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IRAN

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Economic deterioration?
Despite the continuing façade of optimism in Teheran, some signals are emerging from official sources that the economic situation is not so rosy. One official but non-government source puts unemployment at 14.6%, higher than the 11.1% stated by the government, while the Central Banks reports an increase in the inflation rate, which could reach 17% this year. The Parliamentary Research Centre foresees an even higher inflation rate for the current year, at 23%. What is out of question is that liquidity is rising and that has to translate into inflation at some point. The worst may have yet to come, as President Ahmadinejad imposed a lowering of the lending rates from 14% to 12% for state banks and 13% for private banks, in line with its demagogic economic policies. With lending rates at least five points below inflation, the capital flight which seem already to be heavily affecting the Iranian economy will only get worse. 

Lagging reforms
Much attention has been focused in recent weeks on the efforts to reduce consumption of automobile fuel. The latest figures show that automobile fuel consumption is still increasing and is 9.4% up on last year, although such figures date back to before the price increase decided by the government. The long-term plan is to replace imports of refined fuel with internal production, but neither the state allocates sufficient funds to this aim, nor are external investors likely to build refineries in Iran in the current climate. The funds allocated to the state oil company for this purpose is not even sufficient to build a single large refinery, in part due to growing world demand for refineries, which is stretching specialised labour resources very thin, driving up the cost of building refineries. In part this strong focus was the result of the absence of news on other fronts. In June however it was finally decided which of the about 1,000 state companies to be privates will go first, that is during the current (Iranian) year, which end March 2008. About 240 companies are included in this list, of which 21 are active in the oil sector. 

A softer Bush?
The disbandment of the Iran-Syria Policy and Operations Group in May, despite being presented as a mere bureaucratic re-organisation, is seen by many as a clear sign that the Bush Administration is softening its approach towards Iran (and Syria). The Group was meant to increase pressure on the two countries through supporting internal opposition groups and favouring arms sales to hostile neighbours, as well as organising a financial boycott. Following the disbandment, US officials have been meeting Syrian and Iranian diplomats to discuss the prospects of Iraq. The US ambassador in Iraq met his Iranian counterpart recently. However, if the disbandment was the carrot, the Bush Administration has not renounced wielding a stick yet. In May it was reported that the CIA has been authorised to try harming Iran through currency manipulation and disinformation. There are also reports that Jundullah, an insurgent group in eastern Iran, is receiving backing from the US. Finally, the US and the British are drafting a new set of sanctions against Iran, which may be submitted to the Security Council soon. It includes travel bans on Iran's military and security officials, inspections on its cargo flights and ships, banning arms shipments and freezing the assets of major Iranian banks. It is unlikely that the Chinese and the Russians will agree to such measures, but the initiative adds up to psychological pressure both against Iran and trade partners, similarly to what military manoeuvres in the Gulf are supposed to do. There are scant signs that the Iranian leadership is impressed, however.

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