The Libyan National Oil Corporation (NOC) ended on January 2 a fire that raged for days among tanks in Libya’s largest oil export terminal of Es-Sider, but the militia violence fed by the implosion of governance that caused it continues. Indeed, the levels of suffering, civilian casualties, refugees, and those internally displaced have increased steadily. The talks between Libya’s rival warring governments slated for today have been postponed. Meanwhile, extremist elements are taking greater advantage of the ongoing maelstrom.

The NOC managed to put the fire out, but three days of normal Libyan oil exports were destroyed. Of course, with Libyan crude exports already down to less than 400,000 barrels per day (only 1/3 of normal output), the fire’s impact on global markets was minimal.

Libya’s low exports since mid-2013 pose serious fiscal challenges for the country. The internationally recognized, relatively moderate House of Representatives (HOR), elected in June 2014, headed by Prime Minister Abdullah al-Thinni, and driven to take refuge in the small eastern city of Tobruk, is in fiscal crisis. The Libyan Central Bank, so far neutral between rival governments, has drawn down Libya’s currency reserves to cover spending. With two hostile governments, there is also no budget for the allotment of funds in 2015.

One might think government spending and a budget would be the least of Libya’s concerns. But beneath the government standoff and rule of local or extremist armed elements around the country, much of the Qadhafi-era’s largely socialist economy remains. If the Central Bank fails to pay government employees, those of the National Oil Corporation, personnel keeping most ports functioning, workers struggling to maintain the electric grid, civil police, and others life would grind to a halt. Goods would stop flowing, businesses would lose customers, and people would not be able to obtain goods and services at the most basic level. Fraud-ridden and often dysfunctional, presently there is an economy just the same.

Tripoli’s Power

Credit: NASA image by Jeff Schmaltz

The Es-Sider inferno was triggered by a rocket fired by Islamic Dawn (LD), the robust Islamist militia comprised of fighters from Libya’s third largest city of Misrata, near Tripoli. LD is the muscle behind the rival Tripoli government.

Since last August when it propped up the Islamist portion of the former parliament, the General National Council (GNC) as a “government,” LD has been gaining ground. Its ability to push nearly 400 miles eastward, to menace Libya’s twin oil ports of Es-Sider and Ras Lanuf plus their supporting oil fields to the south illustrates LD’s rising power at the expense of the HOR and its loyalist allies.

Likewise, 500 miles to the west, LD has been driving toward Libya’s other major oil and gas terminal of Mellitah, near the Tunisian border. Thinni has been struggling to halt this other LD drive using local tribal militias and air strikes. A NOC statement from late December, fearing the loss of Mellitah, said Libyan hydrocarbon production would fall below the levels needed to even meet Libyan domestic demand.

Bloody Benghazi

A severe impediment for the HOR and its loyalist allies is the more extremist militia grouping continuing to dominate much of Libya’s eastern second largest city of Benghazi. Led by the formidable al-Qaeda associated Ansar al-Sharia in Libya (ASL), a militant alliance— despite see-saw fighting—has managed to hold various Libyan military units and former General Khalifa Haftar’s polyglot secular forces allied with the HOR in check.

The commitment of so many HOR military assets to the military meat-grinder in Benghazi to prevent ASL from moving eastward toward Tobruk has weakened its efforts elsewhere. Eleven more died and 63 were wounded in Benghazi on Dec. 22. In fact, most killed in clashes across Libya die in Benghazi. Eastern Libyan jihadists car bombed the HOR’s Tobruk hotel on Dec. 30 wounding 3 deputies.

Human Toll

The UN Support Mission in Libya and the UN’s High Commission for Human Rights announced on Dec. 23 that nearly 700 hundred Libyan civilians have died as collateral casualties of Libyan violence since August; many times that have been wounded. Combatant casualties would likely push fatalities over 1,000. This death toll is lower than those emerging from Syria and Iraq from the regime-rebel civil war in the former and Islamic State-related violence in both. Still, the UN warned commanders of Libyan armed groups they could be charged by the International Criminal Court (ICC) with criminal atrocities.

The refugee situation is far worse. By September, 1.8 million Libyan refugees had sought shelter in Tunisia. Added to those elsewhere, as in Egypt, refugees comprise approximately 1/3 of Libya’s entire population. Those in Tunisia have overwhelmed available humanitarian assistance, particularly now during the cold, rainy Mediterranean winter. Almost 400,000 Libyans are reportedly internally displaced.

