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Update 04 - (26/03/02)

The tension between Iran and the US remained high in March, despite attempts by individuals from both sides to ease it. The lobby favourable to the abolition of sanctions against Iran has the support of several US congressmen and senators and even within the State Department some officials strove to make the situation look less critical. However, although there was some de-escalation in the use of rhetoric, actions and declaration by members of the Bush administration clearly point towards the maintaining of American hostility towards Iran. Some traditional anti-Iranian US policies were restated during March. U.S. Caspian envoy Stephen Mann, declared once again that the US opposed the building of any pipeline going through Iran. The Administration's special envoy to Afghanistan, Zalmay Khalizad, declared that the sanctions against Iran would not be lifted until Iran desisted in its alleged attempts to develop weapons of mass destruction and in supporting terrorist groups, including those operating in Palestine. 
More subtly, the Bush administration is increasing its lobbying activity against Iran on the world arena. President Bush was reported to have asked Japanese Prime Minister Koizumi, during his visit to Tokyo in late February, to try convincing Iran to stop developing ballistic missiles. Tokyo has much leverage on Iran as it imports much of its oil from it. Moreover, Japan is one of the few countries in the world which is proving to be susceptible to US pressures. For example, it appears that the Japanese government has been deliberately delaying negotiations with Iran with regard to the development of the Azadegan oil field, in order not to irritate the Americans. Apart from Japan, the attempts of the US to discourage oil companies from investing in Iran have met with little success. Not only Total confirmed its plans to bid for more deals with Iran, but even some smaller companies, such as Canadian Sheer Energy, which won a contract at the end of February, pursued the same path. Evidently Canadian Sheer Energy was not put off by the problems which arose earlier this year with Enterprise Oil Plc. Some critics are convinced that small-size companies will find it difficult to invest successfully in Iran, because of the length time required before returns start coming in.
The European Union is certainly not impressed by American pressures either. Javier Solana, the EU's foreign policy commissioner, met President Khatami in mid-March with the aim of getting "constructively engaged with Iran," hardly what the Bush administration would like to hear. The recent agreement between Greece and Iran for the delivery of natural gas is a clear example of how EU countries have no intentions of reducing their economic cooperation with Teheran. Even Italy, at present one of the most pro-American member states of the EU, at least as far as rhetoric is concerned, signed an economic co-operation agreement with Iran at the end of February, which confirmed Italy's role as a key interlocutor with Iran. 
On the Iranian side, despite the fact that the government is keen on improving relations with the US, there remains a strong opposition from the conservatives, who dominate a number of key institutions, first and foremost the Council of Guardians. Former President Rafsanjani, who has a reputation for pragmatism and in the recent past had showed signs of wanting to recycle himself as a moderate, is now coming out as a strenuous defender of intransigently anti-American positions. Supreme spiritual leader Ayatollah Khamenei, who during 2001 had also seemed sometimes to lean towards relatively moderate positions, declared in mid-March that dialogue with the US has to be ruled out.
While the Iranian leadership has good reason to be worried about the intensification of American hostility, the international isolation of the Bush administration in this regard make any concrete action unlikely in the short term, beyond lobbying against Iranian interests. Another trend which has been emerging in recent months could be potentially more worrying for Iran. Russia has now set out to become a much bigger player in the oil markets than it has ever been and this could test the good relations that the two countries have been enjoying for some years. Russia, for example, is expressing its unhappiness at Iran's plans to explore a sector of the Caspian sea that it claims as its own, while the negotiations on how to divide the resources of the sea among the bordering countries are still far from concluded. Disagreement on the Caspian Sea led to a postponement of a trip by the Iranian foreign minister to Moscow, originally scheduled for February. Moreover, Russia appears today more sensitive to American pressures and there have been rumours that Russia's cooperation with Iran in the development of the Bushehr nuclear power plant might cease, or at least be delayed.
