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IRAN

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Some signs of vitality, but inflationary threat grows
While many observers have argued in recent years that Iran's oil production potential was wearing out and that the country would not have been able to increase production significantly, the recent OPEC decision to raise production by 500,000 bpd, of which 70,000 are to be contributed by Iran, seems to indicate the contrary. It is worth noting that Iran had actually opposed the increase in production. If implemented, the decision would bring Iran's production to over 4 million bpd.
Another positive sign could be seen in the fact that the government now claims that 80% of the country's state-owned industrial assets will be privatised by March 2008, although it is doubtful that buyers will be sufficiently enthusiastic to guarantee the speedy success of the operation. Even the telecommunications sector is to be included in the privatisation programme, with 51% of the shares to be offered on the Teheran stock exchange. Official figures also report a 150% rise in foreign direct investment between 2005 and 2006, but the total amount is still a puny US$900 million.
What is uncontroversial is that inflation is on the rise, although different sources disagree on how fast. Official statistics too show that inflation continues to rise in Iran. The yearly rate as of September was 15.8%, an increase of 0.4 points on the previous month. Considering that the government proclaimed a single digit inflation target, it is not surprising that the Central Bank is worried about the trend and that it has been warning the government to avoid excessive exchange of foreign currency into the national currency, diversion of funds from the Foreign Exchange Fund and any further expansion of the state budget.

Iran becomes battlefield of US-Russian confrontation
US pressure on Iran is increasingly taking the shape of a campaign aimed at highlighting the destabilising role of Teheran in Iraq and Afghanistan. Recently allegations of arms shipments to the Taliban in Afghanistan have been multiplying, with American military authorities claiming to have proof that this is happening. The Iranians, who are actually likely to be shipping weaponry to their networks of clients throughout the region in preparation for the worst (i.e. an American attack), counter-attacked by denouncing 'certain powers' for trying to establish contacts with the Taliban and negotiate a deal. 

The Iranians scored a significant foreign policy success in October by getting Russian President Putin to Teheran, where he took a firm stand against any military action against Iran. By getting the Iran issue to become an important part of Putin's agenda of a resurgent Russian power, Teheran significantly consolidated its international position. 

Negotiator resigns
However, Teheran, and more specifically President Ahmadinejad, suffered an image blow when nuclear negotiator Ali Larijani resigned on 20 October, allegedly over differences with the President about how to handle the negotiations, in particular, it seems, concerning some Russian compromise proposals. The fact that Larijani had to go, however, is also a sign that Supreme Leader Khamenei appears to have decided to side with Ahmadinejad on the nuclear issue. Larijani's successor, Saeed Jalili, is known to be a close ally of Ahmadinejad, which, given the prerogatives of Khamenei in foreign policy matters, can be seen as a confirmation that the two leading figures of the Iranian establishment are indeed on the same page on the nuclear issue.

Two way squeeze
Economic pressure remains at present the most effective weapon in Washington's arsenal. Showing that it is feeling the pain, Teheran is now threatening to retaliate against Western firms which give way to US pressure. Two German banks, Deutsche Bank and Commerzbank, which have gradually withdrawn investments from Iran during spring and summer, have been told that they might not be allowed back into the country. The banks, on the other hand, had been threatened with 'consequences' by the Americans if they did not start pulling out.

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