The UN sanctions have cut government income sharply. This has caused enormous inflation and a sharp increase in unemployment. The government is being openly criticized for heavy spending (over $5 billion so far) to prop up the Assad dictatorship in Syria. Although the new sanctions and the loss of over a million barrels a day of oil exports has caused a lot of commotion inside Iran, it will not have a huge impact on the Iranian economy. Current GDP is about $480 billion a year and if the reduced oil exports continue for the rest of the year, GDP will be down about a percent for the year (versus growth of over five percent without sanctions). Iran has sufficient hard currency reserves to continue essential imports (food and other consumer goods) for 2-3 years. Despite a lot of corruption by the ruling clerics and their families (who control or own about half the GDP), the other half of the economy is quite robust and productive. Most Iranians are angry at the corruption and harsh rule of the clerics but about twenty percent of the population benefits from working for the clerics, and a lot of these supporters have weapons and are willing to kill to keep things as they are. So the majority grumbles and gets by as best they can.
Iranian secret police and intelligence agencies are telling their bosses (the senior clerics that run the country) that illegal labor organizations are organizing protests against the worsening economic conditions. This is happening despite a continuing crackdown on any pro-reform media. Hundreds of pro-reform journalists have been jailed, driven into exile, or compelled to shut up over the last three years.
Most foreign airlines are cancelling service to Iran because the rapidly growing inflation there and being forced to use the local currency makes it unprofitable. The Iranian is being pressured to allocate scarce and expensive foreign currency to air transport operations, otherwise Iran will lose most of its passenger and air freight service. Some Western maritime shipping firms are also halting service to Iran, for the same reasons.
American Internet security experts believe that recent Cyber War attacks against Arab and Western oil companies in the Persian Gulf area were carried out by Iran or by hackers hired by Iran. This was believed to be part of a retaliation (for the economic sanctions against Iran) campaign. The hacker attacks were low-quality and do not appear to have done much damage. The U.S. Department of Defense is investigating the attacks and said there would be retaliation.
Deteriorating economic conditions inside Iran make involvement with the illegal drug trade more attractive. In the last few days three border guards were killed by drug smugglers crossing the Pakistan border in the southwest. This drug war is fought out along a 1,700 kilometer border with Afghanistan and Pakistan. Over the last decade the government has spent $700 million to build barriers and sensors along this border, to make it more difficult for the drugs (largely opium, heroin, and hashish) to get across. In the past six months some fifty tons of drugs have been seized. This was accompanied by several hundred casualties and even more arrests. This war has been going on for three decades and shows no signs of slowing down.
October 11, 2012: The Iran backed Hezbollah Shia radical militia in southern Lebanon admitted that it was responsible for sending an Iranian UAV into Israel on October 6th. The Israelis detected the UAV coming in from the sea and after tracking it over Israeli territory for twenty minutes, had an F-16 shoot it down when the UAV was over a rural area and headed for Israel's nuclear complex at Dimona. While some Palestinians claimed the UAV came from Gaza, Israeli officials said this was not the case, leaving Lebanon (and Hezbollah) as the likely source. Hezbollah has been using Iranian UAVs for years. This particular flight was apparently to test the Israeli ability to detect a UAV. Troops were sent out to collect pieces of the downed UAV and examination of this wreckage will make it clear where the UAV came from and what model it was. Israeli radar spotted the UAV over the Mediterranean and tracked it as it reached land near Gaza. The UAV was apparently flying under GPS control and may have been taking and transmitting pictures as it went. There may be more incidents like this because this sort of thing allows Iranian propagandists to make noise about how Iran is "attacking" Israel. That will probably stop when Israel begins shooting down the UAVs over the Mediterranean.
