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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: 055 - (27/06/06)
A crossroad ahead
With the joint EU-US offer now on the table, Iran's diplomacy may have
reached the time of final decision. The package offers nuclear assistance, but
most importantly trade and economic incentives, in exchange for abandoning the
military component of Iran's nuclear program. The trade incentives include among
other an end to the US ban on the sale of aircraft and aircraft parts, which are
badly needed given the Iranian ageing aircraft fleet, but even more noteworthy
because it is the first important step in the direction of what Iran has always
been asking, i.e. the abolition of the trade embargo. Also, the Bush
Administration has for the first time hinted that it might consider allowing
Iran to continue its own uranium enrichment program, on certain conditions. The
alternative would be UN sanctions against Iran. There are signs that part at
least of the Iranian leadership is tempted to accept the package or at least not
to flatly reject it, possibly also because of pressure coming from Russia and
China, which want to safeguard their trade relations with the West while
building a political-military bloc of their own, the Shanghai Cooperation
Organization (SCO). Iran's President Ahmadinejad has been invited to attend the
forthcoming meeting of the SCO, a sign that Russia and China might be
considering to invite Iran to join as a permanent member.
In the meanwhile, Iran has been sending signals that the bargaining process will
continue for a while. In mid-June it once again reiterated that it is no longer
interested in talks with the US on Iraq, despite US hints that the talks might
have addressed other issues too, of greater interest to the Iranians.
Financial world begins to turn against iran
Another source of pressure on the Iranians is the US campaign to turn
financial institutions against the 'rogue state'. In May the OECD downgraded
Iran as a credit risk, consequently raising insurance premiums on Iranian export
credits. UBS and Credit Suisse had already halted operations in Iran in January,
worried about the ongoing political developments, but now several other European
banks, including ABN AMRO and HSBC, are downscaling their involvement in Iran,
not least because some European governments have also been cautioning banks
about the rising risks. This will lead to higher trading costs particularly for
small Iranian businesses, which need letters of credit in order to import
machinery and components from abroad. Some observers believe that some of the
trouble being incurred by the Iranian economy is due to the psychological
pressure deriving from the feeling of isolation and incumbent disaster: the 20%
fall in the Teheran stock exchange last year, the decline in investment and
construction activities, the outflow of cash or its conversion into gold.
Others, however, believe that as long as the price of oil will be this high, in
order to hurt the Iranian economy, sanctions should target imports of gasoline,
for which Iran is 40% dependent from its neighbours.
Good news, murky plans
One positive piece of news in June was that the inflation rate seems to be
coming down, being estimated at 10.5% in May on the previous year, compared to
11.1% in April and 12.1% in March. However, uncertainty about the economic plans
of the government contributes to discourage investment. According to sources
within the state customs authority, the government plans to raise import duties
on many goods, ranging from electrical appliances to mobile phones, to textiles
and foodstuff. In some cases, such as silk, the plan is to increase duties
tenfold. The purpose seems clearly to support national manufacturers, in line
with the nationalist leanings of President Ahmadinejad, but many traders and
businessmen are unhappy, not least because such plans are at odds with Iran's
stated ambition to join the WTO.
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