Sanctions target government but Iran shoppers feel pinch

By Parisa Hafezi - Analysis

TEHRAN, March 4 - World powers want to push Iran's government into halting sensitive nuclear work with a new round of U.N. sanctions, but Iranian shoppers and small traders said on Tuesday they were the ones who really feel the pinch.

"I don't understand the mechanism of sanctions, but what I do know is whenever they talk about sanctions and resolutions, I pay more at the grocery shop," said 25-year-old Fariba.

The mother, buying her daily supplies, summed up how many Iranians feel about Monday's move by the U.N. Security Council to impose a third set of penalties to push Iran to stop work the West says is aimed at building nuclear bombs.

Iran's refusal to curb its nuclear program which it insists is peaceful has prompted two other sanctions resolutions in December 2006 and March 2007.

"Everything is becoming more and more expensive because of the sanctions," said 42-year-old civil servant Mohsen Taqavi on a main Tehran shopping street.

Many Iranians are wary about openly criticizing the government for its handling of the nuclear file, but opponents of President Mahmoud Ahmadinejad say his speeches vowing no compromise have antagonized the West to push for sanctions.

Ahmadinejad's opponents want to capitalize on public frustration with rising prices in the March 14 parliamentary election, seen as a test of his popularity.

Economists may question whether sanctions are the main culprit for Iran's 19 percent inflation. They put much of the blame on the spending policies of Ahmadinejad, who has pledged to share out Iran's oil wealth more fairly.

But business executives say sanctions are still causing pain -- mainly for ordinary Iranians rather than the government.

"One of the messages from the world was always that they didn't want to hurt the population and they wanted to hurt the government. In fact, they are doing exactly the opposite," said Hatef Haeri, head of Iranian consultancy ICG Group.

Flush with billions of dollars in windfall oil earnings, the government has shrugged off U.N. penalties that have so far included travel bans on some officials, freezing assets of firms involved in the atomic program and targeting a bank.

SCRATCH THE SURFACE

Surging oil prices, partly propped up by tensions over Iran, brought some $70 billion to the OPEC producer in the past year. And U.S. sanctions spurred Iran to diversify reserves away from the dollar, which Haeri said benefited Iran before the greenback's latest plunge against the euro and other currencies.

"If you add up these two, you find a huge profit for the government. When you come down and look at the small businessman bringing small things to the country to distribute, he is in real trouble," Haeri added.

Traders find it increasingly tough to find foreign partners willing to accept Iranian letters of credit (LCs), a vital trading tool. Wary suppliers may demand LCs from foreign banks that cost more and may also demand bigger up-front payments.