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Books on Iran
REPUBLICAN REFERENCE
Area (sq.km)
1.648 million
Population
66,128,965
Capital
Teheran
Currency
Iranian rials
President
Mohammad Khatami-Ardakani
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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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