An Iraqi money dealer counts Iranian rial banknotes bearing a portrait of the late founder of the Islamic Republic of Iran, Ayatollah Ruhollah Khomeini, at an exchange office in Baghdad. - 

The European Union is ratcheting up pressure on Iran over its nuclear program. European diplomats in Brussels are ready to ban imports of Iranian natural gas into Europe.

This comes on top of existing U.S. and European trade and financial  sanctions against the Tehran government. And it comes as evidence is emerging that those sanctions are beginning to bite.

Unrest is growing. In recent days, police have clashed with hundreds of demonstrators in the Iranian capital protesting against a sharp fall in the Iranian currency. The rial has tumbled by 80 percent against the U.S. dollar with dire repercussions. The price of imports has soared, further fueling inflation.

Mehrdad Emadi, an Iranian-born economic adviser to the European Union, says even middle-class families in Tehran are hurting.

“I spoke to a number of families (in the) last few days. They were saying it has been more than six weeks (that) they have had any kind of meat on their dinner table," says Emadi.

Some of President Ahmadinejad’s many critics in Iran claim his economic incompetence is to blame for the collapse of the currency. But many western analysts say the U.S. and EU sanctions -- mainly targeting Iran’s oil exports -- have played a major part. Sanctions have cut Iran’s oil exports by half this year, massively reducing demand for the rial.

Most observers expect those oil exports to fall further for the rial to come under more pressure and for the plight of many ordinary Iranians to worsen. But Brian Plamondon of the IHS Global Insight does not expect that will persuade the Iranian government to back down over its nuclear program.

"Sanctions at the moment will put the economy in a dire strait but we don’t see that moving the political sphere too much in the near term," says Plamondon. "Negotiations over the nuclear program are pretty much entrenched right now."

And that’s certainly the message from Tehran. Iran’s supreme religious leader Ayatollah Khamanei said, “We have been living with sanctions for 33 years. We’re not going to bow to international pressure now.”