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Iranian rials

Mohammad Khatami-Ardakani


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Known as Persia until 1935, Iran became an Islamic republic in 1979 after the ruling shah was forced into exile. Conservative clerical forces subsequently crushed the westernising liberal element. During 1980-88, Iran fought a bloody, indecisive war with Iraq over disputed territory, which caused large-scale damage to its economy. The key current issue is how rapidly the country should open up to the modernising influences of the outside world, with a conservative faction in control of some key institutions, such as the Council of Guardians, and a reformist faction centred on elected President Khatami.

International politics

Despite the apparent improvement in the relations between the US and Iran, which had followed the 11 September terrorist attacks, by January 2002 the tension between the two countries had reached new peaks. President Bush accused Iran of being part of an "axis of evil" together with Iraq and North Korea and asked Iran to stop meddling in the internal affairs of Afghanistan and developing weapons of mass destruction. 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, actions and declarations by members of the Bush administration clearly point towards the maintaining of American hostility towards Iran. 
The Bush administration is increasing its pressure against Iran on the world arena, although most countries are not very keen to respond to such calls. The European Union in particular looks inclined to actually expand its ties to Iran. The only major countries whose relations with Iran have been affected have so far been Japan and Russia and even them rather marginally. There have been delays in the negotiation of deals in the oil, nuclear and defence industries, but in the end both Russia and Japan appear intent on continuing their flourishing trade with Iran. With the exception of US companies, the oil industry worldwide is very active trying to increase its presence in Iran as much as possible. This applies to relatively small companies too, despite the demanding character of the Iranian market.
On the Iranian side, the reformist government is keen on improving relations with the US, but there remains strong opposition from the conservatives, who dominate a number of key institutions, first and foremost the Council of Guardians, and count among their members the Supreme spiritual leader, Ayatollah Khamenei. 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 emerging as a strenuous defender of intransigently anti-American positions.
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 major action unlikely in the short term. The re-emergence of Russia as a big player in the oil market 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. In the medium- and long-term Russia's desire to become a major player in the oil market could hurt Iran's own plan to dramatically expand its market share.

Economy and politics
Apart from the international tensions, the economic and political situation of Iran remains uncertain. 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 achievement when judged by the standards of Iran's performance over the last decade. In 2001/2002, which according to the Iranian calendar ended on 21 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 enough 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 to imports, which are not allowed to exceed $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. 
The attempts to reform the Iranian economy and political system have been slowed by the opposition of the conservative faction. The Council of Guardians has been blocking the introduction of several laws, including the new foreign investment law, approved by the parliament.

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Update 05 - (25/04/02)

Signs of confrontation with US easing?
The tension between Iran and the US remained high during March and April, but there were signs that the two countries were willing to leave the door open to the possibility of an improvement. On the negative side, more proofs emerged of US lobbying against Iran. The Turkish Finance Minister openly admitted in mid-April that the US opposes the extension of the Iran-Turkey gas pipeline to Greece and the EU. While this opposition did not prevent the signing of the deal, it clearly shows how the Bush administration keeps trying to isolate Iran. During the last month, however, Iranian reactions to US hostility have been more muted. Former President Rafsanjani, a centrist who in recent months had gone rather wildly rhetorical about the need to confront the US, recognised in April that there is no ban on bilateral socio-cultural and economic relations, revising his own previous statements. Moreover, after US Secretary of State Powell requested that Iran acted to restrain the activities of the Hezbollah against Israel, Iranian Foreign Minister Kharrazi, who visited Lebanon in April, was reported to have asked the Lebanese organisation to "avoid giving Sharon a pretext to open another front". Finally, Iran appeared unwilling to use the oil embargo threat as a way to intervene in the Israeli-Palestinian conflict.
One factor probably advising caution to Iranian politicians is the need to prevent a further tightening of American pressure on their country. The lasting difficulties to reach a settlement with the other Caspian countries for the exploitation of the resources lying under the sea bed could, for example, provide opportunities for American meddling in regional affairs and entail the risk of alienating a friendly country like Russia. Iranians fear that at the forthcoming May meeting between Bush and Putin, the latter might be willing to sacrifice his good relations and lucrative deals with Iran, in exchange for a closer partnership between the two powers. However, fears of Russia abiding by American requests to limit technologically sensitive exports to Iran have been eased after Moscow and Teheran agreed in April to complete the construction of Bushehr nuclear reactor and expressed the intention to build a second one. 

