Books on Iran
Update No: 079 - (30/06/08)
Diplomacy running out of time
As the end of June approached, many were growing impatient at the slow pace of
diplomacy in affecting the Iranian nuclear programme. More impatient than
anybody else was the Israeli government, which in June leaked information about
a military exercise allegedly meant as a rehearsal for a bombing operation
against Iran. Although it is unlikely that Israel would unilaterally attempt an
attack on Iran, the attempt to exercise pressure on Washington appears obvious.
The Europeans, realising that their diplomatic efforts are losing credibility,
had already decided a few days earlier to strengthen the sanctions regime
against Iran. Apart from a freeze of the assets of the Iranian national bank,
there is talk of sanctions targeting Iranís oil and gas sector, but it is not
clear what shape these could take, given the already very high world oil prices.
Although the Bush administration is reported not to have any hope that sanctions
will force the Iranians to give up uranium enrichment, Washington does not seem
to be gearing up for a military attack either, although that could be due to an
intention to have Israel act as proxy.
There is talk in Washington now of new strategies to be adopted, but it is not
clear of what kind. Iran is coping with the sanctions by making deals with
countries such as China, Russia, Malaysia and others, but the problem is that
often these countries lack the most advanced extraction technologies. Iran needs
such technologies because its wells are mostly ageing and the recovery rate is a
low 26%; new technologies exist that could push that rate up and make the wells
much more profitable.
Ahmadinejad counts on the provinces
Although the western press is keen to portray the Iranian president as a lame
duck, increasingly isolated and in decline, Ahmadinejad still appears to have a
solid base of support in the provinces, where he has been focusing his efforts,
travelling and spending money. About 1.5 million Iranians, for example, have
received loans at favourable rates from the state to build homes, while 1
million more are scheduled to receive them in the future. At the same time
Ahmadinejad is moving to weaken or intimidate his clerical critics, by
unleashing accusations of corruption against them, which might well be true
given the record of the clerical regime in the 1980s and 1990s.
The longer term prospects for Ahmadinejad are however somewhat critical. For a
populist based politician as he is, the tough decisions required to re-launch
Iranís economy are not easy to take. The attempt to curb the consumption of
fuel is now acknowledged to have fallen short of expectation and the government
is now planning to request an additional US$7 billion to buy gasoline abroad, a
bill which could rise to US$9 billion given the trend of oil prices. Efforts to
further reduce consumption continue, as owners of luxury vehicles are now
requested to buy fuel at market prices. The government now says that it plans to
end all subsidies on fuel by 2011, but it remains to be seen whether it will
have the stomach to go through the cuts. For the time being there is no mention
of cutting subsidies on gas and electricity; overall Iran spends US$85 billion
each year on energy subsidies.
Inflation getting out of control
The latest official figures show inflation at 25.4%, up one more percentage
point on the previous month. The plan to lend cheaply to businesses has produced
little economic growth, as the inability of the government to supervise the
deals, resulted in many abuses and non-productive use of the cash. The
inflationary trend which is quite widespread in the world due to high oil
prices, is therefore being accelerated by the policies of the government.