Books on Iran
Update No: 071 - (25/10/07)
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
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.
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.