June 12 (Bloomberg) -- Iranians turned out in large numbers today for an election pitting President Mahmoud Ahmadinejad against challengers who say he’s hurt the economy and fueled tension with the West.

Polls opened at 8 a.m. and closed at 10 p.m. local time after being extended by four hours. Election commission head Kamran Daneshjou called the turnout “unprecedented,” the Interior Ministry said. First results will come early tomorrow.

Supporters of both Ahmadinejad and rival Mir Hossein Mousavi, a former prime minister, claimed victory within an hour after the polls closed, CNBC said, citing the Wall Street Journal. Mousavi, at a press conference, claimed a landslide win, Agence France-Presse said.

Mousavi, whose supporters have been handing out mock economic charts drawn in a childish scrawl to ridicule the government’s performance, is seen by analysts as posing the greatest threat to the president. Ahmadinejad, seeking a second term, has accused the Mousavi campaign of “psychological warfare.”

“The presidential election will be close, and the momentum has shifted toward Mousavi,” said Cliff Kupchan, a senior analyst at the New York-based Eurasia Group. “A Mousavi victory would make a deal on the nuclear issue over the next 12 months more likely.”

A candidate needs to win more than 50 percent of the vote to clinch a first-round victory. If no one does, the contest will go to a runoff between the top two finishers June 19.

Mousavi and another candidate who favors easing tensions with the U.S. and allowing more social and political freedoms, 71-year-old former parliamentary Speaker Mehdi Karrubi, have hinted that in any second round, their supporters will unite behind the one who gets more votes.

Young People, Women

“A high turnout will benefit Mousavi because it means that large numbers of young people and women have turned out to vote,” said Anoush Ehteshami, an Iran expert from Durham University in the U.K. “If it is as high as it appears, he could even win on the first round.”

Iran has 46.2 million eligible voters from a population of about 70 million. In the last election in 2005, many young people didn’t vote because they were disillusioned after eight years under former President Mohammad Khatami. His efforts to ease political and social restrictions and reach out to the West were blocked by institutions overseen by Supreme Leader Ayatollah Ali Khamenei, who has the final say on all affairs of state.

Reversing Downward Trend

Ahmadinejad won on a turnout of 60 percent four years ago, compared with 67 percent in 2001 and 80 percent in 1997.

The number of ballots cast nationwide amounted to 24 million by 6 p.m. local time, the state-run Press TV news channel reported. The Tehran metropolis and its surrounding areas had a 70 percent voter turnout at that point, it said.

Ahmadinejad “is really going to struggle to win in the first round,” said Ali M. Pedram, an Iran expert at Durham University. “We could see the biggest turnout ever in Iran’s history.”

President Barack Obama said he hopes the election will advance U.S. efforts to engage with the country.

“Whoever ends up winning the election in Iran, the fact that there’s been a robust debate hopefully will help advance our ability to engage them in new ways,” Obama said in response to a reporter’s question at the White House today. “We think there’s a possibility of change.”

Mousavi and other candidates have accused Ahmadinejad of wasting record oil revenue on a subsidy system that has boosted inflation, while unemployment has remained high. They say his confrontational stance over Iran’s nuclear program is thwarting a deal with Obama to assuage concern that Iran is seeking atomic weapons.

‘Create Tension’

In an address on state television on June 10 to answer his critics, Ahmadinejad reeled off a list of his achievements, including what he said was Iran’s progress in nuclear and aerospace technology.

The other candidates “are losing the race and they want to create tension,” he said.

“Iran’s oil is not limitless,” said Hassan Sahabi, 67, after voting for the incumbent. Under Ahmadinejad “our country’s nuclear program progressed. His determination will allow Iran to secure clean energy for the future,” said the Tehran high school teacher. The Persian Gulf country holds the second-largest oil reserves in the world after Saudi Arabia.

Khamenei, Iran’s highest authority, was shown on state television casting his ballot shortly after the opening of polls.

Khamenei urged Iranians to disregard “rumors” and vote in a calm atmosphere. “Do not give in to ill-intentioned movements who may seek to stir tension,” he said, without elaborating.

‘Adventurous Policies’

Long lines formed at polling stations in northern Tehran, which contain the capital’s richer neighborhoods, where backing for Mousavi’s campaign has been strong.

Mohsen Arefi, an industrial contractor, criticized Ahmadinejad’s “adventurous policies” both abroad and at home, adding that the president has harmed the country’s economy.

Mousavi is a good choice because of his “sound management of the country during the Iran-Iraq war years,” 53-year-old Arefi said after casting his ballot earlier today.

Mousavi led Ahmadinejad in an opinion poll conducted only in 10 major cities, state-run Press TV reported on May 26. Mousavi had about 38 percent against Ahmadinejad’s 34 percent. No margin of error was given and respondents weren’t asked about other candidates.

Nuclear Program

A win by Mousavi, who steered the economy through most of the 1980-1988 Iran-Iraq war when he was premier, may lead to a more disciplined economic policy and Iran accepting more international oversight of its nuclear activities, said Farideh Farhi, an expert on Iranian politics at the University of Hawaii, Manoa.

An Ahmadinejad victory would make nuclear negotiations with the U.S. and its European allies “more difficult and more unpredictable,” Farhi said. Iran’s economy would likely continue to suffer from high inflation and joblessness, she said.

Inflation was 15.5 percent in April, according to the Iranian central bank, while unemployment was 10.5 percent in February, the most recent month available.

Mousavi, 67, is counting on support from young people, the middle-class and women.

Ahmadinejad, 52, a former mayor of Tehran, who expanded a national subsidy system that keeps bread prices at 20 cents a loaf and gasoline at 38 cents a gallon, is popular among working-class voters.

‘Green Chain’

Also running is former Revolutionary Guards commander Mohsen Rezai, 54, who appeals to many of the same voters Ahmadinejad is courting.

At an evening rally in Tehran on June 8, a “green chain” of Mousavi supporters extended from northern Tehran to the south of the city along the capital’s longest avenue, Valiasr. Green is Mousavi’s campaign color.

“If we don’t vote, nothing will change,” said Yahya Al Khansa, a musician. “I am 27 and I don’t want to live the best years of my life under this president.”

Inside Iran “looks like a green revolution,” Hussain Abdul-Hussain, a visiting fellow on the Middle East and North Africa Program at Chatham House, a London-based foreign policy institute, said today in an interview for Bloomberg Television. Even if Mousavi wins and puts a “better face” on the regime, though, tensions between Iran and the West over the nuclear program won’t disappear.

“The standoff will remain between Iran and the West,” said Abdul-Hussain. “The supreme leader will remain the same.”

To contact the reporters on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net; Henry Meyer in Dubai at hmeyer4@bloomberg.net.

Last Updated: June 12, 2009 15:13 EDT