The real danger for Iran, in the medium- and long-term, is that Russia's foreign policy might be decisively influenced by its willingness to turn into a major player in the oil market, thus endangering the success of Iran's own plan to dramatically expand its market share. Russia appears ready to accept a price as low as US$16 per barrel, which is certainly lower than Iran would like. Russian ascendance on the oil market only compounds a situation in which Iran's plans look already shaky in some regards. The development of oil extraction in Iran has been negatively affected by project delays and by some flaws in the buy-back deals negotiated with the international investors and it is by no means certain that Iran will succeed in increasing its production to the levels planned. Moreover, while Iran is being successful in attracting investment towards the development of oil extraction, it has not succeeded yet in doing the same for the construction of pipelines to East Asia, a market for which the country is potentially very well placed. 
If the debate about the chances of success of Iran's plan to expand its oil production is still undecided, there is no doubt that the Islamic Republic cannot afford a failure. Although the birth rate has now been brought down to manageable levels, the baby boom generation is beginning to join the workforce, causing a terrible headache to the government. It needs to create between 800,000 and 1,200,000 new jobs every year to prevent an increase in the unemployment rate and keep the population happy, but in 2000/2001 it succeeded in creating just 400,000. Economic growth reached 4.5% in that year, short of the 6% target but still not a bad performance when judged by the standards of Iran's performance over the last decade. In 2001/2002, which according to the Iranian calendar ended on 21st March, low oil prices and a cut in production will ensure that growth will be lower, probably around 3.5%. It appears obvious that it will be difficult to achieve significantly higher growth rates without attracting massive foreign investment, but there is a strong opposition among conservatives against foreigners playing a much larger role in Iran's economy. Investment in the oil industry is less controversial, because it tends to be easier to isolate from the mainstream of society and because the rewards are so obvious. But that will likely not be enough to inject dynamism in the Iranian economy. The opportunity to attract funds towards other sectors certainly exists. Foreign businesses express a strong interest in the Iranian internal market, which at present is underdeveloped, due to restrictions on imports, which are not allowed to exceed US$15 billion, and to the inability of the domestic industries to meet demand. In the car industry, for example, it is estimated that annual sales of 300,000 cover only half of potential demand. 
Due to conservative opposition (and to international tensions), a massive influx of foreign investment does not therefore appear to be round the corner. The Guardian Council is blocking the introduction of the new foreign investment law, approved by the parliament, and even the 20002/2003 budget, which, among other things, aims at facilitating the reforms, faces the possibility of being blocked by the Council. There have been signs recently that reformists, who had been taken aback by the sudden rise of tension with the US, which initially at least played into the hands of the conservatives, are now trying to seize the initiative again. Some reformists have demanded an enquiry on the alleged cooperation of the security services with Al-Qaida and Palestinian Islamist groups in February, while in early March the Parliament approved a law that defines and prohibits torture against prisoners. However, the contest between reformists and conservatives appears bound to last well into the future.