No End in Sight

So far, diplomatic efforts seeking some sort of accommodation between Tripoli and Tobruk have been futile. Talks led by UN Envoy for Libya Bernadino Leon came to naught back in September. Leon tried to organize another round for Dec. 9, but this foundered due to more fighting triggered by a failed HOR effort to retake Tripoli. Leon reported to the UN Security Council on Dec. 23 that the two sides had agreed to meet today.

That initiative also collapsed. HOR airstrikes over the weekend against targets in Misrata (the home of the GNC’s “Libya Dawn” militia) came as a surprise. Two reportedly were wounded. An HOR military spokesman said the strikes were retaliation for renewed LD attacks against Es-Sider and Ras Lanuf where fighting has resumed. Yesterday a loyalist warplane struck a Greek tanker near the eastern port of Derna, killing two crewmen; a Libyan military spokesman claimed it was carrying militants.

Meanwhile, General David Rodriguez, head of US Africa Command, revealed on December 3 that “nascent” Islamic State (ISIS, ISIL or IS) training camps had been established in eastern Libya containing a “couple of hundred” militants. Fourteen Libyan soldiers were executed on Feb. 3 in southern Libya by a group calling itself the Islamic State of Libya. Even the more moderate Islamist GNC and LD, already hostile to ASL, condemned the killings. With Libya’s disarray and the grip of ASL and associated extremists over much of Benghazi plus areas nearby like militant-held portions of Derna, IS’s appearance at some point was inevitable.

Sudanese Foreign Minister Ali Ahmed Kharti in December chaired a meeting of his counterparts from Libya’s neighbors to express concern about the Libyan crisis’ regional impact. Weighing heavily on participants was the near conquest of Mali in 2013 by extremists, many staging out of and receiving munitions from Libya’s lawless southwest. There also has been arms smuggling from eastern Libyan militants to Egypt’s Sinai-based Ansar Bayt al-Maqdis jihadists, many of whom affiliated themselves with IS in Fall 2014.

Increasingly concerned about Libyan jihadist spillover, French President François Hollande urged the international community today to address Libya’s crisis. In a two-hour interview with France Inter radio, Hollande ruled out unilateral French intervention in Libya itself, but is establishing a base in northern Niger 60 miles from the Libyan border to help contain the menace. Last year, another French base was set up near the Malian border with Libya.

The longer Libya’s chaos remains on the global back burner, the nastier its impact will be in Libya and beyond. Crises left to fester sometimes find their own way to the front burner.

by Robert E. Hunter

Following President Barak Obama’s decision to restore diplomatic ties with Cuba, it is remarkable to see so much speculation about whether this will set a precedent for a restoration of US ties with Iran

The word “remarkable” is chosen deliberately because, on the face of it, the two situations seem so different. The Cuban revolution has long since lost its force, with few true adherents outside of the gerontocracy, while that in Iran, if somewhat attenuated, still has a major, perhaps decisive, impact on society as well as on foreign policy.

Further, any geopolitical arguments for US efforts aimed at isolating Cuba, themselves imperfect at best, died with the Soviet Union, 23 years ago this week. But the geopolitics for the US to continue trying to isolate Iran are alive and well, flowing from some basic disagreements, not least the Iranian nuclear program but also Iran’s support for Syria’s Bashar al-Assad, for Hezbollah and, to a lesser degree, for Hamas. These cannot just be wished away, in contrast to the outmoded argument that somehow Cuba could act as another country’s proxy or could destabilize any part of its neighborhood.

So what can we make of a possible connection with Iran? At one level, what Mr. Obama has done takes the United States at least one step beyond the quixotic American practice of deciding whether to have diplomatic relations with other countries based at least in part on how we view their governments. (If we don’t like them or what they do, we call them “regimes,” which is a dead giveaway.)

Few other countries in the world impose their standard of a nation’s behavior, at home or abroad, in deciding whether to have at least some semblance of normal diplomatic intercourse—though there are major exceptions, such as the unwillingness of a number of Arab countries to deal formally with Israel. The US also tends to lose from imposing a test of purity regarding another country’s government or its international behavior. Not only do many countries not follow our lead but, more importantly, we deprive ourselves of the capacity to gain direct experience of the other country’s leaders.

Of course, it is rarely true that diplomatic relations are totally severed: some contacts are inevitable and are conducted by so-called “protecting powers.” In Iran, the US protecting power is Switzerland; in the United States, Iran’s protecting power is Pakistan. (All members of the United Nations also have diplomats in New York, and informal corridor contacts can always take place, “plausibly denied.”)