October 10, 2012: In the capital there were violent clashes in the streets downtown. People were angry at the rapid inflation (currently over 30 percent) and sharp increase in what it cost to buy foreign currency. So far this year, the price (in rials, the Iranian currency) has more than tripled from 11,000 rials per dollar to over 39,000. About half of that increase occurred in the last two weeks or so as a result of the government trying to put restrictions on private money changers. That caused a panic. There has also been growing inflation, even for goods produced inside Iran. This is caused by the government printing more money to reward its loyalists (about a fifth of the population). The government doesn't care if its opponents suffer because it can point to these people and complain that it's all the fault of the sanctions. This worked for Saddam Hussein when Iraq was under similar sanctions in the 1990s. The Shia majority suffered most from the sanctions, which was fine with Saddam as the Shia were his mortal enemies. But the Western media played along and criticized the sanctions for making ordinary Iraqis suffer. Saddam starved and tormented his Shia opponents even when there were no sanctions but this was not considered newsworthy.
Turkey is accusing Iran of making peace with Iranian Kurdish separatists (PJAK) in return for sanctuary in Iran and a truce with Iranian security forces. PJAK, which has been active since 2004, is supposed to have several thousand armed members. Last year PKK (Turkish Kurd separatists) announced that they would join with PJAK to fight the Iranian government. PJAK has been hammered by Turkish and Iranian forces over the last few years, the result of an agreement between Turkey and Iran to coordinated operations against their Kurdish separatists. There's been no official announcement of ending this deal.
October 8, 2012: The Foreign Ministry contradicted the head of the Revolutionary Guards and denied that any Iranian troops were in Syria or Lebanon. Last month the Revolutionary Guards commander had bragged that members of the Quds Force were operating in Syria. Quds is
Iran's international terrorism support organization. The Quds Force supplies weapons to the Afghan and Pakistani Taliban as well as Islamic radicals in Somalia, Iraq, and elsewhere. Quds is believed to be advising Syrian forces on how to deal with the rebels and occasionally helping with raids and interrogations. Iran is also bringing in some badly needed special weapons and equipment. Most of this is coming in by air via Iraq. Syrian rebels are getting some proof of Iranian aid out of the country, but little of this has been made public. What is known is that several hundred military age Iranians were flown out of Syria in the last week. These were said to be Quds men, being withdrawn because of the economic crisis back in Iran.
October 7, 2012: The world's largest manufacture of Internet hardware (U.S. firm Cisco) cut its ties to long-time Chinese partner ZTE (also a major manufacturer of Internet hardware) when it was discovered that ZTE was illegally exporting Cisco equipment to Iran.
October 6, 2012: Iran's secret police (otherwise known as the Intelligence Ministry) opened their own web site (vaja.ir). In part this makes them seem like less of a scary monster (which they are for most people they encounter) and to make it easier for people who want to provide information (on disloyal Iranians or foreign agents) and be rewarded.
Yemen accused Iran of sending cash and other support to Sunni tribal separatists in southern Yemen while continuing long-standing support to rebellious Shia tribes in the north. Yemen has caught ships attempting to smuggle Iranian weapons in.
October 3, 2012: The government announced that slowdowns for Internet service were the result of attacks from unnamed attackers.
October 2, 2012: On September 24th it took 24,000 Iranian rials to buy one dollar on the black market. Today it costs 39,000 rials. The official exchange rate is 12,000 rials but there are severe restrictions on who can get dollars at that rate. So most people, and businesses, use the illegal money changers, which the government is now cracking down on.
October 1, 2012: The government has restored access to Google gmail email service. The government insisted that shutting down gmail access was an accident. Even government supporters were angry at losing access to gmail. This was cut on September 23rd along with YouTube (also owned by Google). YouTube was cut off for refusing to take down videos Iranian clerics found offensive to Iran or Islam. This was also seen as a prelude to cutting the country off from the Internet and leaving only Iranian web sites functioning. This can work because the Internet was built to operate no matter how much of it had been shut down (by nuclear war, according to the original specifications half a century ago). Iranians will still be able to use expensive satellite communications, or, near the border, cell phones to access the worldwide Internet. So forbidden news will still get in and be circulated. But the government will sharply limit the ability of Iranians to regularly communicate with people outside the country (especially the millions of Iranians living abroad). There will still be official worldwide Internet access within Iran but only with government approval and considerable restrictions. Such "intranets" are quite common. The U.S. government and many large corporations use them for security reasons. Iran apparently underestimated the difficultly of setting up a national intranet and were surprised at how many of their own core supporters depended on the existing Internet.