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New Year priorities: Tehran focused on turmoil at home, not nuclear program

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Indeed, the changes amount to the most serious economic retooling since the 1979 Islamic revolution, which toppled the pro-West Shah but created an oil-driven welfare system that provided cheap utilities and services. While there have been few reports of unrest so far, taking away such subsidies after a generation can be politically explosive.

The fact that prices have risen so abruptly – with the most needy Iranians set to receive a payment of just $40 per month from the government to fill the gap – has raised the risks.

“So much of the focus of this program has been on mollifying the population,” says Farhi. “It’s been done extremely systematically [but] there is a huge question to be asked: Why on earth, under these very difficult circumstances, with Iran under tremendous pressure from outside and a shaky position inside, the government would go for such a drastic effort?

“And I don’t have an answer,” adds Farhi. “I’m just holding my breath that it will work out. Because if it doesn’t work out, it has very, very serious consequences for Iran – we’re not just talking about the Islamic Republic.”

A jump in inflation?

The new measures announced by Mr. Ahmadinejad seek to address longstanding problems in Iran that have existed for decades, and 2011 will prove a decisive year.

“This kind of inequality and accumulation and power has been here forever in this country,” says Djavad Salehi-Isfahani, an economist at the Brookings Institution in Washington.

In some ways “inflation is a good thing, it’s the lubrication you need to get the economy to adjust to the new reality,” says Mr. Salehi-Isfahani, contacted in Tehran.

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