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IRAN


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 136,833 107,522 114,100 34
         
GNI per capita
 US $ 2,000 1,710 1,680 110
Ranking is given out of 208 nations - (data from the World Bank)

Books on Iran

REPUBLICAN REFERENCE

Area (sq.km)
1.648 million

Population

66,128,965

Capital
Teheran

Currency
Iranian rials

President
Mohammad Khatami-Ardakani




 

Update No: 039 - (22/02/05)

On the international scenes there were few surprises in January. Dick Cheney's identification of Iran as the top potential trouble spot in the world re-ignited speculation about a future military intervention in Iran. The saga of the Iranian nuclear programme continued to develop with various twists in January, but Iran ended the month in a somewhat stronger position than a month earlier. Western intelligence sources admitted that accusations against Iran of having imported large quantities of substances suitable for producing atomic bombs were unfounded, while the Europeans continued to present a united front against any idea of military intervention. Moreover, for what it is worth the Russians expressed their support for the European plan, aimed at offering Iran benefits in exchange for dropping parts of its nuclear program which are susceptible of leading to the production of military equipment. The fact that Iran's application to join the WTO has now been rejected also strengthened Teherans hands against the Europeans, who had promised to actively support Iran's effort to join the WTO. 
For the moment being, in any case, the main pillar of US strategy is economic pressure. Some successes were achieved in January 2005, with German giant ThyssenKrupp announcing that due to US pressure it was forced to drop the representative of the Ministry of Economic Affairs from its board (Iran owns a 4.5% share in ThyssenKrupp). 
On the whole US sanctions are making little impact on Asian countries, though. In January the Indian government signed a deal with Iran's national oil company to import at least 5 million tonnes natural gas a year over a 25-year period. The contract is worth US$40 billion and gives India the right to develop two Iranian oil fields and a gas field. 

Economy
Inevitably, the economic performance of Iran will depend in 2005, as in the past, from the trend of oil and gas prices. Even in 2005 the growing awareness of the need to attract more foreign investment will struggle to translate into the signature of more contracts The buyback system, deeply disliked by the oil multinationals, remains in place, although now investors can now tender for up to 25 years, compared to 7-8 years previously. Moreover, investors will not need to re-bid after exploration work has been carried out. However, the major oilfields have been excluded from the new buyback deals, which limits the attractiveness of the changes.
By 2020 the government would like to raise production of oil to 7 million bpd, up from the current 4 million bpd. Iran is also trying to expand its gas production. The plans are very ambitious, as gas exports should rise to 20 billion cubic metres by 2010 and 60-80 billion by 2020, up from just 3.5 billion last year. Exports to Turkey are planned to increase to 10 billion cubic metres by 2007, while negotiations are being held with Kuwait for a further 4 billion cubic metres. Despite the attempt to make buyback deals more attractive to foreign companies, most of these still do not find this type of contract attractive enough. The attitude of NIOC, which sometimes adds extra clauses to the contract, does not help either. 
Despite its ongoing struggle to sort out its internal economy, Teheran is not renouncing grandiose plans to radically alter its position in the world economy. It plans to launch a new oil bourse in 2005, with the aim to compete with the London International Petroleum Exchange, but many observers doubt that it will succeed in establishing itself as a serious alternative to London and New York. In July 2004 it was also announced that the government plans to privatise Iran's tourist industry, mainly with the aim to attract foreign investment. The fact that such an announcement comes despite the conservative majority in the parliament, shows how pragmatism is likely to dominate the economic debate. Iran will need up to US$5 billion a year to bring the sector up to international standards and hopes to expand its share of world tourists from the current 0.1% to 1.5% by 2024, who should bring to Iran revenues of around US$25 billion a year. 
The 2004/2005 draft budget features a 10.5% increase on the previous year, to reach US$127 billion. The budget aims at achieving a 7.3% economic growth, based on the assumption of an average price of oil at US$19.5 a barrel. The Guardian Council however rejected the new state budget, on the ground that it conflicts with the constitution and with Sharia law on several points. The new budget once again confirms Iran's proclivity to spend to stimulate the economy. Even during the current year, the government admits that it will have to draw US$500 million from its Oil Stabilisation Fund, despite oil earnings US$6 billion higher than expected. The Fund will therefore drop to US$7.7 billion, a negative development in a year of oil revenue windfall like 2003/2004 has been. 