Good prospects are not enough
The unwillingness of the Iranian government to take an oil embargo into serious consideration owes probably more to its own internal problems than to the need to avoid international criticism. In April, the Iranian Oil Ministry released the details of the delayswhich are affecting the oil and gas tender plans. Out of US$36bn of authorised tenders for the period 1997-2001, only US$21bn were held. While these delays were blamed on the supervisory bodies, the effect has been to cast doubts on the eventual achievement of the government's plans to expand oil and gas production.
If isolated from the need to support a burgeoning population, the prospects for the Iranian oil and gas industry do not appear so dire, despite the delays. The gas market looks especially promising for Iran, since the South Pars field is expected to start production in autumn 2002 and no other producer seems to be in a position to meet the rapidly growing international demand for gas. Even Russia is not expected to be able to increase its production levels for at least 8 years. After the signature of the Iranian-Turkish-Greek deal, which effectively opens the European market to Iranian gas, Iran is also looking to the eastern markets, most of all India, with which discussions are being held concerning the building of a deep sea pipeline and the export of Iranian gas through the Qatar-India pipeline project. Iran is also looking to develop a gas liquefaction industry, in cooperation with Shell and MouGas. 
The good prospects for the oil industry are however not enough for Iran, which needs to cope with a fast-growing population. The economic reforms, which are supposed to contribute to stimulating economic development, are still proceeding very slowly. The banking sector, which had been the focus of the reform efforts in 2001, has seen the opening of the first private bank in December. Since then, however, no other private bank has started its operations, although two more applications have been approved and are now waiting to qualify for licensing. However, there are signs that, once gone past the early, difficult stages, the privatisation could take off rapidly. There are over 40 more applications standing and two state bank have volunteered for being privatised. Given the very inefficient character of the state banking system in Iran, a successful privatisation of this sector could open the door to faster reforms in other fields. 

Reformist push running out of steam
In February and March, the reformists had appeared willing and able to seize the initiative back from the conservatives, who had tried to exploit the renewed tension with the US to slow the reforms further. They also appeared to rely on an active popular support. Between the second half of March and the first half of April, however, the popular mobilisation which had supported the reformists vanished and talks of a looming final confrontation between the two sides suddenly appeared to have been premature. At the same time, the conservatives strengthened their positions within the institutional framework thanks to the appointment of six new members to the Expediency Council, which is supposed to resolve disputes between the parliament and the Council of Guardians. Previously a "centrist" body, the Expediency Council, which is led by Rafsanjani, is now shifting to the right, as four of the appointees are known conservatives and only two reformists. 

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Iranian-German truck production accord signed

Iran Khodro and German Chrysler Daimler Consortium signed an agreement on 22 April 2002 regarding technical cooperation for the manufacturing of new trucks, IRN has reported.
The capacity of the trucks, which will conform with advanced European standards will range from 8 to 40 tons.
The agreement was signed during an inspection tour at the Chrysler Daimler plant in Stuttgart, Germany by a high-ranking Iranian industrial delegation, headed by the Industries and Mines Minister, Eshaq Jahangiri.
The trucks will be produced in Iran within three years. In addition to meeting domestic requirements, the trucks will also be exported.

