By Richard Javad Heydarian
A key foreign policy consequence of President Barak Obama’s reelection is the growing possibility of face-to-face talks between the United States. and Iran. Both the US Secretary of State Hillary Clinton and Iran’s Foreign Minister Ali Akbar Salehi have expressed, albeit conditionally, their respective governments’ openness [...]]]>
By Richard Javad Heydarian
A key foreign policy consequence of President Barak Obama’s reelection is the growing possibility of face-to-face talks between the United States. and Iran. Both the US Secretary of State Hillary Clinton and Iran’s Foreign Minister Ali Akbar Salehi have expressed, albeit conditionally, their respective governments’ openness to engage in comprehensive bilateral talks — for the first time in almost three decades — to primarily resolve the ongoing nuclear standoff.
Beyond the issue of urgently resolving the Iranian nuclear question, purportedly to prevent an Israeli pre-emptive strike and an Iranian nuclear bomb, the Obama administration’s growing interest in directly engaging Iran may have something to do with timing, opportunity, and leverage.
There is a feeling in Washington that the recent transatlantic sanctions may have created enough pressure — and damage to Iran’s economy — to potentially extract major unilateral concessions from the Iranian regime. Namely, a “stop-shut-ship scenario”, whereby Iran would curb its enrichment capacity, open up all aspects of its nuclear program, shut down its heavily-fortified nuclear facilities, and ship out its stockpile of above 3-5 percent enriched uranium in exchange for some nominal — yet to be clarified — incentives from the West.
Since the imposition of Western sanctions against Iran, beginning in late-2011 and intensifying by mid-2012, the Iranian economy has begun whimpering on an unprecedented scale. Iran’s oil output is at its lowest in more than two decades, while oil exports have been halved; the inflation rate has surpassed the 25 percent barrier, while the budget-deficit is reaching its highest level in the last decade; and, the Iranian currency (rial) has lost about 80 percent of its value in less than a year. The sanctions against Iran’s ports, shipping industry, financial sectors, and central bank, Bank-e-Markazi, have also made it increasingly difficult to conduct even the most benign kind of international transactions, from the import of medicines, to food, diapers and medical equipments.
However, there are some recent indications that Iran’s economy is not exactly in a desperate shape, or at least not as frail and fragile as the Obama administrations hopes it to be.
According to the Paris-based International Energy Agency’s (IEA) most recent report, Iran’s oil exports have rebounded sharply – by around 30 percent – after seven months of steady decline, thanks to new contracts with giant Asian customers, China and South Korea. With oil exports constituting more than three-quarters of export earnings, Tehran is now in a relatively better position to defend its falling currency. In fact, the rial has indeed experienced some recovery in recent weeks, appreciating from the record-low of 37,000 rials against 1 dollar in early October to around 27,000 rials against 1 dollar today. Of course, the most recent financial and hydrocarbon sanctions by the European Union will further complicate the process by which Iran intends to translate its rising exports into a stronger local currency.
Another surprising development is in the tourism sector, which has also experienced an unexpected spike. “Although most sectors of Iran’s economy are struggling and oil revenue has steeply declined, foreign purchasing power is at an all-time high in Iran due to a plunge in the value of the Iranian currency, the rial,” reported Jason Rezaian of the Washington Post.
The Iranian government has circumvented transatlantic sanctions by an ingenious mixture of manifold countermeasures. It has negotiated sovereign insurance deals with major customers such as China, India, Japan, and South Korea, while considering barter deals (sweetened by heavy discounts and flexible payment arrangements) to woo major customers and continue large-scale oil trade. Iran has also expanded its tanker storage capacity by purchasing/building new oil-transporting vessels, smuggled oil through neighboring countries like Iraq, and stealthily transported oil — with off-the-radar and/or or ‘foreign flagged’ ships — from its ports to major destinations in East Asia. This explains Iran’s ability to increase oil exports by almost 30 percent in November, compared to previous months.
Moreover, the government has instituted some draconian measures to stave-off the impact of sanctions. It has further slashed imports, postponed its subsidy cuts, reduced money supply, raised interest rates, and jailed so-called ‘currency manipulators’. It has also encouraged domestic manufacturing. Aside from the government’s recent ban on imports of around 77 luxury products, atop reductions in 52 other non-essential goods, the fall of the Iranian currency — especially in the black market – has also eroded the competitiveness of imported capital goods, which have hammered local producers in recent years.
It’s important to note that the Iranian government has considerable foreign exchange reserves, estimated at between $80-100 billion, giving it significant ability to sustain imports for an extended period and defend its currency amid growing international restrictions. With a multi-tiered foreign exchange system, the government has an ability to cushion the most vulnerable sectors — incidentally, the backbone of the regime – against major disruptions in the import of basic commodities. After all, Iran’s structurally high inflation more the product of a loose monetary policy and major subsidy cuts that begun in 2010.
In some ways, it is Iran’s relative resilience — and ability to avoid a total collapse — that may explain its willingness to explore direct talks with Washington. Tehran feels that it has enough wiggle room to avoid total unilateral concessions and negotiate a more mutually-favorable, face-saving outcome — perhaps, before it’s tool late.
- Richard Javad Heydarian is a Philippine-based foreign affairs analyst, specializing on international security and economics. He can be reached at jrheydarian@gmail.com
]]>The University of Pennsylvania’s Iran Media Project and ASL 19, a Canadian non-profit working against censorship in Iran, explain how sanctions are increasing the Iranian government’s censorship capabilities:
It is increasingly difficult for independent publishers of books and print newspapers in Iran: The problem this time is not strict censorship, [...]]]>
The University of Pennsylvania’s Iran Media Project and ASL 19, a Canadian non-profit working against censorship in Iran, explain how sanctions are increasing the Iranian government’s censorship capabilities:
It is increasingly difficult for independent publishers of books and print newspapers in Iran: The problem this time is not strict censorship, but the skyrocketing price of paper. Iran has reduced subsidies for imported paper, placing a stranglehold on an industry that relies heavily on paper’s import. The devaluation of almost 50% of the Iranian Rial compared to the US dollar and other major currencies has further made the import of paper from abroad exorbitant.
Under such conditions, President Ahmadinejad’s administration has been selective in financially supporting publishers and newspapers close to the government. Independent publishers and any publication that is critical of the government have been left to deal with this crisis on their own. As a result, some publishers have closed down, while some have reduced their circulation and publication schedules. Those with access to alternative sources of funding have decided to import paper, regardless of high prices, to keep their publication going.
Regardless of the cuts on subsidies for importing paper, the government continues to provide these publishers with subsidized paper and the administration has allocated major funds to purchase books from these publishers. Finally, the government helps these publishers by purchasing government-sponsored advertisements in their magazines and newspapers, and given this generous support from the government, this third of group of publishers has hardly been affected at all by the increased price of paper.
]]>Sweeping economic sanctions exact a deep toll from cultural heritage and the arts. As the United States and its allies continue to exert economic pressure on Iran, those of us who care about and work in the arts should be aware of the negative effects such actions have on cultural production and cultural preservation. The severe sanctions imposed on Cuba and Iran go beyond the interest of any government in their impact on people and their culture.