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AUTOMOBILES

Iran plans to produce cars operating on alternate fuel 

President Mohammad Khatami while inspecting the exhibition for compressed natural gas (CNG) combustion industries said that from now on cars operating on alternate fuel will be mostly produced in Iran, the Tehran Times has reported. 
Speaking after the exhibition the president said that from now on all domestically-manufactured cars will use both gasoline and natural gas. 
He said that gradually all cars would be natural gas-operated. He added that the aim of the move is to help keep the environment clean and save on expenses. 
On the one hand, said President Khatami, Iran has the world's second largest reserves of natural gas, which has keen buyers abroad, while on the other hand, the country has to import other oil derivatives, like gasoline. 
He said the government would make every effort to implement this major project of converting car engines to natural gas-operated system. 

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ENERGY

Iran ready to supply China with energy 

Vice-President and Head of the Management and Planning Organisation (MPO), Mohammad Sattarifar, said that Iran - a country with sustainable energy resources - can supply China with energy. 
He said given China's membership at the World Trade Organization (WTO), Iran seeks necessary measures to devise preferential tariffs for Iranian goods. He said that an accord between Iran and China in the fields of tourism and recreation is essential. 
The Iranian official said a project for construction of Seymareh Dam by the energy ministry requires US$250m. He said China will undertake 70 per cent of the amount once a protocol to the effect is signed by Chinese officials. 
He added that Iranian companies insist on the quality and timely fulfilment of commitments by the Chinese party. 
Iran plans to build 12 more steam power plants, said the official, adding that satisfaction with the projects China has so far implemented will ensure continued cooperation in future. 
An article of association, recently agreed upon, commissions state-run companies to cooperate with foreign companies provided that 51 per cent of the revenue gained out of the cooperation will go to the Iranian side, said Sattarifar. 
He said extensive monetary and forex reforms are underway and measures have been adopted in the taxation and foreign investment laws to prompt expansion of cooperation between Iran and China in the Third Five-Year Economic Development Plan (2000-2005). 
Head of the Chinese delegation at the meeting said oil and gas sectors constitute the most important focus of cooperation between the two countries. Strategic cooperation and conclusion of the long-term contracts for purchase of crude oil from Iran will be highly important for China, she added. 
She said the Chinese president is to visit Iran in April. She added that initial agreements, reached at the 11th Tehran-Beijing Commission session, will pave the way for inking protocols for mutual cooperation in the oil and gas industries. 
Moreover, she said Iran and China are to cooperate in petrochemical industries, metal foundries, highways construction and building the Tehran-Caspian Sea Expressway, and train services and Imam Khomeini Airport. 
She added that Iran and China can have 'valuable' cooperation in building power plants and subways. 
Among other points for mutual cooperation has been allocation of US$500 million to Iran by Chinese export-import bank, said the Chinese official, adding that China is ready to make US$120 million investment in building Samirom dam. 
The Chinese market is competitive, said the Chinese official, adding that if Iranian exporters want to succeed in the Chinese market, they should be active in after-sale services and good packaging. 

Iran-Armenia gas pipeline construction to go ahead after investors found

After a number of organizational issues are resolved, the beginning of construction of the Iran-Armenia gas pipeline will become possible, the director general of the ArmRosgazprom closed joint stock company, Karen Karapetyan, told journalists, Arminfo News Agency has reported.
According to him, these organisational issues include identification of investors as well as the setting of gas rates. Armenia needs this pipeline since as it will enable the diversification of power supply sources, stressed Karen Karapetyan. In this case, the general director noted, the country, not having its own resource base, but having an underground gas depository and surplus electric power, can turn into one of the best points for gas trade in the region. The cost of the entire project is estimated at US$100m. At present, negotiations on the project are continuing.
Earlier Armenia's Energy Minister Armen Movsisyan said in an interview with Arminfo that the project feasibility study that was being developed would tentatively be completed by this autumn. President of Turkmenistan Saparmyrat Nyyazow had also stated his interest in the implementation of the project and had spoken about the probability of supplying relatively inexpensive Turkmen gas to Armenia via Iranian territory.

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FINANCIAL NEWS

Iranian delegation attends UN summit on development 

Iran's Minister of Finance Tahmaseb Mazaheri led an Iranian delegation at the UN-sponsored "International Conference on Financing for Development" in Monterrey, Mexico that was wrapped up March 22nd, IRNA has reported. 
Mazaheri, who was also a Co-Chairman of the 178-nation summit, briefed the participants on the views of the Islamic Republic on several international financial issues, particularly the ways to equip domestic monetary resources to further boost development, foreign investment, the means to improve the financial structure of the multilateral trade system, and the growth of world trade. 
The Iranian minister of finance hoped that the consensus among world leaders at the summit would help make measures to boost the growth of developing countries operational. 
The Monterrey summit, convened on March 18th, brought together world heads of states and governments to address key financial issues related to global development. 
It was initiated by the UN Secretary-General Kofi Annan to solicit financial support to tackle extreme poverty in world impoverished nations as part of the pledges made at UN's 2000 millennium meeting in New York. 
The week-long summit ended amid fresh pledges to provide the financial support to help underdeveloped countries out of poverty and launch them on a way to sustainable growth. 

