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Update No: 109 - (24/12/10)

Isolating Iran: do not count on China
American manoeuvres to isolate Iran are becoming increasingly clear, with the help of the cable leaks. Often the Americans do not have to work hard, as some at least of Iran’s Arab neighbours are even more worried about Teheran’s plans than Washington itself. Saudi Arabia is a case in point. The Saudis, apart from encouraging Washington to go for the military option, have also lobbying the Chinese to cut their purchases of Iranian oil, promising in exchange to guarantee supplies to China indefinitely. So far this tactics have not worked very well, although a decrease in Chinese purchases has been noted. Iran remains China’s third largest supplier of oil and Teheran ensures that the Chinese remain hooked by commissioning large projects to Chinese firms, including seven oil refineries in recent times. Moreover the Iranians continue to announce new discoveries of large oil fields, the latest one in November near Firdowsi gas field allegedly contains 34 billion barrels, which would make it one of the largest in the country.

Ahmadinejad prepared himself
Iran continues to develop gasoline production, which is expected to overtake the 2 million gallons per day mark next year; rationing remains in place and plays a critical role in reducing consumption. All in all the plan to cut consumption went better than expected, with little turmoil, probably aided by the threat of sanctions, which makes it unpatriotic to complain. Teheran keeps putting a brave face to sanctions and points out that even the World Bank’s estimate of Iran holding US$100 billion in foreign exchange reserves (which Teheran says is an underestimate) would allow the country to hold out against sanctions for a long, long time. Moreover, Iran holds a lot of gold which it bought when prices were much lower. Clearly Ahmadinejad has made some preparations for the current predicament.
The internal economic situation does not appear anywhere near to panic yet. The Teheran stock exchange has been booming this year, 64% up from the beginning of the year. This is mainly driven by the government’s plan to privatise 500 state companies by the end of 2011. Government propaganda stresses economic self-reliance; recently five Iranian banks reached a deal with the National Petrochemical Company to provide the US$23.5 billion of funding required to launch 35 new petrochemical projects. Similarly the government is fast developing its steel industry, with the aim to reach self-sufficiency by 2014 even to start exporting on a large scale after that. This is s US$32 billion expansion plan, but it is difficult to judge how economically sound it is.

A new foreign minister
On the internal political front, the biggest development over the last month was the sacking of the Foreign Minister, Manoucher Mottaki. The replacement was the head of the country’s nuclear programme, Ali Akbar Salehi. Mottaki was seen as close to the Supreme Leader Khamenei, while Salehi is seen as more loyal to Ahmadinejad himself. Some observers interpret this as an indication that the tension between Khamenei and Ahmadinejad, reported by the American intelligence, might be beginning to show up. The appointment is also seen as a confirmation of the primacy of the nuclear programme in Iran’s foreign policy. The parliament will have to approve the new minister, never a foregone conclusion given the growing hostility of the conservative groups of MPs, who are already complaining of not having been informed of the move. Undoubtedly Ahmadinejad continues to be seen trying to develop a political base independent of the mainstream conservatives, in particular courting the youth, which has little sympathy for the clerics. His latest stint at this has been a statement that the marrying age, currently set by the law at 15, is too low. Although this might not seem a big thing to external observers, it is implicitly hinting that sticking to religious law is not always the best thing.

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