For neoconservatives in the west who are trying to pressure Iran to abandon its suspected push for a nuclear bomb, the fact that Iran's currency, the rial, is in freefall, plummeting by 40% in the last week, might appear to be good news. That it now takes nearly 35,000 rials to buy a single US dollar shows that the tightening economic sanctions imposed by the US, Europe and their allies are indeed hurting the economy of Iran.

Problem is, there's little evidence that this squeeze is making the Iranian government any more forthcoming about their nuclear intentions.

Worse still, as the US and Europe, egged on by Israel, play out this dangerous game, it's the citizens of Iran who are paying the price. They are seeing their lives get more difficult for reasons over which they have no control, and no power to change.

Let's take away your bread and medicine

The latest round of sanctions from the US and the EU, put in place this year, include an oil embargo, near total bans on doing business with Iranian companies, and severe restrictions on dealing with Iranian banks. In effect, they have shut out Iran from a broad range of international markets. The crashing rial is just one result of that effort.

The sanctions are also making it harder for Iranians to get life-saving medicines and, as inflation soars, the cost of basic food items such as fruit, poultry and bread have skyrocketed.

A recent report from the International Civil Society Action Network, called Killing them Softly, reveals just how deep the impacts of the sanctions on ordinary Iranians go. From massive increases in rent to deteriorating air quality because of poorly refined domestic gasoline, the effect of the sanctions, the report says, is "to weaken the society, not the state." Some experts fear the sanctions could in fact backfire by increasing nationalism and hardening the Iranian conservatives' line against international intervention.

Israeli strike would be catastrophic

Against this background, the Netanyahu government in Israel continues to beat the war drums, periodically threatening to attack, and insisting that a "red line" be drawn to trigger a military strike on Iran's nuclear facilities. Netanyahu has tried to bully Barack Obama into drawing such a line, but he made his case to the UN last week (using an unintentionally comical – and widely satirised – cartoon drawing of a bomb), without success.

While Obama used his address at the UN last week to reaffirm the US's commitment to preventing Iran from obtaining a nuclear weapon, he refused to meet Netanyahu's demands, saying that "a nuclear-armed Iran is not a challenge that can be contained". 80% of the Israeli public believe that an Israeli strike against Iran would ignite a major regional war, and even notable hawks from Israel's defence and intelligence communities have warned such a pre-emptive attack would be at least counterproductive, and likely catastrophic.

The fact is, no one outside Tehran really knows how far advanced the Iranian nuclear programme is and how close it is to threatening other countries, or even if that's its goal. The UN nuclear watchdog has said there's a "credible case" to be made that Iran has taken steps towards a weapon, but with key caveats that leave the entire question murky.

What we do all know is that right now, Israel is the region's sole nuclear power, and while Iran is part of the Nuclear Non-Proliferation Treaty (NPT), Israel refuses to ratify it or attend the December Helsinki Conference to discuss the possibility of a nuclear-weapons free zone in the Middle East.

No one spoke out about this double standard at the UN, not even the regional Arab leaders. So, in the absence of a sane debate, Netanyahu covers the front pages with predictions that Tehran will be ready to activate a nuclear bomb by next summer. To prevent that, he says, Israel will attack Iran, alone if necessary. That's a terrifyingly bad idea for a number of reasons, not least the fact that it could well trigger a disastrous wider war in an already volatile region.

Time to rethink?

Rational people want to see two outcomes from this stalemate: more freedom for the people of Iran and no bloody war in the Middle East. Quite clearly, Netanyahu's approach will achieve neither.

But the west has to ask itself whether grinding away at the economic and social fabric of Iran is going to achieve those ends. In a non-democratic country like the Islamic Republic, where the authorities have shown no qualms about brutally putting down a freedom movement of its own people, the public has so far been unsuccessful in pressuring its leaders to force the changes the US and its allies want.

So what exactly is gained from these crushing sanctions, which seem only to hurt the people of Iran? Right now they are simply increasing tension and misery, giving more grist to the hawks' mill – when the world should instead be focused on diplomacy, and on real Iranian reform.

UPDATE: Protests erupted in downtown Tehran on Wednesday over the country's plummeting currency and the Iranian people's long list of economic woes. Protesters marched in the capital's Grand Bazaar, and riot police attacked foreign currency traders. Here's a video believed to be recorded in Tehran yesterday:

Read more: Dr Hassan Hakimian, director of the London Middle East Institute, discusses the impact of the sanctions on Iran and their likelihood of success.

Updated on 4 October at 11:52 GMT

Sources: New York Times, Reuters, NBC, Avaaz, BBC, Guardian, ICAN Peace Network, 927mag.com, Atlantic, Council on Foreign Relations