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Iran to take delivery of three Airbuses purchased from France

Iran will take delivery of three Airbus passenger planes, which it has bought from France, during the current Iranian year which ends 20th March 2003, the press on 14th April cited Transport Minister Ahmad Khorram as saying, Iran Expert has reported. 
The aircraft are among 10 Airbuses which the Islamic republic has signed to buy in order to rejuvenate its decrepit and accident-ridden air fleet, they quoted the minister as saying in Tashkent at the end of his trip to Uzbekistan. 
According to Khorram, US$5bn is needed to renovate the Iranian air fleet which has outlived its serviceable life by at least 20 years. 
The Civil Aviation Organization (CAO) has received US$1.5bn of this sum, he said, adding further plans were under way to purchase planes from other builders. 
Press in March cited Khorram as saying that an agreement was in the pipeline to buy 20 second-hand Airbus aircraft. 
The move, he said, is part of Iran's plans to gradually phase out chartered Russian-made Yakolov and Tupolev aircraft from the country's aviation fleet and replace them with brand new airliners. "Since leasing Tupolev and Yak aircraft is uneconomical, we are intending to take them gradually out of Iran's aviation fleet and replace them with new planes in the initial stage," Khorram was cited as saying. 
"Later, we will renovate our air fleet by purchasing aircraft less than five years old," he said, adding this will include leasing planes with the aim of ultimate ownership... 

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Iran Drilling Co gets US$350m in contracts so far in '02 

The state-owned National Drilling Co. of Iran has signed US$350m worth of contracts with the Iranian Oil Ministry so far in 2002, the Down Jones Newswires has reported quoting the official Islamic Republic News Agency.
Heidar Bahmani, the company's managing director, said the contracts were for the drilling of 59 wells in Iran 's southern oil fields at a cost of $150m, the drilling of 35 wells at the Tabnak gas field at a cost of $120m, and $80m worth of well overhaul work. 
The company is negotiating with a foreign company over the purchase of more than $10 million in drilling equipment, Bahmani said, without mentioning the foreign company's name.
The company is also involved in a number of drilling projects in Turkmenistan and Libya , he said.
The National Drilling Co. has undertaken the drilling of 1700 wells, at a cost of $2.5bn, since its establishment two decades ago.
Iranian Oil Minister Bijan Namdar-Zanganeh said Monday his ministry has awarded some $5-$6bn worth of projects to Iranian oil industry companies in the past few years, enhancing their competitive capabilities.
Zanganeh was speaking on the sidelines of an international oil, gas and petrochemical conference in Tehran .

BP seeks role in Iran LNG exports to India;

BP PLC wants to produce liquefied natural gas (LNG) in Iran and play a role in exports to India, BP'S Iran director David Dalton told newspaper Iran Daily. 
"BP is very interested in investing in Iran and is also very interested in a number of both oil and gas projects," Dalton said, pointing out that BP's role in Iran has so far been limited to downstream projects. 
"On the gas side, we are interested in looking at South Pars and seeing whether we can work to produce liquefied natural gas and export it to India," he said, referring to the large offshore field shared by Iran and Qatar. 
"We have been working in partnership with NIOC (National Iranian Oil Co) and with reliance on India to do a feasibility study on LNG exports," said Dalton. 
He said BP, along with TotalFinaElf and ENI SpA is bidding for contracts in the 11th and 12th phases of the South Pars project, the results of which are due to be announced soon. Iran, which has the world's second largest gas reserves after Russia, plans to build a gas pipeline for exports to energy-hungry India

Greek-Turkish cooperation on gas from Iran 

Greek Prime Minister Kostas Simitis said the cooperation agreement between Greece and Turkey is under preparation for the construction of a natural gas pipeline, The Tehran Times has reported. 
The pipeline will end up in Alexandroupolis, Northeastern Greece and will allow the natural gas to come to Greece from the region of the Caspian Sea and Iran via Istanbul. 
The statements were made on the sidelines of the Barcelona EU Summit Meeting, Greek media reported. 
Simitis said that the issue was discussed in the meeting he had in Athens with Iranian President Khatami last Wednesday and that plans have been made for a visit of minister of finance Nikos Christodoulakis and minister of development Akis Tsochatzopoulos to Turkey. 
Foreign Minister George Papandreou also speaking in Barcelona pointed out that the agreement is of strategic importance for the future of stability in the region. 

