Iran's state finances have come under unprecedented pressure and the resilience of ordinary people is being tested by soaring inflation as oil income plummets due to tightening Western sanctions and sharply falling oil prices. Tough financial measures imposed by Washington and Brussels have made it ever more difficult to pay for and ship oil from Iran. Its oil output has sunk to the lowest in 20 years, cutting revenue that is vital to fund a sprawling state apparatus. Tehran is already estimated to have lost more than $10 billion in oil revenues this year. Causing even more pain, oil prices fell below $100 a barrel last week to a 16-month low amid a darkening outlook for economies in Europe, the United States and China. “This is an act of economic warfare. The sanctions are having a big effect in cumulative terms: Iran is being locked out of the global financial system,” said Mehdi Varzi, a former official at the National Iranian Oil Co. Although international sanctions have been a fact of life in Iran for decades, Tehran is adept at working round them. But there are growing signs that ordinary people are feeling much more pain from them than in the past as inflation has soared in the last six months. “I was struck by the high prices when I went to the grocery store yesterday,” said Ahmad, 54, who owns a small fabric shop in Tehran's bazaar. He said the price of apples had more than doubled in the past month and strawberries had almost tripled to 110,000 rials per kilo, or more than $6 at market rates. “Little by little, even fruit is becoming a luxury,” Ahmad said. Inflation is now officially running at about 20 percent, although economists say prices of the goods most Iranians worry about are rising much faster. The country is undergoing what the government has called major economic surgery, in the form of cuts to the multi-billion dollar subsidies which for years have held down the price of essential goods such as fuel and food. The value of the rial began to slip in January and it now officially stands at 12,260 to a dollar. The price of petrol on the domestic market remains stable but taxi and public transport fares have gone up. According to the International Monetary Fund, Iran needs oil at $117 a barrel to balance its budget, set at $462 billion. President Mahmoud Ahmadinejad has said the budget was designed to decrease Iran's dependence on oil revenues. Senior Iranian oil officials have acknowledged that sanctions have reduced exports but say the country has long experience of finding ways around them and a drop in oil revenue is not the end of the world. “Personally, I will be very happy if the dependence of the economy on oil revenue is decreased,” said an Iranian oil official, who requested anonymity.
