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IRAN


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 136,833 107,522 114,100 34
         
GNI per capita
 US $ 2,000 1,710 1,680 110
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 113 - (26/04/11)

Ahmadinejad clashes with Khamenei
Tension between Ahmadinejad and the Iranian clerical establishment reached a new height in April, when the President sacked intelligence minister Heidar Moslehi against the advice of Supreme Leader Khamenei. The Supreme Leader then order Ahmadinejad to reinstate the minister, but Ahmadinejad resisted. A large majority of members of parliament came in support of the Supreme Leader, affirming that Ahmadinejad had to obey his order. The dispute goes beyond the minister himself: he clashed with Ahmadinejad over his sacking of his deputy Abdollahi, who is close to one of the key advisers to Ahmadinejad, Chief of Staff Esfandiar Rahim Mashaei. The latter represents the revolutionary/nationalist line of thinking within the Iranian regime, arguing that the ideology of the regime and Iranian national identity takes precedence over Islam and therefore intellectuals matter more than clerics; Mashaei has been accused by other conservatives of wanting to challenge the authority of the Supreme Leader. Eventually Ahmadinejad had to give up on Moslehi, and even demote Mashaei by dropping him as Chief of Staff (Mashaei maintains other less important functions within the government). Previously Khamenei had already intervened to prevent Ahmadinejad from choosing Mashaei as his vice-president after his re-election.

Iranís structural adjustment: better than the IMF?
Ahmadinejadís determination to greatly reduce the almost US$100 billion which Iran spends on subsidies of various kinds has been such that even the chief of the IMF, Strauss-Kahn, had to praise the Iranian government for its achievements, according to Iranian government sources. As of April 2011, the Iranian government had already cut subsidies by US$20 billion, with another US$5 billion to be cut in the next financial year. Ahmadinejad was given two years to implement the US$20 billion cut, but he implemented the cuts straight away in the first year. His original plan was to cut at last twice as much in two years, but the parliament forced him to slow down. In reality Ahmadinejad has kept going much faster than agreed. However, in his tug-of-war with the Iranian parliament, Ahmadinejad recently suffered a major defeat when the latter voted to extend welfare payments (meant as replacement of the subsidies) to virtually the whole population, whereas Ahmadinejad had meant to limit them to the poorest strata of the population. This means that monthly welfare payments are now estimated at US$2.9 billion/month, exceeding the value of the cuts made so far. The government is therefore expected to reduce entitlements soon, cutting off the middle classes from the benefits.

Despair or hubris?
The Americans continue to slowly tighten the sanctions net around Iran; recently the Germans were forced to stop processing Indian payments for Iranian oil through their Central Bank., The government recently boasted that as many as 10 American companies attended the recent 16th International Oil, Gas, Refining and Petrochemical Exhibition, but visitors could not find any trace of these companies. Total, Statoil and OMV were present, but Shell dropped out this year. On the other hand, 166 Chinese companies were present, almost as many as all the European companies. The Chinese however do not have the advanced technology that Iran needs to keep its oil fields efficient; official sources acknowledged recently that oil production dropped by 25,000 bpd in the last year, while external observers believe that the drop might have reached 400-500,000 bpd over the last six years.

For what they are worth, Iranian official statistics do not suggest a country on its knees because of economic sanctions. The Teheran stock exchange index rose 86% over the last year, while trade with Asian countries burgeoned, with imports up 15% and now accounting for 61% of all Iranian imports, against 34% for Europe. Teheran also claims to have increased its exports of petrochemical products from US$6.5 billion to US$8.6 billion last year, a 30% increase.

The government has recently announced that over the next couple of years it will reform its currency, the rial, by bringing its value in line with that of the US dollar (the exchange rate is currently 11,000 rials to the dollar). The government seems to think that this might help reducing inflation, which at the moment stands at 12.4% on a yearly base and has been rising in recent months.