Internal politics
As the end of January approached, both the reformist and the conservative fronts remained split with regard to the choice of a candidate for the presidential elections of mid-2005. There were two official reformist candidates, Mehdi Kharrubi, who is supported by the clerical wing of the reformist front, and Mustafa Moin, who has the support of the more secular components of the front. However, many younger reformists also favoured the candidacy of former president Hashemi Rafsanjani, despite the fact that originally he was considered a more likely candidate of the moderate conservatives. Rafsanjani's advantage would be that his chances of winning are much higher and that he will not be disqualified from running by the Guardians Council. Indeed the relationship between Rafsanjani and the conservatives seemed to be worsening, as they appear to be trying to push him towards renouncing the idea of a candidacy in favour of somebody more ideologically committed to their cause. 
On the conservative fronts there were already five candidates who had announced their candidature and were enlisting support. Of the two leading candidates, former foreign minister Velayati is a mainstream conservative who appeals to the middle aged right wing, while Mahmud Ahmadinejad, Teheran's major, attracts the sympathy of the new generation of conservatives, who currently dominate the parliament. Mohsen Rezai, Ahmad Tavakoli and Ali Larjani appear to have weaker chances of emerging as joint candidates of the conservative front, or to score well if several conservative candidates should run. Of the several other individuals who were also considering whether to run, the majority is from the conservative side. The conservatives, therefore, might experience greater difficulties then the reformists in uniting behind a single candidate. Moreover, Mohsen Rezai has already stated that if he is not selected as a joint candidate, he will run anyway on his own. The task of the reformists might be made easier if Moin's candidacy is rejected by the Guardians Council, a rather likely event. He was seen in January by most as the potential candidate with the greatest appeal. 
In January the Minister of Economic Affairs and Finance, Safdar Hosseini, attacked the parliamentary majority because of its failure to cooperate with the government in a constructive way. The main bone of contention was the decision of the parliament to keep subsidies on consumer goods unchanged, at a high cost to the state, and to try pushing profit rates in the banking system down rapidly. Another ongoing debate concerns import tariffs. According to the chief of Iran's police force, Baqer Qalibaf, high tariffs give an incentive to smugglers. Apart from narcotics, the value of goods smuggled into Iran is estimated at US$5.5-6 billion. As a result, rather than stimulating domestic production, high tariffs undermine and the state does not even earn any custom revenue from smuggled goods. Attempts to prevent the smuggling are being frustrated by widespread corruption, including within the police force. The fate of the oil stabilization fund is also a matter of discussion. The government proposed to spend US$1.3 billion from the Fund (worth a total of US$8 billion now, but likely to rise significantly due to high international oil prices) to pay for the cost of importing petrol, which Iran cannot manufacture in quantities large enough. The conservative majority in the parliament, however, cut the figure to US$825 million and wants to spend the rest on its own constituencies in the countryside and in the Islamic Foundations. More debate is likely to arise after President Khatami introduced the 2005/2006 budget to the parliament on 9 January. The budget is 30% larger then the previous one and is based on expected GDP growth of 7.1% and inflation at 14.5%. 
The conservative parliament made its weight felt again in January, when it rejected the appointment of the new Roads and Transport Minister, Ahmad Sadeq Bonab. Although some members of parliament mentioned Bonab's lack of specialized education as a reason for the rejection, it is more likely that his bad relationship with the conservative lobby within the ministry was the actual reason for his failure to be confirmed. His predecessor, Ahmad Khoram, had received a vote of no confidence in October. 

Rafsanjani's candidature grows stronger
No major new names entered the presidential race in February, but the candidate increasingly seen as the favourite is the one who did not announce his candidacy yet, Hashemi Rafsanjani. Even influential individuals from within President Khatami's inner circle are beginning to endorse him. The fact that troublesome times seem to lie ahead for Iran, with US pressure growing stronger and stronger, is playing in his favour. The need is increasingly felt for a strong and experienced leader who can handle the situation and Rafsanjani, who has already been president once, has successfully portrayed himself as the right man for the job. The growing US pressure continued to achieve results in February, when General Electrics, another US company which was doing business with Iran despite the embargo, announced its decision not to accept any more orders. A more worrying development took place in the foreign policy arena, as Pakistan began to accuse Iran of allowing Baluchi insurgents to operate from its territory. There seem to be little substance to this accusation and the objective motivation of Pakistan seem to have been to please its American ally and distract it from its limited compliance in preventing Taleban insurgents from operating from its territory. The Europeans are still holding against US pressure, but are beginning to feel the need to demand concessions on Teheran's part, as shown by the insistence of Germany's Foreign Minister that Iran gives verifiable guarantees of the non-military character of its nuclear program. Greater threats lie ahead, as the Bush administration is apparently seeking to oust he head of IAEA El Baradei, whom it accuses of softness towards Iran and its nuclear program. On the positive side the victory of the Shiite religious alliance in Iraq offered some relief to Iran, although the margin of the victory was probably lower than expected.