This round-about practice can have its price, however. For example, in 2003, when the US was about to invade Iraq—thus “putting the wind up” Iran’s clerical leadership—the Iranians made a proposal, through the Swiss, which, if it had worked out (a big imponderable) could have wrapped up the nuclear issue at that time. But in part because of the indirect nature of the proposal, the US was able simply to ignore it—such was the attitude of the US administration at the time to anyone in the Middle East out of step with US preferences. That would have been harder to do if American and Iranian diplomats had been dealing directly with one another.

Despite President Obama’s break with the tired old precedent regarding what governments we are prepared to deal with, he is not likely to follow suit with Iran, at least not just to tidy things up. US domestic politics is a major factor. The “Cuba lobby” may still have an important role to play in Florida’s politics—one of the “swing states” in US presidential elections—but the passage of time and a rising generation of young Cuban-Americans has attenuated the lobby’s power. Not so in regard to the domestic lobby that wants no part of relations with Iran. This lobby is mostly Israeli-inspired, but also includes some Christian evangelicals and a lot of neoconservatives, especially in Congress, who are not prepared to compromise with any government that is a challenge to the United States.

We thus cannot expect a “Nixon to China” opening to Iran, as much as that would bring us into line with the practice of most nations on the planet in terms of diplomatic relationships. Indeed, Obama will have enough trouble selling the opening to Cuba to Congress—whose Republican majority come January would love to deal him a setback, whatever the merits of the case. And without congressional action, a lot of what the president has in mind can’t be done. At least in this case, executive action has severe limits. Selling an opening to Iran that would have practical consequences, like the freeing-up of trade and investment with Cuba, could only be done if Iran came across on issues important to the US, with the nuclear program topping the list.

It also takes two to make something like this work. Despite the potential for success in the negotiations between Iran and the so-called P5+1 countries on the former’s nuclear program, and despite the pressures exerted on the Iranian economy both by Western sanctions and by the Saudi-driven drop in the price of oil, it is not clear that Iran wants improved relations with the United States, at least unless the US were willing to remove at least a large part of the economic sanctions. This the United States will not do without a nuclear agreement. In fact, the hostile reception in much of Congress to the opening to Cuba has not helped the climate needed to foster success in the negotiations with Iran over its nuclear program: if a relatively simple thing like getting rid of congressional strictures on dealing with a tired old Cuban oligarchy that has long since ceased posing any threat to any US national security interest is so difficult to achieve, Iranian skeptics can wonder whether President Obama could deliver on any agreement that would include sanctions-lifting. No doubt, the same point has occurred to US domestic opponents of any deal with Iran.

The geopolitics of Iran’s situation has a further twist. Despite the emphasis put on the Iranian nuclear program and the pressures from the Israeli and other domestic lobbies, this is only part of the story. Several countries in the Middle East oppose Iran’s reemergence into regional society for a much broader set of reasons and—for at least some of them—the nuclear issue is simply the one that most easily catches the attention and support of outsiders, particularly the United States.

Sunni countries oppose “apostate” Shia Iran, an ideological point reinforced by the fact that most of Saudi Arabia’s oil reserves are located in the Eastern Province, with its large Shia population. Iran also supports the Alawite-dominated Syrian government, another poll of the region’s Sunni-Shia civil war. Other Gulf Arab states (though not Oman) also feel threatened by Iran, for reasons that have nothing to do with the nuclear question. Turkey would just as soon see Iran continue to be isolated, and this also applies to Israel, which does not want to see Washington and Tehran reconciled, even if the nuclear issue were resolved, at least without a major and credible change in Iran’s attitude toward the Jewish state.

Judged in its own terms, President Obama’s opening to Cuba is a useful departure from a sclerotic policy of many US administrations that has long outlived its value for the United States, if it ever indeed had any value. But while it does say something about the president’s cast of mind, in and of itself the new Cuba policy will not have much if any influence on US policy toward Iran. In fact, if fears on the part of the opponents of change see Obama as likely to continue cleaning up the past—as a president who has fought his last electoral battle—they may simply ramp up their opposition to a sensible US approach to the current talks with Iran.

