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Books on Iran
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Update No: 074 - (23/01/08)
Private business under pressure
Slowly but surely, Iran’s economy increasingly feels the pain of the
sanctions. Increasingly foreign banks refused to open credit to Iranian
businesses, pushing up the price of transactions. For example, South Korean
paper costs now 25% more because of this. According to Bank Sedarat, Iran’s
most active bank in international transactions, says that a third of the 600
banks which used to deal with it are now refusing to do so; the number of
correspondent banks declined from 29 to 8. Although Middle Eastern banks have
been resilient against US pressure, some of them are stopping their deals with
Iran too. One recent example is Ahli United Bank in Bahrain, despite the fact
that the bank has strong interests in Iran. Others, however, are not likely to
do, particularly in Dubai where 400,000 Iranian expatriates live and 9,000
Iranian firms operate. Most import deals have now to be done through Dubai,
except for deals with Russian and Chinese companies, which however are not
always able to fill the gap. Some observers in the West believe that the
situation will ultimately lead Iranian businessmen to put such a pressure on the
regime that it will have to modify its positions, although others believe that
the regime will not be responsive.
State sector unaffected
There is little sign that sanctions are affecting overall levels of foreign
investment in Iran, largely because the Chinese have been offsetting a reduced
inclination to invest elsewhere. China alone accounted for almost half of all
foreign investment in 2000-2007 and that was mainly due to a massive growth
towards the end of the period. France, Germany, Italy and Japan follow at great
distance. To the extent that there are any problems in the state management of
the economy, they are self-inflicted. The Central Bank of Iran admitted in
January that liquidity in the country’s financial system continues to rise,
giving rise to speculation concerning government plans to address the problem. A
plan to strengthen the rial against the dollar was for example reported
recently, as a tool to fight inflation, but the plan was denied by central bank
officials. In fact, with presidential elections scheduled for 2009, inflationary
pressure might even grow as Ahmadinejad plans a 17% increase in spending in
order to boost his popularity by fulfilling the many promises which he made
during his trip to the provinces. The budget plan is much less detailed and
transparent than in the past, which could allow much discretionary spending and
patronage.
Little appetite for war
Even when Middle Eastern Countries abide by American and UN sanctions, they are
not at all keen to get entangled in a war between the Iranians and the
Americans, even more so if Israel was to participate. Ahmadinejad was the first
Iranian president to be invited to a summit of the Gulf Co-operation Council,
held recently. Even the Saudis made a conciliatory move towards the Iranians
recently, inviting Ahmadinejad to the pilgrimage, while another key US ally,
Egypt, sent his first high-level delegation to Iran in many years. The feeling
in Washington is that the Russians have been more willing to put pressure on the
Iranians than the Chinese; the slow progress at the Bushir reactor construction
site is seen as an attempt to strengthen leverage on Iran. By contrast the
Chinese are trying hard to enter the Iranian oil sector, as shown by Sinopec’s
recent deal on the Yadavaran field, worth US$2 billion.
The Iranians are aware of this lack of appetite for a war and seem to feel that
this gives them some room of maneuver. In January Khamenei signaled once again
that his current alliance with Ahmadinejad might not last forever, as he hinted
that he would support a deal with the Americans if that was in the interest of
the country. This can be seen as a confirmation that Khamenei uses Ahmadinejad
to get the Americans to view him as a comparatively moderate figure with whom
negotiations can be held.
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