A defiant Mahmoud Ahmadinejad declared yesterday that Tehran would not back down on its nuclear programme despite suffering its worst financial crisis in decades.
The Iranian president insisted the impact of the West's "economic war" was mainly psychological and Iran's central bank had provided enough hard currency to finance vital imports.
Iran's currency, the rial, has lost more than 80 per cent of its value since the end of last year, mostly as a result of western economic sanctions.
It plunged spectacularly in the past week, sending the cost of staple household goods such as bread, chicken and cheese soaring, and fell again yesterday to a record low of 34,500 against the US dollar compared with 29,500 on Sunday.
The price of gold coins had surged by more than 25 per cent in a week as Iranians seek a safer haven for their life savings. "If left unattended, this could turn into Iran's biggest economic crisis since the Iran-Iraq war", said Meir Javedanfar, an Iranian-born lecturer at the Interdisciplinary Centre in Herzliya, Israel.
In a rare public outcry, 10,000 Iranian workers have signed a petition addressed to the labour minister complaining about the decline in their purchasing power as inflation - officially running at about 25 per cent but thought to be much higher - soars.
Jafar Azimzadeh, a labour-rights activist and gas-pipe fitter, warned of stronger fallout if the government does not find ways to prop up salaries and rein in prices. "Workers would not stay at the level of writing petitions," he said. "They would go towards street gatherings and other actions."
Washington has hailed the rial's historic decline as evidence that what it calls the most punishing and unrelenting sanctions ever amassed against Iran are putting its economy under incredible strain.
This could "change the calculus of the Iranian leadership" in its alleged drive for a nuclear weapons capability, Victoria Nuland, the US state department's spokeswoman, said.
Britain, Germany and France are pressing for a new package of sanctions against Iran they want the European Union to adopt this month.
And Israel is eagerly predicting that the sanctions are biting so hard they could trigger a popular uprising in Iran similar to last year's revolution in Egypt that toppled Hosni Mubarak.
But many Iran experts doubt the economic pain suffered by ordinary Iranians will trigger unrest, given their fear of the regime and exhaustion after mass street protests against Mr Ahmadinejad's "stolen" re-election in 2009 were brutally crushed.
The two main leaders of the opposition Green movement are under house arrest while many of their supporters languish in jail and reformist media are strictly censored. Anyone criticising the parlous state of the economy risks being branded a threat to national security.
More potent pressure on Iran's supreme leader, Ayatollah Ali Khamenei, to make a nuclear compromise will come from Iran's powerful Revolutionary Guards, whose financial fortunes have been badly hit by sanctions, Mr Javedanfar said.
"Certainly, they believe Iran has the right to nuclear energy, but a lot of these senior Guardsmen are savvy businessmen who believe the costs that Khamenei is forcing the economy to pay are unbearable," Mr Javedanfar said.
A senior industry ministry official told Iran's Fars news website, which is affiliated to the Revolutionary Guards, that the currency crisis was more than an "economic issue". It was, he said, "linked to security, political and cultural dimensions".
A supporter of the Tehran regime, who declined to be named, grumbled his savings have been reduced "in an extremely short time" because he refused to convert them into dollars for "ideological reasons".
He told the Enduring America website: "This is depressing me. A part of me feels like we gave them [the West] a good run for their money, and after struggling for 30 plus years, we might finally have lost."
Meanwhile, the UN human rights office in Geneva said yesterday it was deeply worried by a "further severe clampdown" on rights activists, lawyers and journalists.
It cited a six-month prison sentence handed last month to Mr Ahmadinejad's top press advisor for publishing material deemed insulting to Ayatollah Khamenei.
* Additional reporting by the Associated Press