The economic pressure on the regime in Tehran is growing. Germany's largest steelmaker ThyssenKrupp is the latest of several German companies to cut ties to Iran. It announced last week that it would not enter into any new contracts with Iranian customers.

"By halting business with Iran, we are supporting the sanctions policies of the Federal Republic of Germany, the EU and the USA," CEO Ekkehard Schulz said in a statement. The decision prohibits all new business with Iran. Existing interests by the ThyssenKrupp group in Iran - where it has been active since 1976 - are to be terminated as quickly as possible.

ThyssenKrupp joins a number of German companies making this move, despite the lucrative business. Insurance giants Munich Re and Allianz previously announced their withdrawal, as have Siemens, Linde and Commerzbank. And last week Russia cancelled an arms deal with Iran, prohibiting the sale of high-precision air defense missiles to Tehran.

Pressure on the population

Sanctions are nothing new for Iran, having existed in various forms since the Islamic Republic was founded in 1979. Both the US and the EU have stressed that the latest measures are specifically directed against the leadership in Tehran. Yet in fact, they are hitting the general population quite hard. Living costs are skyrocketing, and unemployment has reached 30 percent in certain areas.

But Oliver Borszik from the German Institute of Global and Area Studies (GIGA) in Hamburg said the sanctions will actually have little impact on the way a large part of the population thinks.

"The people have gotten used to being isolated and in fact, the population tends to stand firmly behind the regime in this case," Borszik told Deutsche Welle. "The Iranian people are resistant to pressure from outside. They're also proud of a government which can creatively shape its policies around such conditions."

But Iran's economic policies are inadequate to deal with the impact of the sanctions, said Ali Ansari, history professor at the University of St. Andrews in Scotland and founding director of the university's Institute for Iranian Studies.

"The government was not properly prepared for them and has made things worse by their mismanagement of the economy," Ansari told Deutsche Welle.

Dependent on subsidies

Iran's system of subsidizing essential goods is an example of such mismanagement, Rouzbeh Parsi from the European Union Institute for Security Studies (EUISS) in Paris agreed.

"They have failed rather miserably in creating an economic system where you would not need subsidies to help the poorest to survive," Parsi told Deutsche Welle. "That has created a dependency on the subsidies and a kind of unrealistic behavior pattern when it comes to consuming certain items, most primarily fuel."

The sudden withdrawal of fuel subsidies in September has hit Iranians hard. Many households were faced with exorbitant power bills as part of President Mahmoud Ahmadinejad's sweeping plan to reform the country's subsidy system.

While previous governments have been reluctant to end subsidies, Ahmadinejad's government has opened this "Pandora's box," Parsi said.

"They know once you open it, you're going to have all kinds of societal and political effects," he said. But the regime was showing "a kind of schizophrenic behavior."

He believes that, since Ahmadinejad's reforms were put in place shortly after the sanctions were imposed, the Iranian government is using the restrictions as a convenient excuse for the soaring prices.

"This government is trying to be bold and at the same time, blame the effects of removing subsidies on the sanctions while they're pretending the sanctions have no effect," Parsi said.

Change from below?

Some in the West are hoping that the price hikes could ignite public unrest. But Borszik said despite growing pressure on the population, it will not explode on the streets.

"Iran is a repressive society," he said. "The people are afraid that if they openly oppose the economic conditions, they will be branded as fighting for the opposition." Also, despite the combination of disappointment and frustration people feel, there is hope as well that the government will create a better future for Iran, he said.

According to Ansari, the price increases put the Iranian government in a very difficult position.

"I don't think they have a program to handle this very well apart from a continuation of this system of repression," Ansari said. "But at the end of the day, even this system of repression needs money."

And this money can come from Iran's extensive oil wealth, which should not be underestimated, Borszik said.

Domestic debate

President Ahmadinejad also faces criticism from the conservative elite in Iran. Earlier in September, former Iranian President Ali Akbar Hashemi Rafsanjani criticized him for failing to counter the impact of sanctions.

Rafsanjani, head of the powerful deliberative body, the Assembly of Experts, said Iran was under unprecedented global pressure. The government was wrong to dismiss the sanctions as no threat to the economy.

"Gentlemen, you should be vigilant and careful," Rafsanjani told the Assembly of Experts. "Do not downplay the sanctions."

'Hold your nose and talk'

Parsi from the EUISS said Iran's political elite was fractured.

"They don't seem to be able to agree among themselves how far they want to go in brinkmanship vis-a-vis the US, or if they want to negotiate with the US, on what exactly," he said.

But there are still a lot of points to be ironed out in Washington as well. Parsi criticized that US Congress was not very keen on "reaching out" to Iran. He said there was simply an expectation of Iran caving in "and then we'll leave them alone."

"It's a kind of childish way of thinking of diplomacy," Parsi said. "Diplomacy is give-and-take. Diplomacy is holding your nose and talking to people. It's not giving them 10 preconditions before you even let them into the room. That doesn't work. You don't have to like the regime in Iran but they're not going to buy that."

Author: Sabina Casagrande
Editor: Jennifer Abramsohn