DUBAI: Iranian President Hassan Rouhani had foreign-policy successes to showcase when he spoke in Tehran’s Azadi Square Tuesday to mark the 35th anniversary of Iran’s Islamic revolution. The economic gains will follow, he said.

Since taking office in August, Rouhani has eased the isolation Iran endured under Mahmoud Ahmadinejad. He spoke by phone with President Obama, made concessions that led to a nuclear deal, and visited the World Economic Forum in Davos. The country has mended fences with Britain, and a stream of ministers and businessmen are visiting Tehran.

Behind the optimism lies economic unease, aggravated by sanctions on oil and banks that remain in place. Millions of Iranians lined up for hours last week to get food handouts and some of them left emptyhanded. The incident prompted a rare apology from Rouhani, who promised during the election campaign that smoother diplomacy would lead to better living standards.

“He has limited capability on domestic issues or to make significant changes in the economy,” said Vali Nasr, dean of the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University. “If he is unable to deliver, all the gains could unravel.”

Rouhani said Tuesday that Iran’s situation is improving, and that the country will soon overcome stagnation. He criticised sanctions as “brutal, illegal and wrong.”

“Compared to six months ago, the situation is more calm,” Rouhani told the Iranians who gathered in downtown Tehran. “There is more stability in the economy, socially and politically.”

Iran’s inflation rate, which reached more than 40 per cent last year, will drop to 25pc in the next Iranian year, which starts in March. He said the petrochemical, insurance and banking industries are already benefiting from eased sanctions and promised to “bring back economic boom.”

Rouhani has faced opposition from within Iran’s hierarchy, headed by Supreme Leader Ayatollah Ali Khamenei, who has balanced support for Rouhani’s diplomacy with attacks on the US In a speech last weekend he accused Americans of “hypocrisy” over the nuclear negotiations and encouraged Iranians to “get to know the enemy well.”

Talks are due to resume next week in Vienna, and the United Nations yesterday praised Iran for its readiness to compromise.

Last year, Ahmadinejad used the occasion to denounce Western pressures to isolate Iran and force it to curtail its nuclear program. This year, the bellicose rhetoric was toned down, after the deal signed with world powers on Nov. 24 in Geneva. Iran agreed to halt some nuclear activities in return for a partial easing of sanctions, including the repatriation of $4.2 billion of assets.

Sanctions-weary Iranians stayed up until the early hours to hear the outcome of the Geneva talks. Their economy, though, has yet to see major benefits.

Rouhani said on Feb. 5 that Iran is starting to get returns for its diplomatic outreach, with $8bn in foreign investments already agreed and another $8.5bn due within two months. “My trip to Davos was about announcing to the world that a new atmosphere is permeating our economy,” he said.

The International Monetary Fund estimates that Iran’s economy has shrunk in both the past two years. While oil output rose last month, it’s still near a 25-year low.

By arrangement with the Washington Post/Bloomberg News Service