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Tehran's back alley bankers flourishing under sanctions

Women look at jewellery at a shop window in a bazaar in northern Tehran. For months, Iranians have endured economic hardship, political repression and international isolation as the authorities refuse to halt sensitive nuclear work as demanded by the UN Security Council.

Morteza Nikoubazl/Reuters/Morteza Nikoubazl/Reuters

Sanctions aimed at crippling Iran have been "very good for business," at least on the shady side of informal banking, says a grey-market currency trader in Tehran.

"A few thousand dollars is easy, even a few million dollars is no problem," Sattar, the trader, smilingly confirms.

"Fifty million? For that I would need some help but it could be done," he adds.

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A wide range of sanctions, imposed by an array of countries, range from blackballing individuals so they can't travel to blocking big Iranian banks linked to the government from international transfers. But, at least when it comes to shifting money, sanctions-busting or finding a workaround isn't too hard.

Iranians seeking a few thousand dollars for a shopping spree in Dubai, or a few million to backstop an import deal, find their way to traders like Sattar. Wise to the risks of flouting Iran's laws and fixed exchange rates, he laughingly gives the Persian name for "the concealer" to a visiting journalist.

"I've friends in the Philippines, in Dubai, even in Europe," he says of an ad hoc network in international-currency traders operating on the margins of the law. "We can move a lot of money and it isn't just coming and going in suitcases," he said over milky coffee not far from Tehran's historic bazaar, where a tradition of untraceable commerce and deals done with handshakes stretches back centuries.

Relaxed and dapper, in a pressed shirt and vest, Sattar said the informal market can handle deals in the tens of millions. That, of course, is far short of the multibillion-dollar deals needed to cover long-term oil exports or major infrastructure projects. But Tehran is playing on the margins too. There are widespread reports of oil-export deals denominated in rupees or done in barter.

An array of sanctions, some stretching back decades, have distorted, but hardly crippled Iran's economy. There's a building boom in Tehran; cranes crowd the downtown skyline. By some measures – 562 Porches and 60 Maseratis sold last year, according to urban legend, and a burgeoning market in multimillion-dollar apartments – Iran's wealthy seem unscathed.

Iran's oddly distorted economy – fuelled by vast oil wealth, curbed by sanctions and twisted by decades of government subsidies on food and fuel, which are now being steadily lifted – presents a confusing study in contrasts. It's almost impossible to unravel the consequences – both good and bad – of the interleaved and artificial pressures.

For instance, a decade ago, Tehran's air was polluted. A brownish haze, mostly from vehicles exhausts, all but blotted out the view of the snow-capped Alborz Mountains. Iran's chronic shortage of refining capacity, coupled with artificially low, subsidized gasoline prices (still only 50 cents a litre), forced the government to import and lose money on vast amounts of gasoline.

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Today, all of Tehran's taxis, most of its buses and an increasing share of the millions of cars that jam the city daily, run on compressed natural gas, vastly reducing the need to import expensive, foreign-refined gasoline. Tehran's air is far cleaner, a perhaps unintended "green" consequence of sanctions.

But a new threat looms: the pledge by the European Union to end all oil imports from Iran on July 1. That ban could slash Tehran's exports by 20 per cent.

In recent weeks, fear has spooked the currency markets, with the value of the Iranian rial dropping nearly 50 per cent and then bouncing back in a wild swing depending on whether the mood about nuclear talks is upbeat or not.

Turkey and India, both major importers, are facing heavy pressure from Washington to cut their Iranian oil buys.

Even Iranians are divided over whether to blame sanctions or economic mismanagement for their financial woes.

The pain of existing sanctions, and worries about further damage, are widely considered to be behind Tehran's new-found willingness to resume negotiations with world powers on opening its controversial nuclear program to international inspections. That there was no breakthrough last week at talks in Baghdad was tempered by the willingness of both sides to meet again in Moscow.

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"The Iranian government keeps pretending that sanctions don't hurt but we, the people, know better," said Pirouz Mojtahed-Zadeh, a professor of geopolitics at the University of Tehran. He regards the orchestrated U.S.-led effort to throttle Iran's exports as an attempt by "Iran's adversaries to cut its jugular vein."

This spring, Iran's oil production was at a 10-year low. And the oil was, according to some analysts, being sold at a substantial discount from the market price. With the EU ban looming, international analysts and traders expect further declines in both production and price.

"There's big swings between gloom and relief, every time there's another meeting over the nuclear issue," Sattar, the grey-market currency trader, said.

And there is mounting evidence that Tehran is preparing for a "sanctions shock" as the EU oil ban looms. At least six of Iran's largest supertankers – filled to bursting with an estimated 35-million-plus barrels of oil – are anchored in the Gulf, going nowhere.

"I was given three months off and told there would be no work until summer," says a Russian maritime engineer headed home for an unscheduled and extended holiday.

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International Affairs and Security Correspondent

Paul More

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