- The Washington Times - Monday, July 26, 2010

Long-time observers of American politics know that in order to truly put your finger on the pulse of the nation, you have to watch Wall Street. Savvy Iran-watchers will tell you that to do the same in the Islamic republic, you need to keep your eye on the bazaar.

Iran’s sprawling marketplaces are more than simply centers of commerce. They are home to a powerful class of merchants who historically have served as key power brokers in the country’s labyrinthine political system. Indeed, as the renowned historian Walter Laqueur astutely pointed out in the wake of the 1979 Islamic Revolution, the shah’s loss of support among the country’s shopkeepers and merchants was an important part of why Ruhollah Khomeini’s clerical takeover ultimately succeeded. Simply put, Iran’s businessmen no longer felt invested in the old, secular status quo. The rest, as they say, is history.

More recently, the same metric has been applied to the Green Movement that erupted following last summer’s fraudulent re-election of Mahmoud Ahmadinejad to the Iranian presidency. While many waxed optimistic in the weeks after the June 12 vote that democratic change in Iran was inevitable, those who closely watched Iran’s economy gradually came to the conclusion that the protests were less than met the eye. “We knew that the Green Movement wouldn’t get the job done,” one specialist with extensive governmental connections commented to me this spring, “when the shops stayed open.”

That’s why the recent news of turmoil in Iran’s bazaars is so noteworthy. Since the beginning of July, the sprawling bazaar in Tehran - the country’s best-known and most influential trading center - has been largely shuttered, the result of widespread discontent among merchants over a planned, massive governmental increase in income taxes on merchants. Nor is the Tehran bazaar unique; interruptions in traditional commerce have been reported in other Iranian cities, including Esfahan, Tabriz, Mashhad and Hamadan.

Regime authorities responded in predictable fashion - first with force and then with obfuscation. After a crackdown by regime security forces failed to bring Tehran’s bazaaris back in line, Mr. Ahmadinejad abruptly announced two days of national holidays, ostensibly because of the oppressive summer heat but in reality to buy time for the regime to regroup. The authorities ultimately blinked, slashing their planned tax nearly sevenfold (from 70 percent to 15 percent) in an attempt to mollify Iran’s merchants. But disruptions in the country’s bazaars have persisted, underscoring the strength of Iran’s trading class - and the weakness of the regime.

Indeed, the fiscal problems confronting the Iranian government are legion. Even before the passage of the latest round of U.N. and U.S. sanctions in June, Iran’s economy was exceedingly brittle. High unemployment, pervasive poverty and rampant drug addiction over the past decade have conspired to create massive socioeconomic malaise as well as widespread disaffection with the current regime. So have five years of flagrant fiscal mismanagement by the Ahmadinejad government, which has promoted populist “justice-driven” economic policies at the expense of free-market principles, leaving Iran’s financial institutions insolvent and uncompetitive.

Now that U.S. and international sanctions have begun to bite, matters are getting even worse. In the past month alone, energy firms BP and Royal Dutch Shell have stopped providing fuel for Iran’s national airline, while insurance giant Lloyd’s of London has announced that it is rolling back coverage for petroleum shipments going into Iran. These supply disruptions - and the specter of more to come - have begun to buffet the Islamic republic’s already rickety economy.

It’s no wonder Iran’s ayatollahs are worried. Iran’s conservative bazaari class traditionally has served as a bulwark of the country’s economy - and as a critical constituency for its clerical elite. The bazaar’s very public rupture with the regime is an important barometer of the deepening discontent now gripping the Iranian “street.” It also adds fresh fuel -and new followers - to the widespread grass-roots opposition still visible within the Islamic republic. Perhaps even more troubling for Tehran, the unrest in Iran’s bazaars gives the international community a glimpse into the flimsy economic foundations upon which the Iranian regime truly rests and a metric for measuring how best to exploit them.

Ilan Berman is vice president of the American Foreign Policy Council in Washington.

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