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British firms in race for Iranian contracts

Several British firms are in the running for multiple contracts, valued at £17.15m, coming up from the development of a coal mine in Iran, it was reported on the IranExport web site. 
Iran has emerged as the fastest growing market for the UK in the Middle East and North Africa, with a 53 per cent increase in exports between January and November last year. 
The mining sector, in particular, is seen as offering good potential to further develop UK interests in Iran, according to a report in Opportunity Middle East, which is brought out by The Middle East Association in alliance with Trade Partners UK. Recently, Cementation Skanska won a £10.85m subcontract as part of a £102m project to develop a coal mine in Tabas. It will be Iran's first mechanised underground mine and is expected to produce 1.5 million tonnes of coking coal for steel production annually. 
Incidentally, this is the first project supported by the Export Credits Guarantee Department (ECGD) since the resumption of medium-term insurance cover for Iran. 
ECGD is offering £28m in reinsurance cover for British goods and services, including the contract won by Cementation Skanska, which involves a range of specialist mining services. 
The company is currently assisting the main contractor in evaluating bids for different parts of the project, finalising the design and tendering for equipment and services. 
"The project has been a target for Cementation Skanska over 10 years, and the reintroduction of ECGD medium-term cover for Iran has been instrumental in helping us to secure this contract," said Stewart Keeble, managing director.

Iran-Afghanistan council of traders to be established soon 

During the first joint Iran-Afghanistan trade exhibition, a council of traders 
from Sistan-Baluchestan province of Iran and Afghanistan will be established, it was announced, IRNA News Agency has reported. 
Mohammad Reza Ehsanfar, head of Zahedan's Chamber of Commerce, Industries and Mines told reporters that establishment of the two countries joint chamber of commerce in Tehran and expansion of bilateral trade exchanges are among the objectives of the council. 
Some 300 industrial units from several Iranian provinces will take part in the first joint trade exhibition to start in this southeastern provincial capital city on Saturday, April 20th, he said adding that presence of such a great number of Iranian companies in the exhibition is an indication of the willingness of the Iranian businessmen to be present on Afghan markets. 
He referred to Sistan-Baluchestan province as the shortest and most appropriate access route for Afghanistan and Central Asian markets to the international waters. Meanwhile head of the first Iran-Afghanistan trade exhibition told IRNA that in addition to the officials of the Afghan interim government, some 500 Afghan businessmen have been invited to participate in the exhibition. 
Nader Mishkar said that the first group of the Afghan traders willing to attend the Zahedan exhibition are to arrive in Iran today. In the course of the exhibition, the Afghan businessmen will become familiar with Iran's economic, trade and industrial 
potentials, he said adding that the exhibition will pave the way for Iranian and Afghan companies and businessmen to sing trade contracts.

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Iran-Uzbekistan-Afghanistan plan joint highway

Iran, Uzbekistan and Afghanistan are to begin talks on plans to construct a highway linking the three nations, the transport ministry said, has reported. 
The 1,010 kilometre (630-mile) highway is to go from Iran's northeastern border at Dogharoun to Uzebekistan's city of Termez across northwestern Afghanistan.
It will aid in the reconstruction of Afghanistan, and aim "to activate regional cooperation and to promote exchanges between Iran and Uzbekistan", which have been decreasing in recent years and were worth only US$135m in 2001.
The project is a scheme of the Economic Cooperation Organisation (ECO), grouping Iran, Turkey, Pakistan, Afghanistan and the Central Asian countries of the former Soviet Union.
In March the first railroad between Almaty and Tehran was opened, financially backed by ECO.

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