Forecast 2011
Iran enters 2011 with Ahmadinejad seemingly still in a solid position, despite his growing political isolation. How many Iranians see themselves as primarily linked to a political faction? It is hard to say, but the absence of firmly established political parties means that political sympathies are quite fluid. Ahmadinejad clearly has a base of support in the rural areas and among the poorer sectors of the population. Will it be enough to keep him going? Much depends on how far he is ready to push his confrontation with Washington. This game of brinkmanship might end in a resounding success, with Teheran becoming a nuclear power and forcing the western powers to come to terms with it, or in a disastrous failure, with Iran becoming the epicentre of a new regional war. After all, in just two yearsí time the US might have a new Republican president, just in time to intervene before Iranís nuclear weapons approach readiness.

The pressure exercised on Iran through the sanctions will not per se crush Ahmadinejad, or force him to bow to it, but it certainly has been creating trouble for him. His judgment is now questioned even by a majority of his fellow conservatives; in 2011 Ahmadinejad will very likely continue his efforts to build up a new conservatism in Iran, less clerical and more nationalist (which the Ayatollahs have spotted and voiced their disapproval). Apart from being a better fit for him, it would also make him increasingly autonomous from the wider conservative tendency.

The success of popular demonstrations in Tunis and Egypt injected a new lease of life in the Iranian Green Movement, which had completely petered out several months ago. Hundreds of thousands have hit the streets again, forcing the regime to clamp down on external media, targeting satellite dishes and the internet, as well as to issue threats of violence and even of executing the leaders of the movement. This reaction suggests that the Islamic Republic is not entirely confident that the Egyptian contagion will not hit Iran as decisively as it has been hitting the Arab world. It is hard to believe, however, that the regime will be betrayed by its own armed forces, which are more ideological than the Egyptian or Tunisian ones, particularly the Revolutionary Guards, and have a lot to lose from a change of regime. There are some rumours that some high rank officials of the Guards are increasingly critical of the regime, but this is impossible to confirm for now. Some observers believe that the regime has been shocked by the size of the demonstrations, at a time when it seemed that the opposition had been definitely defeated. Some also believe that the Iranian working class, hit hard by the recent cut in subsidies, might join the Green Movement this time, adding a whole new thrust to it. Ahmadinejad had presented himself as the paladin of Iranís lower classes in his early years, but the subsidy cuts respond more to a logic of economic nationalism.

For the moment being the renewal of the Green Movement has not reunified the different conservative factions. At the beginning of February the parliament voted to impeach Transport Minister Hamid Behbahani, following yet another air crash. President Ahmadinejad is resisting the move, has accused the parliament of political interference and has reappointed Behbahani as caretaker. Just a few days earlier the same parliament had approved Ali Akbar Salehi as foreign minister, replacing his predecessor who had been sacked by the President without warning last year; Salehi is seen as a close ally of Ahmadinejad and his approval had seemed to signal better relations with the parliament: clearly a premature conclusion. The parliament feels that Ahmadinejad does not respect its prerogatives and wants to play a bigger role, despite Supreme Leader Khameneiís warnings that executive and legislative branches of the state have to cooperate; perhaps more importantly Parliamentary Speaker Larijani, who has been harbouring presidential ambitions for some time, is keen to discredit Ahmadinejad as much as possible. There have been also reports that US intelligence sources have identified divisions within the Iranian leadership, between those who fear sanctions could weaken popular support for the regime and stimulate popular protest.

The most important development in the first three months of 2011 was the ousting of Hashemi Rafsanjani from the leadership of the Assembly of Experts. The candidacy of arch-conservative Mahdavi-Kani received majority support from the 86 members of the Assembly (about 50 reportedly expressed support for the cleric) and Rafsanjani opted to withdraw his candidature to re-election. Rafsanjani however continues to lead the Expediency Council, another important organ of the Islamic Republic. Ahmadinejadís relations with other conservatives remains however edgy; in March he narrowly avoided (by one vote) another one of his ministers being impeached, energy minister Majid Namjou.