Here is where the president needs to show his mettle: to persevere with the negotiations with Iran over its nuclear program, provided, of course, that Iran’s leaders will do the same. Success could then open up possibilities for the two countries to work together on areas of compatible interests, including Afghanistan, freedom of navigation in the Persian Gulf, countering Islamic State forces, and exploring possibilities for stability in Iraq. Such a course would put US national interests ahead of domestic politics, which is what we expect our presidents to do.

by Mark N. Katz

What a difference a few months make. During much of 2014, Russian President Vladimir Putin was riding high. Russia seized Crimea from Ukraine quickly and relatively bloodlessly. Putin was also able to help pro-Russian forces in eastern Ukraine effectively secede from the rest of the country and prevent the Ukrainian government from retaking these areas. Western governments howled in protest and even imposed economic sanctions on Russia, but were unable to force Putin to back down. Putin’s unsettling actions also seemed to help keep the price of oil high, which Russia benefited from as a leading petroleum exporter. And while the West was highly critical of him, many governments elsewhere—most notably in Asia—seemed indifferent or even sympathetic toward Putin’s actions in Ukraine.

At present, though, things look very different for the Russian president. Western sanctions, which initially seemed quite weak, now appear to be having an increasingly negative effect on the Russian economy. More importantly, the dramatic decrease in the price of oil over the past few months has contributed to a sharp drop in Russia’s export income as well as to the value of the ruble. Eastern Ukraine has meanwhile become an increasingly costly venture for Moscow—not least because of the mounting deaths of Russian soldiers engaged in the fighting there. Absorbing Crimea is also proving costly for an increasingly cash-strapped Moscow. As Western disapproval and even fear of Russia have grown, the ranks of European political and economic leaders calling for accommodating Moscow and cooperating with Putin have thinned. Finally, those non-Western governments that earlier seemed indifferent or sympathetic to Putin’s policy toward Ukraine now seem either indifferent or eager to take advantage of Russia’s increasing economic difficulties.

Putin, in short, now seems to be facing something of a dilemma. Continuing his current policies toward eastern Ukraine will probably not bring about an end to what is becoming a quagmire there for Moscow, and will mean that Western economic sanctions on Russia remain in place or even worsen. Yet withdrawing from Ukraine could weaken Putin domestically since the Russian public has supported his forward policy on Ukraine and would not be happy to see it reversed.

So what will Putin do now? Many fear that he will lash out at the West by supporting Russian secessionists in the Baltics or elsewhere. Putin himself has contributed to this fear by talking about how a cornered rat will attack its pursuers. But despite the deteriorating situation that he now faces, the Russian president need not become that rat in the corner. Indeed, he can be expected to ensure that he does not.

This is because Putin is basically a pragmatist. While he can support Russian secessionists in the Baltics, Belarus, northern Kazakhstan, or elsewhere in Ukraine—as he did with those in Crimea and eastern Ukraine—Putin cannot now be certain that he can gain control over these territories quickly and easily like he did with Crimea. Instead, supporting such groups or intervening directly may only result in more drawn-out conflicts such as the one now taking place in eastern Ukraine. If it is increasingly costly for Russia to be involved in just one such conflict, it will be even costlier still for it to become involved in more of them. If he thought he could replicate what happened in Crimea, Putin might be tempted to do this. Indeed, his quick victory in Crimea may have persuaded him that he could also win in eastern Ukraine. But now that eastern Ukraine has proven to be so problematic, Putin must be aware that similar adventures elsewhere could prove similarly risky—and that Russian forces could only get more thinly spread if they become involved in more such conflicts.

Some fear that Putin might lash out in some other manner by, for example, ending Russian support for the ongoing negotiations with Iran over its nuclear program. But this also seems unlikely because: 1) Russia does not want Iran to acquire nuclear weapons, either and 2) the United States and its Western allies could still reach an agreement with Tehran on this matter without Russian help—which would only serve to demonstrate Russian impotence.

Russia stepping up its support for the Assad regime in Syria is another possibility. Doing so, though, would make Russia more of a target for Islamic State (ISIS or IS). Nor does it seem plausible that Putin would want Russia to become more involved in Syria when Moscow is far more concerned about what is happening in Ukraine and other former Soviet states.

Some fear, though, that reported Russian submarine deployments in Swedish waters, military overflights over several countries, and claims in the Arctic are all signs that Putin is preparing something even worse. However, while hardly reassuring, these moves seem aimed more at showing the Russian public how strong Putin is than as precursors to Russian initiation of conflict.

What all this suggests is that while Putin is aggressive, he is not reckless, and he demonstrated this during a Dec. 18 press conference. Indeed, while insisting that any Russian troops in eastern Ukraine are “volunteers,” he seemed also to hold open the door to cooperation with Kiev—and with Georgia, too (which Russia won a brief war against in 2008).

