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Update 03

By the end of February, the US-Iran row over support to terrorist groups was two months old. It started with American accusations against Iran of meddling in Afghanistan's affairs and of helping Al-Qaida suspects and it culminated in the inclusion of Iran in the "axis of evil" by President Bush. The Iranian reply consisted of mass demonstrations against the US in Iran and belligerent declarations from hard-line clerics, although the moderate Khatami government also signalled its willingness to defuse tensions with a few actions. It openly declared its support for president Karzai of Afghanistan, claimed to have arrested suspected Al-Qaida members on its territory and closed down the offices of Hizb-i Islami Afghanistan, a radical party opposed to the Afghan interim government. Nonetheless, the Bush administration does not seem to have taken much notice of this. It appears obvious that the thaw in Iran-US relations, which came about at the beginning of the "Enduring Freedom" campaign, has ended abruptly, despite claims by senior officials of the Bush administration that there is still an interest in "resolving differences through dialogue".
It is beyond doubt that Iran is trying hard to build up its influence within Afghanistan, both working with the interim government and establishing a network of clients among the potential enemies of that government, including Herat's warlord Ismail Khan, Uzbek warlord Rashid Dostum and several minor players. This contradictory policy might in part be the outcome of factional infighting within Iran's regime, but it is important to point out that the contradiction is more apparent than real. There is no real indication, beyond the biased accusations of some Afghan factions that Iran's intentions are to undermine and bring down the interim government. More likely, Iranian policy makers want to have some cards ready to be played in case its interests in Afghanistan are not taken into due consideration. Above all, they want the regional and international players to be aware of their ability to cause trouble, as a way of exercising pressure. 
Whatever the strategic implications of the attitude of the Bush administration are, in the short term the worsening relations spell bad news for American businesses interested in investing in Iran. The fact that former president Rafsanjani, notoriously a pragmatist, has been echoing the rhetoric of the hard-liners during February appears to imply that the internal climate of Iran is once again turning away from a rapprochement with the West. In this regard the strongest negative sign has clearly been the refusal to accept the appointment of the new British ambassador to Teheran, despite the fact that the Blair government had been very active in trying to promote Iran's integration into the anti-terrorist coalition.
So far, this has not had any major impact on Iran's internal reforms, which however were already struggling before. The political and cultural liberalisation, in any case, is very likely to be going to suffer for the worsening international climate, as the conservatives will not waste the opportunity to do as much as possible to block them. However, there appears to be a certain consensus amongst the highest elites of Iranian society on the need for economic reforms, as highlighted from the fact that even conservative Supreme Spiritual Leader Khamenei does not oppose them. In February, the privatisation of more than 70 companies affiliated to the Oil Ministry has been announced for the near future. However, despite an agreement on the need for reform, the path ahead is unlikely to be very smooth. So far the privatisation program has been criticised for the shortcomings of laws and regulations, unclear long-term strategies, the wariness of some ministries towards the program and a lack of business skills among some of the entrepreneurs who have taken over former state firms. Improvement in this field is going to be slow.
For the Iranian elites, one of the most controversial issue in matters of economic reforms used to be joining the WTO, because it would have limited the country's ability to decide its own economic policy. However, as the US blocked Iran's bid to join the organisation on 15th February, this issue is not of immediate concern anymore. In the medium term, Iran's membership in the WTO can be safely ruled out. 
A greater degree of success is to be expected in attracting more international investment in the exploitation of natural resources. On the one hand, Iran needs to increase its oil and gas revenues in order to start tackling its worsening social and economic problems. Year 2002 is going to see the award of several big new contracts for the exploitation of oil and gas reserves, part of a $24 billion long-term investment plan. The approval in 2001 of a law on foreign investment, streamlining bureaucratic procedures and guaranteeing profit repatriation, and the adhesion to the New York Convention on foreign arbitration, are likely to impact favourably on the willingness of foreigners to invest, although in the case of the oil industry there was no need of such incentives. European, Asian and more recently even Russian oil companies were already queuing up to get a share. In truth, February saw the first blow to the plans of the Iranian government, as Enterprise, a British company, threatened to withdraw from its investment in the South Pars fields, unless the terms of the deal were modified. While this is a comparatively minor incident, it is likely to discourage small oil companies from bidding for concession in the future. Iran's oil and gas investment deals are set up in such as way that they can only produce results in the medium and long-term, to the disadvantage of smaller players such as Enterprise.
The sudden worsening in the relations with the EU, which followed the refusal to recognise the British ambassador, is likely to be short-lived. Flattered by the recent launch of an Eurobond by Iran and keen to secure more lucrative deals, EU countries supported in February Iran's bid for membership in the WTO, contrary to the US and Israel. The Iranian side faces the hard reality that the oil and gas market is increasingly a buyer's market and sellers like Iran will have to adjust their international politics in order to be recognised as reliable suppliers. This is especially true since Iran has decided to expand its market share of the oil and gas market and needs new clients. This is going to favour the reformists, even if the conservatives might enjoy a revival in the short term in the wake of increasing American pressure.
In the meanwhile, however, Iranian authorities are looking to some traditional partners, with a reputation for being un-friendly to Western countries, in an effort to show that the country is not isolated. Visits of high officials have been exchanged with Syria and Libya in February, while Russia has castigated President Bush's inclusion of Iran in the "axis of evil". However, contrary to what looked still possible before the launch of "Enduring Freedom", there is little room for the development of a strategic partnership, especially with Russia. During the first two months of 2002, Iranian officials have repeatedly appealed to the Russian for some substantial oil cuts, which would shore up international prices, but the Russian government appears too keen to establish a new partnership with the West to listen. Iran and Russia increasingly compete for the same market. In the case of Greece, for example, Iran had been hoping to finalise a supply deal early this year, but Russia is after the same deal, which could open the door to more lucrative markets in Europe.