The Israelis believe that following some technical problem with the nuclear programme, an Iranian atomic bomb might still be 3 years away. 2014 curiously enough was the CIA predicted date during the Bush/Cheney administration and viceĖpresident Cheney, building up with the Israelis the imminence of an Iranian bid to take over the world (read the Iraq playbook), went ape at US Intelligence shooting his fox. At the time, some observers like us, thought that given the chaotic Iraq invasion discovering no WMDs being blamed on faulty intelligence, the CIA pre-emptively got the word out about Iran as they did. Indeed one wonders if the same phenomenon might be in play in Israel. The prediction that Iran was three years away from a nuclear weapon came from the retiring chief of Mossad. No doubt they too were embarrassed when no WMDs were found in IRAQ. Israelis are not all hawks, even if that is how they are often portrayed.

The Americans now believe that Iran has achieved the ability to produce highly enriched uranium, as required for the production of weapons. Now the focus of the effort to slow if not halt the programme is shifting towards preventing Iran from having access to other, important components such as centrifuges. It is believed that many of Iranís first generation of centrifuges have been retired and that the model being used (of Pakistani design) has proved unreliable. If Iran could be prevented from developing a new, more advanced generation of centrifuges, the whole programme could be slowed considerably. Carbon fibre in particular is one centrifuge component that the Americans have been targeting for some time, trying to prevent it from reaching Iran. Another school of thought insists that clever Israeli geeks, or US hackers employed by the Pentagon for cyber-warfare, had sabotaged the programs of Iranian centrifuges and that this is the cause of the delay. If that is true than it would be logical to expect reprisals from clever Iranian hackers!

However, at the current rate of progress, even by then negotiations over a civilianisation of the nuclear programme might not have made much progress. The last Istanbul talk with the Western powers in January did not achieve anything. Iran insisted that it wants to enrich uranium and instead wanted (embarrassingly), to discuss Israeli nuclear weapons, which automatically puts the Americans on the back foot.

Meanwhile, Western powers are discussing additional sanctions to be developed outside the UN framework, where Russian and Chinese opposition would make it difficult to achieve an intensification of the sanctions. The talk is of more financial sanctions and also sanctions affecting the oil and gas sectors. Incidentally the latest economic data shows that in January inflation continued to rise, reaching an annual rate of 10.8%, compared to 10.1% for the year to December; this was largely expected because of the massive subsidy cuts. For the time being the net around Iran is not tight enough to prevent Teheran from scoring a few goals. Most recently an agreement was signed with neighbouring Armenia, with whom they share a short frontier, to build a pipeline and supply oil to the trans-caucasian country. Ahmadinejad reacts to the internal trouble by re-launching his strategy of provoking international condemnation and using that to mobilise Iranian national sentiments behind himself. Most recently it was announced that he was to send a couple of warships through Suez into the Mediterranean, superficially to visit Syria. Obviously it attracted Israeli protests, but as we pointed out in our March Overview, Israel had done exactly the same thing not long ago, sending two warships in the opposite direction through the canal into the Red Sea, and on another occasion an Israeli submarine made a return trip.

If Ahmadinejad can contain his own enemies at home, he also faces the welcome prospect of a friendlier Middle East in the foreseeable future; if the promise of free elections in Tunisia and Egypt are kept, governments influenced by Islamist parties are likely and Iranís stance on Israel and hostility towards the US might be more appreciated. Another benefit for Ahmadinejad is that he can now easily point to Western double standards in dealing with Arab revolutions: intervention in Libya against a dictator, silence on the repression unleashed by the Yemeni and Bahraini dictators. Bahrain, with its Shiite majority being at the centre of social mobilisation and with Saudi troops deployed to prop up the regime, is perfect for Ahmadinejadís propaganda. Iran will probably try to stir up trouble in Bahrain, if it can, and it is openly encouraging the opposition to resist the bloody crackdown. Of course there is a high degree of hypocrisy in Iranís condemning the brutal treatment of street protestors in Bahrain when Iran itself is probably the worldís worst culprit at this time, in the violent repression of street protest and the torture and killing of those that it arrests.

