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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: 133 - (26/02/13)

Summary: The conflict between President Ahmadinejad and his rivals within the establishment continues to intensify, but it seems unlikely that the president will be able to run his own candidate in the June presidential elections. The sanctions are putting pressure on the politicians who are readying up for the elections, but collapse of the economy does not appear to be around the corner.

Ahmadinejad goes rogue
Infighting among factions of the establishment within the Islamic Republic of Iran has been intensifying in recent months. Feeling under siege, President Ahmadinejad has been fighting back violently, repeatedly accusing the judiciary of being politically manipulative and hinting that the prisons of the Islamic Republic mistreat and torture their prisoners, among whom are now some of Ahmadinejadís associates. He and parliamentary speaker Larijani, a very likely lead candidate in the next polls, are sparring all the time, forcing Supreme Leader Khamenei to intervene and scold both of them for their undisciplined behaviour, which threatens to discredit the Islamic Republic. Their respective supporters were even beginning to clash in the streets. Larijani accepted the need to apologise to Khamenei for his behaviour, but not so Ahmadinejad.

Even worse, Ahmadinejad has also issued a veiled threat of banning the forthcoming presidential elections should his candidate Esfandiar Rahim Mashaei not be approved by the Guardian Council as a legitimate candidate. If he really did that, he would unleash the deepest institutional crisis ever faced by the Islamic Republic.

Ahmadinejad is also hinting for the first time in public that it is not him who is pushing for the nuclear programme to continue at all costs, but Supreme Leader Khamenei; Ahmadinejad now says that he would be ready to have direct talks with Washington to reach an agreement quickly. Such a statement also offers a glimpse into the impact of the sanctions regime, which is becoming a matter of discussion among presidential contenders. Even a former intelligence minister and current member of the Assembly of Experts like Ali Fallahian, who has recently announced his candidacy at the presidential elections, has stated that he would stop the nuclear programme and sign a deal straight away. In the meanwhile Khamenei shows no intention of letting the nuclear programme lapse, in fact new centrifuges were installed in Natanz recently.

Sanctions bite but Iran copes
There is of course plenty of evidence that the sanctions bite the Iranian economy hard even without looking at the politicians sparring. Internal recession has allowed the Iranians to increase their power exports to neighbours by 29% over the last 11 months. December, the last month for which data was available at the time of writing, was actually not a bad one for Iranian oil exports, with just above 1.4 million bpd, the highest level in several months even if still well below the pre-sanctions 2.2 million bpd. As even tighter sanctions will come into force soon, however, this level is not expected to be sustainable. Oil output was estimated at 2.65 million bpd in January, down from the 3.7 million in late 2011.

South Korea is expected to further reduce imports from Iran, although the Chinese seem inclined to keep their imports at high levels because of the strong incentives offered by Iran: China is allowed to barter consumer goods (often low quality ones) for oil. That might be the only way, as the number of banks willing to process payments to Iran is shrinking all the time. The Indians were happy when the Iranians agreed to accept Rupees in payment for oil, but they cannot find banks to transfer the money to Iran. Even the Indians therefore are planning to reduce imports of oil from Iran by over 10% from the coming spring.

Still, the few foreign visitors to Teheran these days report that the economy seems still far from collapsing: shops and restaurants are full. Government finance has absorbed the worst of the pressure, something Iran can do because it does not have debts: the state deficit is rising to 3.9% of GDP this year, but gross debt is barely 9% of GDP, so this is still very bearable. The government is making some money by selling dollars to the private sector at inflated exchange rates.


Forecast 2013
Although the Iranian regime is much more solid than either Mubarakís was in Egypt or Assadís in Syria, it seems to be doing its best to organise a perfect storm against itself. The policy choices of recent years are all converging towards putting pressure on Iranís strained resources.

Ahmadinejadís low cost house building projects are endangered by inflation, because the home buyers who paid an advance are about to find out that the agreed prices no longer apply and they will have to pay much more to finalise the purchase. The government has advanced the money to the builders and if its buyers will not pay, the costs of that will all be added to the governmentís debt. In addition, Ahmadinejadís new cash handouts to the population are more expensive than the price subsidies which he has cut, which means even more government debt, unless he raises energy prices further. Given that elections are due in June and that inflation is already very high, it is unlikely that the government will be too keen to raise prices. It looks like what is going to happen in the short term are palliative measures, such as the recent ending of fuel subsidies for cars of 1800cc and above.

