Relief sweeps Tehran as nuclear deal raises hopes on economy

Lionel Barber, Roula Khalaf and Najmeh Bozorgmehr
Iranians hold portraits of President Hassan Rouhani in Tehran on November 24, 2013.
Anadolu Agency | Getty Images

Relief rather than euphoria swept through the streets of Tehran on Sunday after world powers reached a historic deal to curb Iran's nuclear program, in return for easing crippling sanctions aimed at preventing it from acquiring nuclear weapons.

Despite Israel warning of a "historic mistake", Iran held out hope of an end to its own isolation and eventual economic revival.

The US and its partners – Britain, France, Russia, China and Germany – hailed the agreement freezing key elements of Iran's nuclear program as a victory for diplomacy and vindication of a successful sanctions strategy.

(Read more: Iran oil, energy sanctions still in force: US)

Among Iranians shopping in central Tehran, the verdict was near unanimous: Iran has pulled back from bristling confrontation to a pragmatic approach aimed at giving the new government led by President Hassan Rouhani breathing space to tackle an economy struggling with rocketing inflation, recession and high unemployment.

Over the past two years, Iran's currency has depreciated by about 50 percent against the US dollar as sanctions squeezed foreign exchange reserves. Within hours of the deal, the rial strengthened against the dollar by 2 percent.

Here's the best part about Iran's nuclear deal

Iran's expectations of relief rest more on the future rather than the immediate gain of about $7 billion from a modest relaxation of restrictions for halting production of higher-grade enriched uranium and vigorous international inspections. Overall, Iran has more than $50 billion of foreign exchange holdings frozen and its oil revenues have been cut by more than half.

(Read more: Iran deal first step towards comprehensive solution, Obama says)

Mr Rouhani, the centrist leader elected in a near landslide last June, declared his satisfaction at a deal capping his first 100 days in office. "I am very pleased that after 10 years we have reached an agreement even if it is just for six months."

One bookseller on Enghelab Street in central Tehran, who has seen paper prices rise sixfold to 1.8 million rials ($72) over the past eight years, said: "I am optimistic because maybe inflation will start to go down and things will perhaps get better."

Iran made substantial concessions in the negotiations, which concluded in the early hours of Sunday morning after four days of tough talks in Geneva.

It has agreed to stop uranium enrichment above 5 percent, "neutralize" its stockpile of 20 percent uranium, limit the number and capability of its centrifuges and halt work at its Arak heavy water facility.

(Read more: What the 'nuclear option' means for the economy)

But Iranian officials were quick to sell the deal as a victory which preserved the country's right to enrich uranium. Iran claims this as "an inalienable right" as a signatory to the 1968 non-proliferation treaty to develop nuclear power for peaceful purposes.

However, in a sign of early differences, John Kerry, US secretary of state, countered by saying that the interim accord did not give Iran such a right. "It's not in this document."

For ordinary Iranians, captivated by running news flashes on state TV, the details of the deal appeared to matter less than the symbolic importance of the first positive engagement with the outside world. Eight years of escalating tensions driven by defiance over the nuclear program have brought Iran to the brink of war, with Israel threatening military strikes to set back the nuclear program.

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Cyrus Razzghi, a western-educated businessman and president of ARA Enterprise, said: "The taboo of talking to the Americans is now completely broken . . . it will become more difficult for either party to demonize each other in the coming days and months."

A smiling Mr Rouhani said in a brief press conference: "There is a long way before us but the first step has been taken."

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Advisers to the new government, who declined to be named, warned that the president faces daunting challenges in turning round an economy starved of credit thanks to the international sanctions. "The challenge for Rouhani at home is 10 times more difficult that what he faces abroad."

Among self-styled hardliners who have long lobbied against any concessions to the US, the response was one of restrained criticism, aware that Ayatollah Ali Khamenei had tendered his support for the deal.

Hossein Shariatmadari, editor of Kayhan, the conservative newspaper, said the deal was "not a big event".

He used a popular metaphor to describe how Iran has lost the initiative in the negotiations: "A thief steals your jacket. You shout you want it back, but the thief then takes your hat. You fight and fight over the jacket, and then you get your hat back. By now you have forgotten about your jacket and what the original fight was about. That is our story."

(Read more: Iran curtails nuclear capacity expansion: IAEA)

While the interim deal has opened the prospect of a thaw in Iran's relations with the US, hopes of consolidating the Geneva agreement remain guarded on all sides.

Apart from opposition from third parties, notably Israel and Saudi Arabia, there are doubts about Iran's willingness to go significantly further in curbing its nuclear ambitions as part of a comprehensive settlement.

The agreement with Iran was criticized by senior members of the US Congress on Sunday.

Ed Royce, the Republican chair of the House foreign affairs committee, said that while Iran was keeping the "key elements" of its nuclear program, "we are the ones doing the dismantling" by providing sanctions relief that was a "lifeline" to the Iranian regime.

(Read more: Kerry: Iran nuclear talks face 'important gaps')

Marco Rubio, a Republican senator from Florida, said the agreement shows "other rogue states that you can obfuscate, cheat and lie for a decade and eventually the United States will tire and drop key demands".

Although there is strong support in Congress for new sanctions, leading senators were careful on Sunday to describe legislation that would not immediately clash with the administration's negotiating position over the next six months.

Robert Menendez, the Democratic chair of the Senate foreign relations committee, said sanctions legislation should "provide for a six-month window to reach a final agreement before imposing new sanctions on Iran, but will at the same time be immediately available should the talks falter or Iran fail to implement or breach the interim agreement".