Returning to the rodentine analogy that Putin himself has used: if a cornered rat lashes out, one that is not cornered is more likely to find a safe place to run to instead. What this means for the West is that while it should assist Ukraine in resisting Russian incursions, it should reassure Putin that if he compromises on Ukraine, the West will not use this as an opportunity to rout him altogether. By continuing to cooperate with Russia on problems of common concern (such as Afghanistan, the Iranian nuclear issue, and terrorism) and by reiterating how Western sanctions would be lifted if Russia modifies its policy toward Ukraine, we can help Putin achieve his own goal of not ending up in a corner.

The country that could ultimately suffer the most damage from a sustained depression in the world price of oil could be one that is not a major producer: Egypt.

Unable to sustain itself, Egypt is being propped up by big infusions of cash from Saudi Arabia and the United Arab Emirates (UAE). Those two oil states, closely aligned with the Cairo government headed by Abdel Fattah al-Sisi, could afford to be generous in their commitments when they were taking in $100 a barrel, just a few months ago.

With the price now down to about $60 and unlikely to rise much over the next year at least, it becomes an open question how long it will take for the two Gulf states’ domestic needs to overtake their support for Egypt.

The Saudis and the Emiratis understand that Egypt is an economic “bottomless pit,” according to Gregory Gause, a specialist in the Gulf monarchies at Texas A&M University. There have been no indications so far that they are contemplating a pullback from Egypt, but it becomes more likely the longer lower prices squeeze their oil revenue, Gause said.

Saudi Arabia’s equanimity so far in the face of the plunging price of the commodity that supports most of its public spending reflects multiple policy interests. If the falling price discourages further development of high-cost new oil sources such as shale in the United States, deep-sea wells off Brazil’s coast, or new fields in the Russian Arctic, that helps Saudi Arabia maintain its market share, a declared objective.

And the Saudis seem quite content as the price contraction inflicts economic damage on damage on Iran, their great regional rival, and on Russia, which has incurred Riyadh’s displeasure by supporting the regime of Syrian President Bashar al-Assad, to whose ouster the Saudis are committed. Egypt, however, is another matter because Sisi has become a major ally of Saudi Arabia and the Emirates in the regional struggle against the Islamic State and other extremist groups.

In a paper distributed last week, Fahad Alturki, head of research at Jadwa Investment Group in Riyadh, predicted that Saudi Arabia will maintain its current levels of spending at least for a while because it has “foreign reserves of more than 95 percent of GDP and a public debt of less than 2 percent of GDP.” Even at today’s prices, he said, the kingdom is likely to show a balance of payments surplus next year and fall into deficit only in 2016.

If the Saudi government did decide to cut spending, however, external aid would probably be one of the first targets, Alturki said.

Oil prices were already descending rapidly because of declining global demand and inventory surpluses when the members of the Organization of Petroleum Exporting Countries decided last month not to reduce their production to stabilize the price. That decision sent the price down still further to the apparent satisfaction of Saudi Arabia and the UAE, which have very deep pockets. Platts Oilgram, a trade journal, reported that “Saudi oil minister Ali Naimi left the summit all smiles, telling reporters that rolling over the 30 million b/d production ceiling was ‘a great decision.’”

The most immediate losers from the price decline are the large producing countries that need the cash to sustain their current operations. According to Alturki’s paper, these include Russia, which needs a price of $107 a barrel to support its budget; Venezuela, which needs $120; and Iran, which needs $127. Alturki’s “baseline” price projection for the next two years is $83 to $85 per barrel. Oil prices are notoriously hard to predict, but his figures are in line with several other analyses that have been published in the past few weeks.

Egypt’s problem is different, and harder to solve. The country produces about 700,000 barrels of oil a day, and its output has declined steadily from a peak of 900,000 barrels in the 1990s, according to the US Energy Information Administration. (Worldwide production is about 92 million barrels.) Almost all of Egypt’s output is consumed domestically by its population of about 80 million.

Because it is not an oil exporter, Egypt depends on other sources of hard-currency revenue to support itself; mostly Suez Canal tolls, cotton exports, and tourism. The tourist trade, however, has dwindled to a trickle over the past few years because of the country’s political upheavals, leaving the country short of cash to pay for imported food and other necessities.

According to Arabian Business magazine, the United Arab Emirates and Saudi Arabia committed aid with more than $12 billion in cash grants, no-interest loans, and refined petroleum products in 2014 alone. Kuwait, another major Gulf oil exporter with a small population, kicked in another $4 billion, the magazine reported.