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AVIATION

Iran to buy Russian civil aircraft

Iran has decided to buy Russian Tu-204 and Tu-334 civil aircraft, according to the Russian lawmaker, Dmitry Rogozin, who returned from Tehran on 19th February, AFP as reported.
The Tu-204 airplanes would be used to boost Iran's domestic and foreign flights, which had been using Russian aircraft for over 30 years, said Rogozin who heads the foreign affairs committee in Russia's lower house of parliament.
Iran also expressed "great interest in setting up a joint consortium for manufacturing Tu-334 parts under licence, and to buy those planes too," Rogozin added, quoted by Interfax News Agency.
The issue would be more thoroughly discussed at the April meeting of the intergovernmental committee aimed at boosting bilateral ties between Russia and Iran. Rogozin and a group of Russian lawmakers were in Tehran to discuss the future of Afghanistan and ways to step up cooperation in providing aid for the war-torn country

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ENERGY

Poles consider joining Iran-Armenia gas pipeline construction

Warsaw has been closely following the implementation of the Iran-Armenia gas pipeline construction project, Piotr Iwaszkiewicz, Poland's acting charge d'affaires in Armenia, has said in an exclusive interview with Arminfo News Agency on 18th February.
According to him, Poland has taken a keen interest in the idea of supplying Turkmen gas via Iranian territory to Armenia and further on to Europe. "It would be nice if the idea came true. I have also heard that Ukraine is interested in having the pipeline extended along the bottom of the Black Sea up to Feodosya. Well, then, welcome," said Iwaszkiewicz. The acting charge d'affaires also added that he had informed official Warsaw of the prospects of Poland's participation in the pipeline construction and that he was awaiting a response. "I think that such a prospect is worth contemplating seriously." stressed Piotr Iwaszkiewicz.

Armenia, Iran consider cooperation in building electric power station

Armenian authorities, in the framework of tripartite cooperation between Armenia, Greece and Iran, are considering the possibility of building an Armenian thermal electric power station in Iran, Armenian Deputy Foreign Minister Armen Martirosyan told journalists on 13th February, Arminfo News Agency has reported.
According to the minister, there is no sense in importing Iranian coal to Armenia. Rather, it is much more efficient to build a thermal electric power station in Iran, and supply Armenia with the electricity generated there. The question was discussed at the initiative of the Armenian side during the meeting in Yerevan between deputy foreign ministers of the three countries. Furthermore, prospects of constructing Megri hydro electric power station on the Aras river will be discussed, too. All the three countries presented their capacities and needs in the energy sector, Martirosyan said. "By and large, cooperation in the energy sector represents one of the most promising areas of the tripartite cooperation between Armenia, Greece and Iran," the Armenian diplomat stressed.

Swedish firm signs US$330m contract with Iran gas utility

Sweden's Alstom Power company signed on 20th February a US$330m contract to supply 50 turbocompressors to Iran to boost pressure in its gas supply networks, IranExpert has reported.
By the end of the five and a half year period of the contract, 70 per cent of the parts for the compressors will be made in Iran.
Siemens is also a partner in the contract, which was signed by Alstom Power managing director, LarsJusefson and Iran's deputy oil minister, Hamdollah Mohammad-Nejad.
Iran holds 17 per cent of the world's natural gas, second after Russia, and aims to boost gas's share of the energy consumed domestically from the current 42 per cent to 55 per cent by 2004.

Gas transfer project from South pars to central Iran implemented

A 540km long gas pipeline set up by Sadid Industrial Group (SIG), completes the project on gas transfer from South Pars to central Iran, www.iranexpert.com has reported.
According to a report released on 25th February by SIG public relations department, given the significance of the extension of oil and gas pipelines and based on a comprehensive survey on the production of pipelines, which might be welded to one another directly, the SIG managed to sign a contract with the German SMS Meer enterprise after winning the bid for the implementation of the country's nationwide gas pipeline project.
The deputy managing director of SIG, Sardarnia, recalled that the pipeline is due to be 740km long and that the tender was held for 540km long pipeline to transfer gas from Oslavieh region to the south to Central Iran.
Referring to the annual production capacity of the pipe manufacturing plant currently under construction in Mahshahr, Khuzestan Province, at 350,000 t per year, he said that the plant's final capacity will depend upon the thickness of the applied sheets and the diameter of the pipes which are variable.
He gave details of the total amount of the contract signed between SIG and Iran's National Gas Company (INGC) regarding the pipe project, which was US$226m.
He added that the project is due to be completed in two phases, constructing the pipe manufacturing plant in 15 month and delivering the pipes in 19 months. He noted that SIG is expected to supply the entire amount of pipes needed and the equipment for the implementation of the fourth overall gas pipeline with 34 months.

