Iran's food costs soar and unemployment spirals as nuclear sanctions begin to bite

As a European Union boycott of Iran's oil export comes into effect, reports from inside the country suggest that international sanctions combined with government subsidy cuts are creating an increasingly harsh environment that is depriving ordinary people of basic necessities.

The EU ban, which began yesterday, xame after talks in Moscow this month between the western powers and Islamic republic officials failed to break the impasse over Tehran's uranium enrichment programme, seen by the west as a front for building an atom bomb despite Iran's insistence that it is for peaceful purposes.

It is the latest in a catalogue of embargoes that have gradually undermined the Iranian economy and eroded once relatively affluent living standards.

But while previous blows have been borne stoically, recent developments have imposed increasingly widespread hardships.

Middle class families are giving up chicken, red meat, fruit, and even sugar as inflation – triggered largely by President Mahmoud Ahmadinejad's abolition in 2010 of extensive subsidies – renders once-staple items unaffordable.

Unemployment in Iran's industrial heartland has soared to an unofficially estimated 35% because factories unable to import vital goods and equipment due to sanctions are forced in turn to sack their workers.

Rising joblessness is being fuelled by Iran's exclusion last March from the Swift banking system, preventing businessmen from carrying out international transactions. One company making car windscreens near the northern city of Ghazvin sacked 500 staff because it could no longer import resin from the EU. Iran's biggest tyre manufacturer, Kian Tyre, recently fired around 800 workers for similar reasons.

In an illustration of a problem that threatens to cripple Iran's sizeable pharmaceutical industry, a medicine-manufacturing plant was forced to lay-off 220 workers because owners could not purchase necessary raw materials from Germany, Austria and Italy. The company is trying to establish an overseas bank account to evade the Swift ban.

"It has become a humanitarian issue," said Mehrdad Emadi, an Iranian economic consultant based in the UK. "The economy is gradually being strangled and factories dependent on free trade are withering away. At the micro level, people are having to take basic decisions about food consumption, which is very painful."

Emblematic of the latter problem is the price of chicken, which rose in two weeks from 45,000 rials (£2.37) to the equivalent £3.84 a kilo, astronomical by local standards and prompting some restaurants to remove it from their menus.

"Customers who would come and buy three chickens before are now only buying one," said the owner of a poultry shop in the middle-class Arya Shahr neighbourhood in western Tehran. "They simply cannot afford these prices. The cause is that chicken feed prices have risen by four-and-a-half times their previous level. Although the feed is produced in Iran, we also used imports but we can't do that now because sanctions mean we can no longer get letters of credit. That has caused the price of locally-produced feed to rise. Mismanagement, sanctions and profiteering are all playing a part."

Price rises have spread across the food spectrum. Undercover student researchers surveying 20 supermarkets and four government food distribution centres in Tehran, discovered that 10 basic foods had risen in price by an average of 70% since March while the average family's weekly food basket shrunk by half. One middle-aged male respondent said he had given up buying meat and sugar so his family could continue eating bread and cheese at breakfast.

At the Amir Abad fruit market in west Tehran, sellers have stopped stocking melon and wild cherries, citing a lack of demand caused by rising prices – caused in turn, they say, by soaring fuel costs for delivery vans.

Inevitably, the climate of austerity has sparked dissent, prompting a predictably harsh response from a regime worried that economic discontent could trigger a general uprising. A 10,000-signature petition addressed to Mr Ahmadinejad's government outlining workers' grievances recently resulted in mass arrests of trade union activists in Karaj, near Tehran.

Even the regime's most cosseted insiders are not immune. Staff in the elite revolutionary guards have experienced salary delays, with officials blaming budgetary disagreements between parliament and Mr Ahmadinejad. And in a potent irony for the ruling theocracy, the price of textile for clerics' turbans has risen 15% in three months.

Despite the grim backdrop, Iranian officials have affected a lack of concern about the EU oil embargo, insisting that they have alternative customers.

In truth, many non-European customers are taking flight, fearful of simultaneous new US sanctions that punishes nations for buying Iran's oil. Even China and India – two of Tehran's most reliable clients – have announced in recent days that they will only continue buying Iranian crude if Iran provides its own tankers and insurance, something rendered impossible by the EU embargo, which also bans the sale of insurance for Iranian oil shipments.

With fresh OPEC figures showing Iran's production down by 720,000 barrels in the past month, Iranian officials have resorted to desperate measures, including offering heavily discounted sales to traditional customers.

But even that ploy could further destabilise the country's finances, forcing yet greater impoverishment on the hard-pressed population.

"Oil traders close to the government say discounted sales would mean a 48% fall in oil revenues in the coming months," said Emadi. "The government can only balance its budget if oil prices stay above $80 per barrel. I believe you are going to see a more-than 50% drop in Iran's foreign trade over the next three months. It's nothing short of disaster for the national economy."