Saudi Arabia pledged to support Sisi almost immediately after he ousted the former president, Mohamed Morsi, in 2013. Morsi had been elected as the candidate of the Muslim Brotherhood, which both Egypt and Saudi Arabia have since outlawed. In June, Saudi Arabia’s King Abdullah reportedly declared that any country that did not join in supporting Egypt would “have no future place among us.” But the king is also doling out tens of billions of dollars in salary increases, new social benefits and housing programs that he extended to his own citizens during the regional uprisings of 2011. He is also paying for massive infrastructure projects such as a new metro rail network for Riyadh and a mammoth new port on the Red Sea. Even Saudi Arabia can’t keep it up indefinitely at $60 a barrel.

by Djavad Salehi-Isfahani

The decision announced last Monday in Vienna to extend the talks aimed at a compressive agreement on Iran’s nuclear program for an additional seven months has resulted in Iran’s currency taking dive. In one week, the rial lost more than 5% of its value in the unofficial market. The devaluation has clear political and economic implications: it will revive inflation, slow or stop economic growth, and increase the pressure on Iranian President Hassan Rouhani as his government tries to make good on the election promises he made 18 months ago.

But will this soften Iran’s negotiating position? To answer this question, we need to look at the basis of this phase of the rial’s devaluation and what it means for ordinary Iranians.

The drop in the value of the rial after the extension was announced on Nov. 24 indicates that expectations in Iran for a final deal were high before the deal failed to materialize. This optimism had kept the rial’s value above what the economics of the situation warranted. In other words, rather than being in “free fall,” as several reports in the press have suggested, the rial is actually adjusting to a new equilibrium.

Two major factors have been putting pressure on the rial in the last few months, neither of which is related to the negotiations or the sanctions. The first is the decline of the price of oil, by more than 30% since this summer, which has reduced the already strained supply of foreign currency to the Iranian economy. As I noted in my previous post, prior to Nov. 24, the rial had remained surprisingly stable despite the falling price of oil.

The rial was also under pressure because Iran’s inflation exceeded that of its major trading partners, making Iranian producers less competitive. Prices in Iran have increased by 23% since Rouhani’s election in June 2013 when the rial traded around 31,000 per dollar. All else the same, the rial would have to fall by 23% to keep Iranian production competitive. That would mean an exchange rate of over 38,000 rials per dollar in the unofficial market and 32,500 in the official market. Presently, these rates are at 34,000 and 26,500.

Of course, all else is not the same. The price of oil is lower, Iran has started receiving around $700 million a month of its unfrozen assets, and there have been changes in economic policy. Some of these changes, like the lower price of oil, would require the rial to devalue further, while others would have the opposite effect.

At the same time, although the rial could continue to decline, currently it’s certainly not in free fall.

An overlooked fact in Western press reports on this issue is that the Rouhani government, populated in part by economists focused on the competitiveness of Iranian producers, had signaled its intention to officially devalue the rial before the Nov. 24 extension was announced. Indeed, officials spoke publicly last month about a (modest) 7.5% increase in the official exchange rate to be used in the 1394 (2015/2016) budget to 28,500 rials to the dollar.

Now on to that burning question: How long will this crisis last?

The pace of devaluation in the free market has quickly slowed down—the rial even rose against the dollar on Dec. 1—but as I mentioned earlier, further drops in the value of the rial are still possible as the reality of the lower price of oil sinks in.

Devaluation is a sign of an underlying imbalance in the economy, so when it happens, people are naturally alarmed. But it is also part of the solution to the same imbalances that need correcting. Consider, for example, that a cheaper rial is good for production and employment, even in a poor business environment hampered by international sanctions and domestic impediments to production, which business people refer to as “internal sanctions.”

Devaluations also redistribute income. In the short-run, inflation, which dropped last year below 20%, will rise as prices for goods bought and sold at the unofficial rate increase. The burden of the higher inflation will fall primarily on people living on fixed incomes, on the public payroll, and those who travel abroad or send money to their children abroad—all of whom compose the better part of the middle class.

Unlike former President Mahmoud Ahmadinejad, Rouhani does not believe in directly paying the poor, so what happens to this segment—about 10-20%— of the Iranian population is less certain. Wages of unskilled workers usually increase with inflation, though not always in tandem. They also rise with demand for labor, which could get a boost from devaluation. However, the 30% increase in the price of bread that was quietly implemented earlier this week, on Dec. 1, will hurt the poor disproportionately, as it was put through without any compensatory mechanism.

Of course, if the Rouhani government is forced to reduce the country’s much larger energy subsidies to balance its budget in the face of falling oil revenues, it may ultimately have to swallow its pride and take up the Ahmadinejad cash transfer mechanism, which Rouhani strongly criticized during his presidential campaign.