The conservatives still on the offensive
In a surprise move, at the end of January the Iranian parliament announced its decision to cut Turkish company Turkcell's 70% stake in affiliate Irancell to 49%. The Turkish company now threatens to quit, although South African rival MTN appears ready to step in and replace Turkcell. Despite their earlier statements in favour of continuing the economic reforms, the conservatives oppose foreign investments, especially in strategic sectors such as communications. Another example of contradictory Iranian attitudes towards foreign involvement in the national economy is the recent diatribe concerning the Soroush and Nouruz oil fields, which Royal Dutch/Shell failed to develop within the agreed time schedule. Delays are common among "buy-back" deals in the Iranian oil industry, where they occur in 20-30% of the cases. Now the National Iranian Oil Company insists that Royal Dutch/Shell pays a fine for its failure to deliver according to schedule, a decision that if implemented could further discourage foreign investment in the Iranian oil industry. Some conservatives also made an attempt to impeach the education minister, Mustafa Haji, but were persuaded by Supreme Leader Khamenei to drop the issue. 

More talks of reforms
While the conservatives proceed in their counter-reform efforts, reformers continue to propose new initiatives. In February, Deputy Oil Minister Nejadhosseinnian proposed that refineries be privatised. His hope is that in this way productivity would improve and that Iran would finally be able to increase production fast enough to keep the pace with demand. There are also plans to increase the share of Iranian contractors in the oil industry from 3% to 6% over the next 10 years, in order to increase their ability to compete against foreign firms, which according to the Oil Ministry benefit from easier access to credit. Among economic news, the most important effective development during February was the announcement by Italian manufacturer FIAT Auto of the signature of a deal for the manufacturing of cars in Iran. The factory is expected to produce 250,000 vehicles a year when at full regime. Production should start before the end of 2005. This positive development was however overshadowed by the rapid fall of the Teheran Stock Exchange during February, following the increase of charges on stock market transactions. The forthcoming presidential elections contributed to change the mood in the stock exchange, due to the uncertain outcome. 

