Iran versus the West: the view from the Tehran bazaar

The Iranian capital's vast market is the centre of the nation's economy. But President Ahmadinejad's foreign policy, and the sanctions it has provoked, are proving bad for business. By Angus McDowall
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Bright shafts of daylight breach the corrugated roof above Tehran's grand bazaar and illuminate a scene of near total mayhem. Wholesalers haggle and gossip under woollen astrakhan caps, a boy scampers between the legs of shoppers, a tray of steaming teacups held aloft on one hand, a cleric strides through the throng, his mobile phone pressed beneath the crisp white turban, while porters manoeuvre huge barrows through tight alleyways. The din of trade, money and power echoes to the steel rafters.

The bazaar, a city within a city sprawling across central Tehran, has been at the heart of the Islamic republic since it rose from the ashes of the Shah's monarchy in 1979. In so secretive a world, it is impossible to know the extent of the bazaar's control, but estimates range up to a third of the country's retail market. With its high political connections and long economic reach, some Iranians see the bazaar as the centre of a mafia that permeates the entire state.

But this thumping commercial heart, which has pumped Iran's lifeblood for hundreds of years, is in trouble. Its arteries already clogged by modernisation, it now suffers the effects of President Mahmoud Ahmadinejad's reckless foreign policy and the belligerent rhetoric of the United States: the threat of sanctions and war. The economy is in crisis, the bazaar feels its pain, and worse could be in store as a result of Iran's nuclear showdown with the West.

"The economy is very bad now - prices are high, sanctions are coming," says Yadollah Bakhtiari, a grey haired mercantile veteran whose business has survived revolution, war, international isolation and a fast-changing economy. "Enmity is bad for business."

Two months ago the UN Security Council imposed limited sanctions, banning other countries from selling Iran nuclear technology and dealing with named companies and individuals. The US, which has observed its own sanctions for more than 10 years, last month imposed financial sanctions on the country's fifth largest bank, the Bank Sepah. What worries the bazaar - and other businesses in Iran - is the possibility of tougher sanctions ahead.

Next week the head of the UN's nuclear agency is expected to report that Iran has not complied with UN demands, and the Security Council has warned that it will consider further measures against Tehran if that is the case.

Foreign finance has become almost impossible to secure, with Western banks coming under pressure from Washington and Iranian banks closely targeted. The inexperience of radical young officials appointed by Mr Ahmadinejad to high positions in ministries and state businesses has also frightened investors away.

These complaints swell the bazaar's corridors and are repeated by almost every trader. Nobody wants to risk capital in business deals, and they are scared of being caught with Rials. Instead, they try to convert their cash into concrete investments or hard currency, buying property in north Tehran's bubbling housing market or investing among the skyscrapers of neighbouring Dubai.

"If those on top change their policies, the political situation will improve and the market might rise," said Hamid Lavasani, a steel merchant. "The last two presidents were much better because they dealt with things in the proper way and made the economy work. Now everybody is dissatisfied and that might help things change."

The bazaar was never Mr Ahmadinejad's constituency, so it is little surprise traditionalists like Mr Bakhtiari and Mr Lavasani have tired of his bluster. They are as suspicious of the president's fiery nationalist oratory and left-wing economics as they were of the reformist students who threatened to overturn the state under President Mohammed Khatami. And they decry the social changes that have undermined traditional ways of doing business.

"All the people round here know each other, but it's not the same as it was," said Asghar Gholami, between negotiations with a fellow seed and nut merchant. "Once, if someone was in trouble, everybody else helped them - buying from them at preferential rates. Now we all have our own troubles and can't help each other. The government admits the economy is sick and that's a consequence of the threat of war."

Each profession has its place: a warren of cloth merchants presses against acres of carpet salesmen. Down another alley, sacks of pulses, dried fruit and pistachios are piled five metres high, while blazing ovens roast seeds underneath. Spices, herbs and flowers scent one quarter, while another stinks of petrol and tar. Mosques, fire stations and tea houses are squeezed in between.

In this frenetic world, appearance and reality are deceptively fluid. Behind his humble stall front, an aging Azeri merchant dozes in front of a rickety wooden table with a phone and grubby calculator, his fingers playing unconsciously on a string of worry beads. Davoud Abadi's shop looks unimpressive, but a lingering examination of his inventory of silken Qom carpets reveals a stock worth tens of thousands of pounds.