Ultimately, the drop in the price of oil will result in lower economic growth and loss of income across the country. But there is no policy that can fully compensate for a large decline in the terms of trade, which the recent decline in the price of oil represents—there are only good and bad policy responses. Allowing the rial to devalue is a good start, but not enough. The government should also be planning policies to help domestic producers rise to the occasion and measures required to protect the poor as prices for basic goods such as bread and energy rise.

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by François Nicoullaud

Paris, France—This is not the first time that we may have trapped ourselves when drafting UN Security Council (UNSC) resolutions that were intended to trap another country—in this case, Iran. The present situation recalls in some respects the period around 1997 when most Security Council members would have liked to rescind, or at least amend, the sanctions adopted against the regime of Saddam Hussein after the 1991 Gulf War, as their effects were obviously getting out of hand: widespread corruption, and the dramatic deterioration of the Iraqi population’s state of health, to name a couple. But any change in the sanctions would have required unanimity from the five permanent members of the Council, and that was definitely out of reach. The situation led French President Jacques Chirac to express his frustration. “We want to convince, not coerce,” he said. “I have never observed that the policy of sanctions can produce positive effects.”

We have not yet reached such a dramatic juncture with Iran. But should it become useful to rapidly lift the sanctions imposed by the four UNSC resolutions between 2006 and 2010 in order to secure a comprehensive agreement on Iran’s nuclear program, the Western negotiators may find themselves incapable of delivering and may instead try to kick the can down the road to some point in the distant future.

Aimed at halting Iran’s military, nuclear and ballistic activities, these UNSC resolutions are not the ones that hurt the most. More destructive are those unilateral measures imposed by the United States and the European Union, since they were designed essentially to destabilize the Iranian economy. But the UNSC sanctions carry with them a “pillory effect” that the Iranians perceive, quite correctly, as deeply humiliating. They also provide the legal bedrock upon which the European sanctions, in particular, have been constructed. The Iranians are therefore anxious to see them lifted as soon as possible through a decision by the Security Council to close the file it opened in 2006 and return it to the forum from which it should never have been taken: the International Atomic Energy Agency (IAEA).

The conditions for terminating these resolutions, however, are also overwhelming. In fact, the people who drafted them seem to have been pursuing two not necessarily compatible goals at the same time.

The first goal was to pile up all the preconditions that the authors believed were necessary to prevent Iran from acquiring a deliverable nuclear device, including:

• suspending all activities related to enrichment and reprocessing, including research, development, and construction of new facilities;
• suspending all activities related to the construction of a heavy-water research reactor;
• providing immediate access to all sites, equipment, persons and documents requested by the IAEA in order to verify Iran’s compliance with the Security Council decisions and to resolve all outstanding issues related to the possible military dimensions (PMD) of the Iranian nuclear program;
• promptly ratifying the Additional Protocol to Iran’s safeguards agreement with the IAEA; and
• suspending all efforts to develop ballistic missiles capable of delivering nuclear weapons.

Considering the context in which these resolutions were adopted, there was little chance that the Iranians would comply with such an elaborate and comprehensive set of so-called “confidence-building measures,” which would have forced Tehran to abandon virtually all of its nuclear and ballistic-missile ambitions.

The second goal was substantively quite different from the first and indeed somehow contradictory. It aimed to push Iran into negotiations, as illustrated by the formula that was included in all the UNSC sanctions resolutions, which ritually expressed the “conviction” that Iran’s compliance “would contribute to a diplomatic, negotiated solution.” Moreover, if Iran suspended its enrichment and reprocessing activities, the Council declared its willingness in return to suspend at least some of its sanctions in order “to allow for negotiations in good faith” and “reach an early and mutually acceptable outcome.”

As we now know, a negotiation process ultimately was initiated, albeit through a radically different path, as the West dropped its demand that Iran fully suspend all its sensitive nuclear activities before entering into substantive talks. One can therefore assume that the second goal will be accomplished as soon as a comprehensive agreement, which will hopefully emerge from the current round of talks in Vienna, enters into force, thus rendering this dimension of the UNSC’s resolutions totally obsolete.

But of course, the resolutions’ first dimension—the exhaustive inventory of “confidence-building measures”—remains in place. Because confidence is essentially an elusive and subjective feeling, taking this path involves embarking on a long-term, winding and always reversible road, the end of which is only faintly discernible now. Such a process is also hardly compatible with the “on-off” mechanism of the Security Council: there is no chance that its resolutions, once cancelled, could be reintroduced. Hence the strong reluctance of the Western powers to commit themselves to such an outcome.

