change the culture of a conservative society. But at the same time, it punishes those who attempt to replicate these communities' values outside their walls. It's a prime example of the kingdom's scattershot, and usually ineffective, approach to reform.

Take, for example, the Aramco camp in the Eastern Province, where the state-owned oil giant provides housing for some of its 52,000 employees, who hail from 65 different countries. With its wide streets, lush green fields, and neatly trimmed trees, the Aramco camp looks more like American suburbia than a Saudi town. Men and women work side by side at the company's offices during the day and then later pass the evening by going to one of the parks, watching a baseball game, or playing golf. They can even watch the latest Hollywood films at the movie theater -- a pleasure denied to most Saudis, as theaters are banned in Saudi Arabia.

In early December, a foreign geophysicist who lives there invited dozens of friends to a party at his house. Men and women in their 20s started to arrive around 10 p.m. Dance music was blasting from the speakers, and alcohol, some locally made and some smuggled from abroad, was available on the kitchen counter for those who wanted a drink.

The party crowd was mixed: Americans, Irish, Arabs, and Saudis. Most of them work for Aramco, but there were some outsiders too. They talked, drank, smoked shisha, and danced the night away. It was the weekend, so no one was in a particular hurry to leave -- except those who wanted to catch other parties going on in the camp. The party continued throughout the night: The last guest left around 6 a.m.

Parties like this are not limited to the Aramco camp in Dhahran. If you know the right people, you can find such gatherings in Riyadh's Diplomatic Quarter and the campus of King Abdullah University of Science and Technology (KAUST), as well as in dozens of private residential compounds around the country.

These areas, or "liberal enclaves" as former Reuters correspondent in Saudi Arabia Andrew Hammond calls them in his new book, remain outside the control of the conservatives who dominate most aspects of social life in the country. Such areas exist in a legal gray zone -- there are no official edicts that exclude them from the kingdom's laws, but the religious police are reportedly ordered to avoid them.

These enclaves have been the target of ire for those who see them as a threat to traditional Saudi values. Conservatives were outraged when news spread about an "Arabian Night"-themed party that took place in one of Aramco's compounds last April, featuring music and a belly dancer. Hessa al-Malki, writing on the conservative site Lojainiat, wrote that it is unacceptable for Aramco to spend money on organizing musical events and hosting liberal figures. "We say it loud and clear: enough. Enough, Aramco!" she wrote.

Aramco has proved vulnerable to conservative pressure. It canceled a scheduled concert for renowned Iraqi musician Naseer Shamma later in 2012. The company said it could not get Shamma an entry visa to the country, but local news sites said the cancellation came after conservatives lobbied the local governor to ban the concert.

Not every company, however, can build and run its own camp like Aramco. That's why some investors built residential compounds in the major cities to house expats who have no desire to deal with the social restrictions that make up daily Saudi life. Kingdom City, owned by tycoon Prince Alwaleed bin Talal, is one of the most luxurious compounds in the capital, Riyadh. Its residences, its website boasts, combine "the beauty of Najdi architecture … with all the comforts of a western lifestyle." With their open-air restaurants, shops, cafes, tennis courts, and swimming pools, compounds allow expats to live a nominally Western lifestyle -- at least within their immediate neighborhood.

Expats may be comfortable in these compounds, but it can also isolate them from the local community. It is not unusual to find foreigners who come to work in Saudi Arabia and leave the country without forging any friendships with Saudis. But that may suit conservatives who fear Westernizing influences just fine. Hard-line clerics such as Sheikh Safar al-Hawali say that non-Muslims should not even be allowed in Saudi Arabia at all. "In principle, they should be kicked out of this country," he writes on his website, and dealing with them should be minimized until they accept Islam.

Most conservatives, however, rarely speak publicly against such compounds because it can be seen as a direct challenge to the government that has sanctioned them, a challenge the conservatives know they can't win. Instead, they are willing to turn a blind eye to what happens in these compounds in return for full control over the larger society.

Some enclaves are not just tolerated by Saudi Arabia -- they are constructed on the express orders of the Saudi government. The centerpiece of such enclaves is KAUST, which King Abdullah opened to much fanfare in September 2009. Thanks to its $10 billion endowment, its modern facilities, and partnerships with prestigious universities like Stanford, it has attracted a world-class faculty and student body. But it is more than a school; it is supposed to be a vehicle for change. As the first and only co-educational learning institution in the country, KAUST promised to promote academic freedom and critical thinking to an environment severely lacking of them.

Aramco was entrusted by the king to build and run KAUST, and some people describe it as an Aramco outpost on the west coast. Its vast campus, located near the small fishing village of Thuwal, 50 miles north of Jeddah, boasts its own movie theater. Women who live there are also allowed to drive, and they don't have to cover up.

This is still Saudi Arabia -- but it is different from the Saudi Arabia most of us experience. Conservatives were unhappy about KAUST, but few of them dared to speak against the university because it was the king's personal project. One of those who did, a cleric named Saad al-Shethri, was quickly dismissed from his post.

Around the same time, some KAUST students posted photos and videos on Facebook showing themselves clapping and dancing, sparking another backlash from the conservatives. A leaked State Department cable from December 2009 noted that mixed-gender socializing had continued "without notable problems" since the incident, but students have become more careful about sharing photos from life on campus. What happens in KAUST stays in KAUST.

It's such behavior that has led some Saudis to believe that the kingdom's gated communities represent an escape from reality rather than the first building blocks of a more liberal kingdom. One Saudi blogger wrote a letter to the Saudi government after visiting KAUST, opining on the top-down nature of the project and the secrecy of what occurs on campus. "You managed to force a new open campus, with a different take on what a Saudi culture should be," he wrote. "Please, tell me that you're doing this just to test how it works, and then later implement it all around the kingdom."

One can hope, but it's more realistic to see the existence of such enclaves as a sign of the government's failure to liberalize its rules in the face of resistance by religious conservatives. The Saudi government is appeasing conservatives instead of confronting them, as it has always done. The walls around these gated communities are not only meant to keep Saudis out, but disruptive cultural forces in.