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IRAN

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REPUBLICAN REFERENCE

Area (sq.km)
1.648 million

Population
66,128,965

Capital
Teheran

Currency
Iranian rials

President
Mohammad Khatami-Ardakani

Khamenei teaches a lesson or two to Ahmadi-Nejad
During June and July Supreme leader Khamenei sent once again clear message that he will not allow President Ahmadi-Nejad to unilaterally run the show. He first established a new body to supervise Iran's foreign policy, the Strategic Committee for Foreign Policy, and most interestingly appointed to lead it Kamal Kharrazi, a reformist who has served as foreign minister under former President Mohammad Khatami. Although the body has no executive functions, it is clearly an attempt to bring experienced professionals into the policy making process, following accusations that Ahmadi-Nejad was relying excessively on zealots to staff his diplomacy. In fact, Ahmadi-Nejad's purge of the diplomatic corps continued in July, with the appointment of new Ambassadors to London and Paris. 
Then in July Khamenei took the initiative to decree the privatisation of Iran's state-controlled companies, except for the upstream oil industry and the largest state banks. Airlines and shipping companies are also included in the privatisation plan. Up to 80% of the shares of each company will be sold and foreign investors will be allowed to buy, although they will still need a specific authorisation from the Economy Ministry. This will be Iran's second attempt to sell government assets and the previous one (2004-2005) was not very successful, with just 30% of the US$2.5 billion worth of shares finding a buyer. In the past, a lack of transparency and the overvaluation of state assets were blamed for this failure. This time, there seems to be little more transparency, while at the same time the economic climate is clouded by international tensions. Therefore, the plan might again not be very successful, but its political importance derives from Khamenei's attempt to stem Iran's economic policies away from Ahmad-Nejad's state-friendly inclinations.

Gasoline storm gathers on the horizon
The government has finally clarified why it has cut in gasoline imports from US$4 to US$2.5 billion annually in its budget: it wants to cut consumption of car fuel, concerned that dependency on huge imports of fuel is a key vulnerability of Iran to possible international sanctions. The favourite option is to start rationing fuel distribution, beginning from September, while an increase in the price of fuel has been ruled out for fear of social unrest. Many in government and in the parliament fear that rationing too will be a very unpopular move, a fact which has delayed taking a decision on the issue. Some observers still think that the government might not dare introduce rationing and eventually ask the parliament to approve the budgeting of additional US$ billions to import the missing gasoline. The government is also looking for ways to incentive the use of vehicle fuelled by natural gas and for improvements to the public transport system, but these are long-term measures. The plans to expand the capacity of existing refineries and build new ones are getting bogged down because of the difficulty to find the necessary funds. According to government figures, every year 1.8 billion litres of refined oil products are smuggled out of the country.

Friends and enemies line up
Teheran received unwelcome news in July, when the Japanese government declared that it is ready to support sanctions against Iran and to freeze Iranian bank accounts in Japan, should the international community opt for such a move. In the past, many observers had expressed doubts about Japan's readiness to go that far, since the country is heavily dependent on oil imports from Iran. 
On the other hand, the Russians appear to be seriously interested in a strategic partnership with Iran and are trying to lure Teheran into the Shanghai Cooperation Organisation. Russia and China are making it clear that they remain hostile to any idea of imposing sanctions on Teheran and Putin even stated that it would be wrong to push Teheran to deliver a quick answer to the plan presented by the Europeans for resolving the issue of Iran's nuclear program. Increasingly Russian commentators speak of a 'gas alliance' between the two countries, which would allow the two of them to exercise a strong influence on the price of gas. The Iranians might seriously consider reciprocating, as shown by the fact that in June they offered Gazprom to participate in the building of a gas pipeline from Iran reaching as far as China. However, some commentators point out that the two countries remain potential competitors on the European market and reaching a deal might not be easy. Moreover, Iran's own gas plans are unclear, following a new focus on oil as the main source of hard currency.

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