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FOREIGN ECONOMIC RELATIONS

Turning Point in Iran-EU relations as Brussels talks open

European Union and Iranian officials, scholars and experts are in agreement that EU-Iran ties are at a turning point and that the Islamic Republic has the potential of becoming a major regional partner of Europe, the Tehran Times has reported. 
These views were underlined at a conference on relations between the Islamic Republic of Iran, the EU and Belgium that started in Brussels. 
Jan de Bock, secretary-general of the Belgian Foreign Ministry, in his opening remarks noted that a "new kind of relations between the EU and Iran and Belgium were developing." 
He said that Iran's ties both with individual EU member states and recently with the EU as a whole had made "quite substantial progress." 
"Iran has the potential of becoming a major regional partner of Europe," De Bock said. 
Iranian Deputy Foreign Minister for Education and Research, Sadeq Kharrazi, in his opening statements said there exists "significant opportunities of understanding, cooperation and mutual positive interactions" between the EU and the Islamic Republic. 
"Ties between Iran and the EU can be strengthened through the regular channels and consultations on different issues, including the Afghanistan situation, drug trafficking, refugee problems and regional and international economic, political and security tensions and crises." 
"As a victim of terrorism and also chemical weapons, Iran strongly condemns all types of terrorism and has stated that multilateral cooperation is needed to fight and contain terrorism," said Kharrazi. 
The one-day event, the first of its kind in Brussels, is organised by the Political Science Department of the University of Liege and the Royal Institute for International Relations. 
Government officials from Belgium and Iran, members of the European Parliament, European Commission officials and a large number of diplomats, scholars, experts and journalists are taking part in the conference being held in the Palais d'Egmont of the Belgian Foreign Ministry. 
The morning session dealt with the political and economic relations between Iran and the EU. 
Baroness Nicholson, Vice Chairperson of the Foreign Relations Committee of the European Parliament, in her speech said "Iran is very much on our agenda.''  
Nicholson said the EP recently passed a resolution recommending to send a small delegation to Iran. She has also invited a Majlis delegation to visit the EP. 
The Baroness described Iran as a "centre of Islamic civilization" and a country whose literature and philosophy inspired the world. 
Jesper Hostrup, Principal Administrator (Iran Desk) from the European Commission, noted that the EU has become aware of Iran's important role in the global war on terrorism. 
Referring to the expected mandate from the EU Council to begin talks with Iran on a trade and cooperation agreement, Hostrup said the EU was interested in continuing cooperation with the Islamic Republic in areas of mutual interest like energy, refugees, drugs. 

Japanese envoys stress Tokyo should link Iran with international community

Japanese ambassadors to Middle Eastern countries in their annual meeting in Tokyo stressed that Japan should serve as a linkage between the international community and Iran, IRNA has reported. 
Japanese news media have quoted Japanese Foreign Ministry officials as saying that at the meeting the participants agreed on healthy relations between Tokyo and Tehran. 
The meeting reached the consensus that Tokyo should pioneer transfer of information between Persian Gulf states and international community. 
The three-day official meeting also voiced support for the Afghan interim government.

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NUCLEAR ENERGY

Russia said to honour its commitments in building Iran nuclear plant

Cooperation between Russia and Iran "in using nuclear energy for civilian purposes is developing successfully and has good prospects," the Russian ambassador to Tehran Aleksandr Maryanov told RIA-Novosti on 26th February.
He said that Russia is not going to abandon its commitments in the construction of the Bushehr nuclear power plant and "will be implementing in full all accords reached in connection with this project no matter what the prospects for expanding Russian-Iranian cooperation in the sphere of nuclear energy might be..." 
Thanks to efforts of Russian and Iranian experts in integration of equipment and building structures of the plant's first unit, the existing difficulties in activating the project have been largely overcome, Maryanov said. 
"A preliminary date has been set for launching the first unit of the nuclear power plant - December 2003," the ambassador said.
He said, in particular, that two consignments of large-size equipment have already been delivered to Bushehr and a technical-economic report on building the plant's second unit has been handed over to the Iranian side for consideration.

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