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Books on Iran
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Update No: 066 - (29/05/07)
How to punish Iran?
The increasingly beleaguered Bush Administration was facing in May the ever
decreasing credibility of a military option in Iran, but struggled to come up
with credible alternatives. The option of economic sanctions, once seen as very
promising, is turning into a nightmare for Washington. To the extent that it
puts pressure on European companies to stop investing in Iran, the
Administration faces protests by European authorities which criticise the
application of extra-territorial laws to companies belonging to member states.
Some non-financial companies reportedly expressed their intention to postpone
investment, but most of them show little interest. The Iranian government
recently gave an additional four months to Total for deciding whether to invest
in the South Pars gas fields after the company showed some hesitation, but
Austrian OMV signed a US$18 billion deal last month. In Asia, American pressure
on Malaysian and Chinese companies seems to be wielding even more modest
results. Now that it has lost control of the Congress, failure to make much
progress in the economic siege of Iran is opening Washington's flank to attacks
from the Democrats, who have now a cheap opportunity to show how hawkish they
can be. Among else, the Democrats have been making fun of the Administration for
allowing imports to the US of Iranian caviar and carpets. An unlikely alliance
between Republican hawks and Democrats is emerging to force the Administration
into strong-arming allied governments to disincentivise investment in Iran, with
the Department of State being accused of appeasement. The new sanctions
announced by the EU are not likely to make much difference either. They will
target branches of Iranian state companies involved in the nuclear program, but
Teheran is likely to have taken counter-measures long ago. Although Iranian
negotiator Larjani is reported to have been given by Khamenei the authority to
strike a compromise, a month later it was still far from clear what the
compromise could be.
Washington needs help
One of the reasons for Washington's caution is the increasingly desperate
situation in Iraq. As the Bush Administration has been recently trying to
involve Teheran in some discussions, a really tough approach to the nuclear
issue would likely have ended any chance of success. At the recent Iraq
Conference in Egypt, the Americans accepted to meet Syrian representatives for
the first time in years and released information according to which the Syrians
were beginning to limit the flow of jihadi volunteers through the border. The
Iranians also attended the meeting and there were talks of possible discussions,
which however did not materialise. In the meanwhile in Iran the regime is
increasingly adopting a nationalist propaganda, not only as far as Ahmadinejad
is concerned, but even in the case of Khamenei, who in March rehabilitated
nationalist former Prime Minister Mossadeq in a claim to national unity.
A foggy economic policy
A rift seems to have emerged between the government and the parliament over
the price of automotive fuel. The current budget stipulates that the price
should increase by 25% and that rationing be adopted, but the government seems
inclined to maintain the current, heavily subsidised price for fear of
inflationary pressure and popular discontent. The parliament too is not so
determined to reduce the waste deriving from excessive subsidies. After voting
to increase the price of heating fuel by 200%, it then voted to annul the
increase.
Some observers argue that Iran is already going through a major economic crisis,
as the government prints trials to fund its poverty-alleviation programmes and
capital flight is believed to have reached up to US$300 billion. The business
sector is being discouraged by Ahmadinejad's business unfriendly moves. He
abandoned the plans to join the WTO and has been trying to reduce imports.
However, because imports of consumer goods and foods are controlled by the
Foundations, in turn controlled by the clergy, his efforts only succeeded in
limiting imports of raw materials and factory machinery, hurting in particular
the textile industry. He also disbanded the Syndicate of Iranian Employers and
announced plans to replace it with a government-appointed body.
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