If you do wind up with the politically exposed label you are in dire straits and you'll have the exact same problems and much worse with conventional finance. I've read of people totally frozen out of everything. No bank account, no credit, no mortgage, nothing.
If a reputable service told me I'd been tarred with that brush I'd shit myself and go and double check with my normal options. That's something I would want to clear up ASAP. In this case they're not all that reputable and are probably using it as an excuse to be pricks to you so it's likely an isolated incident. If it isn't you might find out soon enough.
Do you think LocalBitcoins going to share information with local government? In such cases, there might an issue.
Has your bank ever approached you regarding crypto transactions? Also, could it all be possible you were involved with/ know someone who may be potentially politically exposed?
But, from the looks of it, there is no chance in hell Localbitcoins went out of the day to find how "politically exposed" you are. Odds are, localbitcoins just didnt want to verify because you may have high number of trades in your account, and the factor that your country is known as "terrorist" country, and they just choose to give you a shitty reason with no justification whatsoever.