Official figures (not fully trustworthy) put the inflation rate at the end of 2012 at 27.4%, that is rising strongly from 26.1% just a month earlier. A survey done for the Iranian parliament (itself not neutral at all, as it now predominantly opposes Ahmadinejad) has shown that production levels are falling, people are losing jobs and the production costs are rising due to the fall of the rial and the rising cost of imported components. Whether accurate or not, the survey shows how the sanctions-driven crisis is now a matter of public debate, after having been long dismissed by the Iranian government. The Oil Minister recently admitted that oil exports are down 40% and oil revenue is down 45%, the first open admission that the sanctions are biting hard on the oil industry. After reaching a low of under 900,000 bpd in the summer, Iranís oil exports have rebounded somewhat, to 1.3 million bpd in October, which is well below the over 2 million bpd Iran was exporting before the sanctions. In December exports were estimated at around 1 million bpd, despite major imports from China, which purchased almost 600,000 bpd, an increase of 39% on November. It is no surprise that Iranís imports are falling. In the current financial year, they are expected to fall by US$4-5 billion from the usual US$55-60 billion of recent years, but next year the gap is expected to rise to US$7 billion. In a display of nervousness, the Supreme Audit Court (controlled by the parliament) dismissed the Central Bank governor over allegations of mismanaging the rial in the face of economic sanctions. The fall of the rial appears once again to be the factor which Iranís political elite had not expected when it decided to charge on in the face of international sanctions. The rial lost about 70% of its value, while overdue loans now account for 104% of the deposits of Iranian banks and keep rising fast. Yet another indicator of rising friction within the Iranian elite, following the impact of sanctions, is the dismissal in January of the health minister, Vahid; she had complained that her colleagues in the cabinet were not allocating sufficient resources for the purchase of necessary medicines. Shortages of medicines are a major source of discontent in Iran at the moment.

The impact of oil sanctions is probably stabilising, but leaving oil exports at 40-50% below the pre-sanctions level. If protracted long enough, this situation will dry up Teheranís financial resources.

In a sense the resilience of the Iranian elite is admirable, if perhaps ill-advised. Despite rising economic difficulties, there is no indication yet that the Iranians are ready for a nuclear deal anytime soon. Relations between Teheran and the IAEA remain tense as the two cannot agree on a new inspections regime; some observers believe that Teheran is leaving the door open to a deal on enrichment, but there seem to be little hurry to reach that. In the meanwhile Obama has signed a new layer of sanctions against Iran, further tightening the grip on its trading activities. Having embarked on a round of international policy brinkmanship not seen since the 1930s, the Iranian elite is risking everything for unclear and uncertain rewards. Increasingly isolated, the Iranian regime risks losing its two main international allies (Assad of Syria and Maliki of Iraq) pretty soon and cannot do much about it. Iran in the middle of major financial difficulties and now has even to help Assad, whose resources are modest not least because of the sanctions against his regime. Recently Teheran agreed to open a line of credit for US$1 billion to Syria for imports from Iran; it is far from certain that this money will ever be recovered. Even the gains made in recent years by Iranís regional diplomacy have been compromised by the hardline attitudes of Teheran and its support for the even more isolated Assad. The Egyptian government has been the target of Iranian blandishments, but the results have been meagre so far, despite the Islamist-leaning tendencies of the new Egyptian government.

Ultimately both Washington and Teheran would like to reach a deal on Iranís nuclear programme, but the terms which they are ready to accept do not coincide yet and might never coincide. The Iranians want a complete normalisation of relations with Washington, but in their effort to put pressure on Washington (having concluded years ago that blandishments would not work) they are making Obamaís task even more difficult: the more Ďrogueí Iran looks, the more difficult for Obama to hammer together a deal which American public opinion would accept. Time is ripe for a moderate Iranian president to take over and order a u-turn in policies, going back to where President Khatami was before Ahmadinejad. But is this Supreme Leader Khameneiís plan? For the time being, it is not clear whom he will endorse in the June 2013 presidential elections.

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