A few square metres of shop floor in a good serai, a large courtyard ringed with stalls, sells for £200,000. There are several hundred shops in this serai alone, and tens of millions of pounds worth of hand-woven wool and silk lie tightly rolled ready to be displayed or exported to New York, Paris and Tokyo.

The miles of alleyways and backroom warehouses shift huge quantities of goods, all ferried by the robust hands and wooden barrows of porters. Cargoes arriving in the great port of Bandar Abbas, 600 miles to the south, are as often as not trucked to Tehran before being redistributed back across the country. Many end up in shops a few miles from where they entered Iran.

Before the revolution it was said that 1,000 families controlled Iran. They were monarchists, courtiers, landowners and westernised businessmen. After the revolution a new aristocracy emerged: clerics and pious merchants with high connections and a canny eye. They moved out of the bazaar and took up offices in the expensive hills of north Tehran or across the Persian Gulf in Dubai.

This alliance between religion and commerce was forged deep in the country's past. Sitting plumb on the Silk Road, Iranians had always been traders. Every town had a covered brick bazaar, and along the trade routes well-guarded caravans of exotic goods moved east and west.

God-fearing bazaaris lavished upon mosques and seminaries generous endowments. It was common in respectable families for one son to go into business while the other donned the long robes and white turban of the mullah. As the clerics' influence rose in modern Iran, so they were better able to repay the bazaar with political support.

In 1891 merchants and clerics rebelled against swingeing concessions given by Qajar shahs to rapacious foreign businessmen. A British merchant was given control over the tobacco market and Iranians were furious at the blow to trade and affront to their religion. Even the shah's harem stopped smoking in protest.

Fifteen years later they joined modern nationalists to demand a constitution and parliament, setting in train a century of attempts to throw off the foreign shackles of economic exploitation and political interference. Opposition to Britain, the font of imperialist menace, brought the bazaar behind Mohammed Mossadegh, a populist prime minister who nationalised the oil company, then owned by BP. He was overthrown in a British-American plot and many Iranians still see a hidden British hand behind their misfortune.

"We know this is the fault of the English," said a middle-aged cloth merchant. "The economy is less than zero now. I spend all day sitting in here sulking and then go home to sulk some more. The people in your country are responsible for everything."

Come 1979 and the unlikely combination of intellectuals, merchants and mullahs was in action again. Iran's revolutionary elite was now split between modern leftists, who wanted to use oil exports to subsidise industry and agriculture, and laisse-faire traditionalists who sought to protect their own primitive form of capitalism. Between these utterly opposing ideologies, they created one of the strangest economies on earth.

In the bazaar the rich rose to the top. They won prominence in the Commerce Ministry and were appointed to head the bonyads - vast, secretive religious foundations that control huge swathes of the economy. The modern middle class derided these bazaaris as the epitome of venality, hypocrisy and bad taste, while poorer people saw them as bloodsuckers who profited during the hard years of the Iran-Iraq war.

The majority of poorer, hardworking bazaaris see this as unfair and speak scathingly about the rich few. "There is a group here who are close to powerful people and only do business between themselves," said Amin, a carpet seller whose family have been in the bazaar for six generations. "They do not represent the whole bazaar."

The close popular association of the richer bazaaris with former president Akbar Hashemi Rafsanjani helped turn voters against him in 2005 as they signed up for Mr Ahmadinejad, a little-known populist who promised to return oil money to the people. While the former president was seen in the West as the pragmatic harbinger of moderation, many Iranians saw him as a cipher for corrupt businessmen.

This was ironic. Despite his ties to the bazaar, it was changes wrought during his 1989-97 presidency that have weakened its power. A new class of industrialists and financiers who emerged from the modernisation drive and other reforms broke the bazaar's stranglehold on distribution networks.

So while Iran's huge oil receipts have kept the wheels of trade turning smoothly, with ever-increasing quantities of imports, the bazaar's market share is believed to have fallen. Under Mr Ahmadinejad the military has started to play a larger role in the economy, taking enormous contracts in the oil business and moving into sectors once under more traditional control.

For the older bazaaris, the political fall has been reflected in creeping changes that they look down on with ill-concealed contempt. They wonder whether a merchant's word is still his bond, and in the new generation see the end of a beautiful system. They fear the days are disappearing when bazaar traders talking over cups of tea set the commodity prices for the whole country.

"Things have changed," said a watchmaker turned cloth worker, who declined to be named. "Now every sissy boy with a mobile runs a shop and does trade. They don't even need to do good trade if they have a shop in a nice place - they just make money from the rising price of real estate."