For people like Mahdi Fahandari, times have always been tough in Iran. The 33-year-old labourer has struggled to make ends meet on the $6 a day he earns. Lately, however, the situation has become dire.
"Inflation is bad and prices are always rising. It's getting hard even to buy food," he says amid the noisy gloom of the welding shop where he works — a job he fears may soon disappear. "A lot of my friends are out of work."
Located 850 kilometres east of Tehran near the Afghan and Turkmenian borders, Mashhad is Iran's second-largest city and home to the mammoth Imam Reza Shrine, which makes it a destination for millions of Shia visitors. The pilgrims and the cross-border trade usually keep the economy strong, but like the rest of the country, Mashhad is feeling the pinch.
Until recently, the local real-estate market, driven by Iran's post-revolutionary baby boom, was red hot. But now "private projects have nearly dried up," says Abbas Khakshur, vice-president of Marmarbeton, a big construction firm and a major source of business for shops such as Mr. Fahandari's.
He says public spending will soon follow suit. "There is no money in the government's budget any more. We are worried about our business."
Iran runs on oil, and the plunging price of crude — from a high of $147 (U.S.) a barrel last July to less than $36 this week — has devastated the economy to so much that many Iranians believe that mismanagement by presidential firebrand Mahmoud Ahmadinejad is partly to blame.
As a result, Mr. Ahmadinejad suddenly seems vulnerable as the country prepares to go to the polls in June — especially since his predecessor, liberal cleric Mohammad Khatami, announced this week that he wants his old job back.
"The Iranian nation's historical demand is to have freedom, independence and justice, and I will work for that," Mr. Khatami said.
Is he a serious contender? His rival may think so. A few days after the reformist Mr. Khatami joined the race, he was reportedly chased through the streets of Tehran during celebrations for the Islamic Revolution's 30th anniversary by a mob of stick-wielding Ahmadinejad supporters. The same day, their champion declared himself ready to meet U.S. President Barack Obama and discuss their differences: "It is clear the Iranian nation welcomes real changes."
Mr. Ahmadinejad has been weakened by criticism of his economic performance. When the global downturn began, he ruled out any impact on Iran: "Even if the price of oil hits zero, we can manage the country for about three years."
But as the situation worsened, signs that Iran, which relies on oil for more than 80 per cent of government revenue, was being hit badly were hard to ignore. When the government set this year's budget at $37.50-a-barrel oil, compared with the $70 needed to balance last year's budget, Mr. Ahmadinejad finally acknowledged that "we will have to leave a major part of our projects behind."
'HE DOESN'T LISTEN'
By then, frustration was mounting within Iran's academic community. "They were slow to realize the problem," says Mohammad Khatib of the Mashhad Chamber of Commerce, who was among a group of 50 economists that visited the President in July to complain. Unfortunately, "he doesn't listen to economists," Prof. Khatib says.
Adjusted for inflation, Iran's per-capita gross domestic product is lower today than it was before the revolution in 1979. The latest official rates for inflation and unemployment are 26.4 and 10.2 per cent, respectively — yet both are widely considered to be underestimated. Iran holds one-10th of the world's proven reserves but has the lowest growth rate among oil producers in the region.
Addiction to oil is considered a root cause of Iran's problems. "It is widely accepted among economists that we need to reduce our dependency on oil," says Hamid Shushtarian, editor of Iran's monthly Journal of Asian Economics.