Until now, pro-Iranian sentiment among the Bahraini Shiites has been minoritarian, but a radicalisation of opposition might occur now. At the same time the task of Iranís internal opposition gets more complicated. Ahmadinejad in any case took no chances and cracked down on the leadership even before the Saudis deployed to Bahrain, turning house arrest for Kharrubi and Moussavi into full detention.

Forecasting the Iranian economy is particularly difficult because of issues with the reliability of the data. The IMF forecast for the final 2010 GDP growth data is 1.6%, which is expected to rise to 3.1% in 2011. This will be mainly due to rising oil prices; the Iranian government continues to announce discoveries of new oil and gas fields, but its data about recoverable oil and gas are a bit suspect given the lack of foreign investorsí involvement. It is not clear whether Iran and its few remaining foreign friends have the capacity to exploit the new fields. The end of the fuel subsidies regime in Iran turned to be smoother than expected, without major disorders. The savings made by the Iranian government might not be the originally planned US$70 billion, due to the decision to use Iranian petrochemical plants to produce gasoline, but they are nonetheless substantial. What seemed to be an impossible task might therefore have been achieved. The immediate rationale is to defeat the sanctions regime, but the gains would go much beyond that if it is sustainable, freeing massive resources for investment. Following the subsidies cut, consumption reportedly fell from 61 million litres a day to 52-53 million litres, reducing the impact of sanctions on Iran considerably. In fact the Iranian government claims that it no longer needs to import any fuel due to the combined impact of reduced consumption and increased internal production. Teheran has also been using a series of tricks to remind the west of its potential for bringing disruption to its vulnerable neighbours. It blockaded fuel supplies to Afghanistan in January, creating a crisis in its eastern neighbour; it despatched Muqtada As-Sadr to Iraq to campaign against the US for a couple of weeks, before he returned to Iran.

Iranís oil exports seem safe for now. China has renewed its oil import agreement with Iran, maintaining import levels at 460,000 bpd. Banking sanctions are making it difficult for European buyers to have access to Iranian oil, but some companies, like Italyís ENI receive Iranian crude because of their investments in Iran. Also some Russian and Chinese banks trade with Iran and allow Iranian exports of oil. In total, Europe receives only about a quarter of Iranís exports; almost another quarter goes to China and the rest to a range of Asian refineries. India, second only to China among buyers, is still locked in a payment row with Iran and it is not clear whether it will renew its deal; Indian refinery sources say that supplies of Iranian oil have not been disrupted and that the intention is to continue buying Iranian oil, probably using banks not concerned by the sanctions regime. South Korean and Japanese buyers reduced purchases last year but it is believed that they will not further reduce it this year.

Ahmadinejad knows that he is soon going to benefit from rising oil prices: oil revenue for the current year is expected at US$80 billion. Certainly Ahmadinejad would be able to fix a few at least of the economic problems affecting Iran, with that new cash. In particular, inflation continues to rise fast: in February it grew to an annual 11.6% rate, up from 10.8% the previous month. Iran of course is one of the hawks within the OPEC and resists any idea of increasing production in order to contain prices. Iran is not one of the swing producers anyway (typically Saudi Arabia & Kuwait), and cannot increase its production anyway. There are other advantages associated with the rising shortage of crude on the market: India has now resumed payments to Iran after three months of suspension, for example.

Ahmadinejad presented his budget for the coming Iranian year to the parliament in March. He proposes a massive increase in expenditure, particularly investments to reduce Iranís dependency on oil revenue. From US$368 billion in the previous year, the budget should rise to US$539 billion, including state-affiliated companies. Ahmadinejad claimed that under his leadership Iranís non-oil exports have already increased from US17.7 billion in 2008-9 to an expected US$30 billion this year.

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