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Struggling economy could be Iran's undoing

Upcoming subsidy cuts could lead to high inflation, price shocks, public unrest and instability.

Iran last tried, on a much smaller scale, to reduce subsidies when it increased the price of gasoline by 25 percent in 2007. Public outcry and massive anti-government demonstrations quickly followed, resulting in the burning of nearly 20 gas stations.

This time, in an effort to soften the blow to poor families, the Supreme Council of Labor has pledged to increase the minimum wage by 14 percent, from $260 to $300 a month. But Parliament’s own research center said inflation could rise as much as 50 percent following the cuts, canceling out much of that help.

The removal of subsidies will also likely exacerbate the effects of international sanctions, economists say, which have been levied against Iran for suspicion that it is pursuing nuclear weapons. The European Union, joining the United States and the United Nations, signed aggressive sanctions against the country last month.

Djavad, 50, was once a full-time employee at the ministry of telecommunications. But international sanctions left him with little work to do, so he took up a job as a hotel clerk in his native Shiraz, a city in southern Iran.

“Once we had the sanctions, we stopped receiving the right electronic parts from Europe. Now we get shipments from China and the quality is not good. I am an educated man but there is no work for me to do. And I need more money for my family. So I started working at the hotel in the evenings,” he said.

Further exacerbating Iran’s economic instability is a government decision, fearing the gathering of large crowds following the election protests, to shutter Tehran’s once vibrant street stalls and flea markets, which helped support the country’s unemployed.

And the city's bazaars were forced to close down following a government decision to increase income tax for bazaar merchants by 70 percent. The merchants went on strike, closing down their stalls.

An opposition activist said that hundreds of students and merchants gathered in the shoemakers’ quarter of the Old Bazaar over the summer, chanting, “Death to Ahmadinejad” and "Death to this deceptive government!”

“I want to get married, I am old now. I am ready but there are no men in Iran to marry,” said one 29-year old student, lamenting Iran’s anemic economy. “How can we marry and buy our own home like a normal couple when there are no jobs and no money?”

Becky Katz is a freelance journalist living in Beirut, Lebanon. She regularly writes for GlobalPost, the Los Angeles Times and edits for DIHA News Agency, among others.