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ENVIRONMENT

Iran, Germany sign water, sewage research agreement

Iran and Germany signed a memorandum of understanding for cooperation in the fields of water and electricity. Under the MoU, Iran and Germany will conduct research in the areas of water and sewage in the metropolitan cities of Tehran, Mashhad (Khorasan province) and Esfahan, IranExpert has reported.
Establishment of firms active in the fields of water, sewage, electricity and new energy sources, implementation of related projects in third countries, exchange of the technical and engineering equipment, especially export of the item to Afghanistan, cooperation between companies and research institutions in Germany and joint venture implementation of projects for the establishment of power plants, irrigation, water treatment centres, water and sewage networks.
The German side will, under the contract, finance the projects and open credit lines for long-term loans for implementation of infrastructure projects in these fields.
They also agreed on conducting joint educational courses, offering scholarships, engaging in applied research, transfer of technology, exchange of professors and students as well as researchers and experts, exchange experience in optimal consumption of water and energy and cooperation in the field of environment protection.
According to the agreement, Iran and Germany will form a cooperation committee in the field of water, electricity and energy technology. The committee will convene every three years in Tehran, Berlin or Bonn alternately. 

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FOREIGN ECONOMIC RELATIONS

Iranian businessmen lobbying their interests in Armenia

The union of Iranian industrialists and businessmen in Armenia is making every effort to attract to the country investors from Iran, the executive director of the union, Alimurad Maglavifar, has said, Golos Armenii has reported. The union is lobbying the interests of private investors, who have already agreed to invest capital in Armenia.
Meanwhile, very often because of the absence of support at the state level, deals are frustrated for different reasons. That is why Maglavifar thinks that the role of government in the defence of investors' rights must be increased. And this has an economic foundation.
During the five years of the union's existence in Armenia, Iranian businessmen acting outside the law were withdrawn. The strict position of the union towards this issue changed the situation. Today the representatives of 50 Iranian companies, working in a commercial centre on the basis of the Ay Coop [Armenian cooperative], have a serious reputation as law-abiding businessmen, operating on the territory of another state.
Maglavifar says that this working model has already practically eradicated all the efforts to deliver to Armenia poor quality production through the shadow economy. The reduction of consumers' complaints about low quality goods is evidence of this. 
According to Maglavifar, the union has also managed to consolidate Armenian and Iranian businessmen. A convergence of interests even helps in conducting joint business in the United Arab Emirates.
Maglavifar says that there are Armenian businessmen who want to do business in Iran. The union tries to help them as much as it can. The total result of goods turnover between Armenia and Iran during nine months of the past year was US$80m, US$58m of which were goods exported from Iran to Armenia and US$22m from Armenia to Iran. Metal, lathes and machine parts are mainly exported to Iran.
Maglavifar thinks that construction of the Kadzharan tunnel will help the development of trade between Armenia and Iran very much, as it will reduce transport expenditure. In the near future investments are planned in pharmaceuticals, food commodities and building materials.

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NUCLEAR ENERGY

Russia in talks on building another nuclear power unit in Iran

Russia and Iran are considering building a new nuclear power unit in Iran, Viktor Kozlov, director-general of Atomstroyeksport, told Interfax News Agency.
Talks on this subject are under way, Kozlov said. He could not say when they are expected to be completed.
Russia has sent Iran a feasibility study containing plans for building nuclear power units in Iran, which suggests sites where a new power unit could be constructed, Kozlov said.
The Iranians have repeatedly said that they need three power units, but have not said where they want the units to be constructed.
Atomstroyeksport, engaged in the construction of the first power unit at the Bushehr nuclear power station, expects to launch the unit at the end of 2003, Kozlov said.
The Iranians have been investing in the project as agreed, he said.
The Bushehr construction contract is worth over US$800m.

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TELECOMMUNICATIONS

Iran and Kuwait cooperate on telecommunications

Iran and Kuwait reached agreement on the establishment of fibre optics communication, reduction in telecommunication tariffs, creation of telecommunication markets for their private sectors and prevention of illegal telecommunication traffic between the two countries, wwwIranexpert.com has reported.
This agreement was reached and a memorandum of understanding between Iran Telecommunications Company (ITC) managing director, Alireza Bahrampour and Kuwaiti deputy minister on telecommunications, Hamed Khajeh.
ITC managing director told IRNA News Agency that this memorandum of understanding for cooperation is drawn up in six fields, but is mostly for establishment of a fibre optic telecommunication line between Iran and Kuwait.
Bahrampour added that the 165km long line is connected through Abadan city and Kuwait city via a marine cable network.
The ITC managing director noted that a fibre optics network had been established between Iran and the United Arab Emirates and by commissioning Iran-Kuwait fibre optics communication, other countries would be accessible directly through it.
He added that it has been agreed to reduce conversation tariffs through this memorandum, effective as of next year.

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