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FOREIGN ECONOMIC RELATIONS

Iran and Russia develop new economic plans 

A delegation of the Russian Chamber of Commerce and Industry led by a former prime minister, Yevgeny Primakov, recently toured the Middle and Near East, with Iran the key point on the program. The reason was simple: Iran is the regional leader in terms of the volume and quality of economic relations with Russia, RIA Novosti reported. 
Iranian-Russian trade has hit the US$2bn mark, with Russian exports accounting for 90%. Given that one aim of Russia's economic development policy is to free the country from its dependence of raw material exports, trade with Iran provides an appropriate export structure: Iran buys Russian planes, cars, and high technologies in the energy sector, including in nuclear power. New projects are being drafted, such as the construction of a railroad in Iran, gas pipelines to Armenia and India, and the Tabas coal power station, as well as the modernization of other power stations in Isfahan and Ahwaz. Mr. Primakov's objective is to identify priorities in the voluminous plans outlined by the two sides. 
Russians engaged in cooperation projects with Iran regard the country as the regional leader in terms of literacy (81.4%), economic growth and quality of life. Russia's political culture believes it inappropriate to impose forms of governance and life-style norms on other countries and societies, even when this society is a unique Shiite theocracy. Indeed, it compares favourably with many Islamic monarchies in the Near East. 
The political results of Iranian-Russian cooperation are obvious, even if we choose not to mention that Iran has never given support to Islamic extremists in Chechnya and the North Caucasus, and blocked every anti-Russian resolution when it recently held the rotating chair of the Organization of the Islamic Conference (OIC). In point of fact, Iran is still playing a key role in Russia's gradual advance to observer status and closer cooperation with the OIC, a role which is no less important than that of the present OIC chairman, Malaysia. 
In other words, Moscow will benefit from a strong and prosperous Iran, without nuclear weapons but with a powerful economy. The form of governance it chooses, secular or theocratic Shiite, is unimportant. The Iranians can cope with their domestic affairs on their own, as their near unanimity in overthrowing the shah and installing in 1979 the present, unique regime shows. Naturally, no monarchies or regimes last forever and Russia has no special reason for supporting this particular regime in Iran. The only thing Russia wants is to have its long-term investments in Iran's development well protected. 
However, Russian interests in Iran should also be protected from competition. In a sense, Mr. Primakov's delegation, like any trade delegation, is part of efforts to get an edge on Russia's rivals, the main one being the European Union. It accounts for nearly a quarter of Iran's trade (about 15 billion euros), with Germany and Italy taking the lead. Iran's trade with Japan, China, and South Korea should not be ignored either (US$6bn, US$5bn and US$4bn, respectively). 
Russia's hopes to catch up with these rivals on the Iranian market are probably unrealistic. Besides, in its special relations with Iran, Russia can hardly claim a greater role than India, which given its improving relations with neighbouring Pakistan is identifying increasing economic opportunities in Iran. Indeed, a key Russian-Iranian project to develop a transport corridor from the Indian Ocean to Europe via the Caspian Sea is connected with India. The route will be even more important than the Suez Canal, because goods to Europe will be delivered cheaper and faster by the North-South corridor through Indian and Iranian ports and Russia's Volga river port of Olya. 
Therefore, Moscow can and must take a sceptical view on the zigzags and vacillation in the attempts made by Iran and the United States to find a common language. Tehran was a reliable ally for the US and other countries in their operations against the Taliban and other terrorists in Afghanistan, but their further rapprochement was interrupted by the war in Iraq. This war has led to consequences unexpected even by Iran itself. 
The efforts of America and the other occupying powers in neighbouring Iraq have made the establishment of a theocratic state there ruled by Shiites, who are friendly to Iran's Shiites despite their differences, entirely possible. It is worth noting that, as distinct from the ancient Persian empire, Iraq's existence as a single state is a relatively recent experiment. Even its capital, Baghdad, was built in the middle of the eighth century on the ruins of Ktesifon, the historic capital of Persia, by Iranians who had overthrown Arab rule as part of an Islamic caliphate. They installed the Abbasid dynasty and made Baghdad their capital. 

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FOREIGN RELATIONS

Yerevan, Tehran take a better look at labour

Iranian labour and social Affairs Minister, Nasser Khaleqi, and his Armenian counterpart, Aghvan Vardanian, have decided to expand ties between the two countries in labour affairs, Interfax News Agency reported.
Iran and Armenia have had cordial relations for many years and has decided to increase cooperation in other areas as well. Cooperation in employment and labour affairs, technical and vocational training, research and other industrial sectors can improve the quality of goods in both nations. 
Experts from the labour ministry are ready to hold discussions with their Armenian counterparts, Khaleqi added. For his part, Vardanian recalled that the two nations have had over 2,000 years of friendly relations. He pointed out that Armenia's labour laws have been rewritten in the post-Soviet era and Yerevan is eager to cooperate with Iran on employment and labour affairs. "Tehran and Yerevan have good cooperation in energy and transportation sector," he added. The two ministers also initialled a draft agreement, which will be further discussed and if both sides agreed then it would also be signed. The two nations are also engaged in various industrial projects.

Iran calls for close partnership with Kazakstan

Sabit Tairov, Kazakstan's ambassador to Iran, met with the speaker of the Iranian Medijlis, Golam Ali Khodad-Adel, Kazinform reported recently.
During the meeting the Iranian Speaker underlined Kazakstan's dynamic development among other Commonwealth of independent States (CIS) and pointed out the republic's recognised leadership in execution of social-economic reformations. Taking into account favourable geographic situation of Kazakstan and Iran, the Speaker underlined the importance of full cooperation of both states' transit potential. The parties also talked about outlooks for development of bilateral trade-economic cooperation. They particularly touched upon expansion of partnership within SWAP-operations and supplies of Kazakstan's grain to Iran, Afghanistan and Persian Gulf countries, and participation of Iran in the sessions within the Conference on Interaction and Confidence Building Measures in Asia and Congress of World and Traditional Religions.

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