We also all know that the sanctions are much easier to adopt than to rescind, as they tend to create, in the meantime, their own logic and dynamics. They develop new balances of power and vested interests, if only among those in authority who have dedicated themselves so thoroughly to the sanctions’ implementation and enforcement. One has only to recall the notorious example of the general embargo imposed by the Allies against Germany during the First World War whose continuation for several months after the 1918 Armistice unnecessarily prolonged the suffering of the German people and deepened the bitterness of their defeat.

Are Iran’s negotiating partners ready to learn the lessons of history? The Gordian knot that the UNSC sanctions represent should be slashed asunder, if not immediately upon the signing of a comprehensive agreement with Iran, then at least after a moderately short period in which Iran’s determination to comply with its terms could be confirmed. Such a gesture could also be linked appropriately to the formal ratification by Iran’s parliament of the Additional Protocol that Tehran had signed during an unsuccessful round of talks back in 2003—the two moves being equally irreversible.

This would not mean that pending requests made to Iran, such as the ancient issue of the “possible military dimensions” (PMD) of its nuclear program, would have to be abandoned. But it would mean that these requests would thenceforward be dealt with exclusively by the IAEA. It would also mean that the Council, in light of the progress achieved after the signing of a final deal, would no longer consider the Iranian situation a “threat to the peace” under the terms of the UN Charter’s Chapter VII, the only chapter that authorizes the use of coercive measures against a Member State in order “to maintain or restore international peace and security.”

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There just doesn’t appear to be any in-between. Except that there is.

This year and each subsequent one, we can avoid supporting the big box corporations that exploit people, communities, and the planet as a whole while enriching an elite few without being self-righteous or abetting exploitation ourselves. Cooperatives and self-directed enterprises, democratically owned and controlled by their workers, are a great way to improve labor rights and inject money into a local economy. Best of all, the gift you give benefits more than just the recipient.

Purchasing from a Workers’ Self-Directed Enterprise (WSDE) is casting a ballot for a community. Free of the burden of compensating Board members and expensive CEOs, WSDEs pay their workers more, give them better benefits, and give more to charity than their traditional capitalist counterparts.

Because the workers live where they work, they provide twice as much money into the local economy through taxes and purchases. This also makes them far less likely to move their operation (and selves and families) to a different country to save a buck or two.

if you’re considering going WSDE but you’re not quite sure where to start, below is a partial list of progressive businesses that make up a  handful of what’s out there. (You can use these three resources to find more.)

Equal Exchange


Equal Exchange is a worker-owned co-op that offers fair trade products from small farmer cooperatives across the world. Whether you’re looking for high-quality chocolate, tea, bananas, olive oil, hot cocoa, and a score of other products for a loved one, the taste of Equal Exchange’s gifts are only enhanced by their flavor for justice. Equal Exchange works with farmer cooperatives and food cooperatives (consumer-owned) to connect people who grow the food to the people who buy and enjoy it.

Co-op 108


Co-op 108 is a worker-owned co-op that prides itself on being a safe alternative to the chemical- and preservative-based skin care products otherwise flooding the shelves. They are dedicated to using local and organic ingredients whenever possible and are always 100% preservative free.

Co-op 108 is focused on helping create a more co-operative economy by interco-operating with other co-ops, by contributing a percentage of their surplus to a co-op development fund, and by creating a more humanized workplace for the owners.

Food For Thought Books


Looking to avoid Amazon.com? Their deals may seem tempting, but  the online giant is doing everything it can to shut down small bookstores across the country and their labor practices have been absolutely horrid.

Over the years, Food For Thought books, a worker-collective in Amherst, MA, has certainly felt the pressure from Amazon’s onslaught. Yet, where many bookshops have had to shut down, Food For Thought has stayed open—in large part thanks to its collective structure in which the worker-owners share the burden amongst each other.

In addition to its neighborhood bookstore, you can purchase books on their website and have them delivered straight to your home.

TESA

The Toolbox for Education and Social Action (TESA) is a worker-owned producer of resources for social and economic change, from the cooperative movement itself to community organizing, people’s history, and beyond..One of their most popular items is the well-reviewed Co-opoly: The Game of Cooperatives, which last year sold in more than 20 countries. Full disclosure, two of us work for this outfit, so we obviously think we’re pretty neat. But if the above organizations appeal to you, TESA is most-likely up your alley as well.

By Brian Van Slyke, Taliesin Nyala, and John Burkhart. Brian and Taliesin are worker-owners at The Toolbox for Education and Social Action. John is the Research Director at Democracy at Work, a social movement for a new economy.