by Djavad Salehi-Isfahani
Iranian President Hassan Rouhani was elected to office largely on his promise to lift the economy out if its deepest recession since the Iran-Iraq war. One year later, evidence of a recovery is hard to find, but he has achieved a few significant accomplishments.
Rouhani’s most visible accomplishment [...]]]>
by Djavad Salehi-Isfahani
Iranian President Hassan Rouhani was elected to office largely on his promise to lift the economy out if its deepest recession since the Iran-Iraq war. One year later, evidence of a recovery is hard to find, but he has achieved a few significant accomplishments.
Rouhani’s most visible accomplishment is lower inflation, down by more than half from over 40 percent a year ago. The runaway inflation of the last three years that alienated the middle class and even many conservatives from former President Mahmoud Ahmadinejad is now back to a level that Iranians consider normal.
Containing inflation was achieved at considerable cost, though, by keeping government expenditures to a minimum and forgoing any kind of fiscal or monetary stimulus. Rouhani even managed to increase energy prices last April without any protest, indicating that his popularity has so far survived austerity. The energy price hikes were substantial enough to close the budget gap left by Ahmadinejad’s generous — some would say irresponsible — cash transfers. The price of gasoline was increased by 75 percent, diesel by 67 percent, and other energy prices by about 30 percent.
Rouhani’s second economic achievement was restoring the business confidence lost to the erratic economic management of the Ahmadinejad years. He did this by simply getting elected and by appointing a competent team. His election stopped or at least slowed down the hemorrhaging of Iran’s economy, which has been hit by draconian international sanctions and bad domestic policies.
Rouhani’s greatest economic success came in the form of a political victory. He overcame substantial domestic opposition to rapprochement with the West to sign the Joint Plan of Action (JPA) with world powers last November. The economic impact of the JPA has been underwhelming, but without it the economy would have continued to slide.
The agreement can be credited with the strengthening of Iran’s currency, the rial, which is a good indication of rising business confidence. Since November, Iran’s oil exports have also increased by 30 percent, about $7 billion of Iran’s frozen funds have been released, and petrochemical exports, which received specific sanctions relief, have increased.
This spring, auto production (also marked for sanctions relief in the JPA) was up by a whopping 90 percent compared to a year ago according to Mohammad Reza Nematzadeh, the minister for industry, mines and commerce. He also mentioned increases in petrochemicals production by 9 percent and durable goods by 30 percent.
These improvements are most likely lost on the average Iranian, whose job prospects and income has not increased since Rouhani took office. The obvious culprit is, of course, the financial and shipping sanctions that limit Iran’s access to its foreign exchange earnings and continue to choke large sections of its industries. Manufacturers are still using cumbersome and costly channels to procure their raw materials and parts. For them, the optimistic official statements and newspaper headlines proclaiming the imminent “collapse of the sanctions regime,” is just talk. Indeed, while Western critics of Iran’s limited sanctions relief, particularly in Washington, point to the flood of foreign business missions to Tehran, no actual investment has occurred due to the continued uncertainty about the future of the sanctions.
The latest disappointing jobs report shows the limited impact of the JPA so far. Industry as a whole continued to lose jobs last spring, more than 6 months after the signing of the agreement.
There were 700,000 fewer industry workers employed in spring 2014 than when Rouhani took office. These numbers cast doubt on the claim made in a recent report published by the Foundation for Defense of Democracies and Roubini Global Economics that the economic benefit of the JPA “is reflected in increased economic output and improvements in employment within Iran.” National accounts data published last week shows that industrial output for 2013/14 as a whole was down by 4.5 percent and industrial employment has been falling through spring 2014.
Data on personal incomes and consumption published by the Statistical Center of Iran also indicates that economic recovery is yet to come. For the Iranian year that ended on March 20, 2014, real household consumption fell by 5 percent for urban households and 12 percent for rural ones. Their real food expenditures meanwhile fell by 14 percent.
So does the anemic economic recovery weaken Rouhani’s hand in the nuclear negotiations and should the West therefore toughen its position now in order to extract further concessions from Iran?
Sanctions have no doubt increased Iran’s willingness to negotiate, but it would be a mistake to think that more sanctions always brings more concessions. Most Iranians believe their government has held its part of the bargain since last November, so they would see more sanctions now as bad faith on the part of the P5+1 (US, UK, France, Russia, China plus Germany) and blame the failure of the negotiations on them. This would reduce pressure on Rouhani to make further concessions.
Furthermore, the Iranian middle class, after having survived eight years of Ahmadinejad, still regards Rouhani as the best leader to champion its interests. The poor, who, despite years of sanctions are decreasing as a proportion of the total population, are meanwhile relatively well protected. Thanks to the cash assistance program instituted by Ahmadinejad (about $40 per person per month in international dollars) in 2012/13, when average real incomes and expenditures were falling, poverty rates actually fell. At the time, only 5 percent of the population was counted as poor, based on a $5 per day poverty line (in international dollars). Iran’s effective income assistance programs can be adjusted to protect them against further economic deterioration.
The more interesting question is how the course of the talks could affect Rouhani’s presidency beyond its first year.
As they stand now, Rouhani’s plans are helping the private sector lead the economic recovery and letting markets form the basis of economic life in the Islamic Republic. If the talks succeed in the next four months and sanctions are gradually lifted, Iranian businesses are sure to spring into action, as they do when oil money starts to flow. Rouhani will be then be well on his way to a second term.
But Rouhani has reservations about this scenario. In the past, oil-induced booms have deepened Iran’s dependence on the outside world, something that runs counter to the vision of a “Resistance Economy” identified with the Supreme Leader.
If the talks fail, as the Washington hawks seem to wish, Rouhani would have to reverse course; instead of re-integrating Iran into the global economy with the private sector in the lead, he would promote economic self-reliance and resistance to outside pressures, a strategy that fits much better with the state and its para-statals at the helm.
In the narrow, security-focused discussion of Iran that passes for analysis these days in the US, the broader issues of importance to Western leaders are easily lost. But for those interested in longer-term relations with Iran, it helps to bear in mind that the current negotiations are not just about Iran’s nuclear activities; they are also about the direction that Iran’s economy will take in the coming decade, and who could benefit from it.
Photo: Iranian President Hassan Rouhani visits the Shahid Rajai Port Complex port in Hormozgan Province on Feb. 25, 2014.
]]>by Derek Davison
American sanctions on Iran: what have they accomplished? There seems to be little dispute that the sanctions have hurt the Iranian economy, the oil revenues of which have been drastically cut, not to mention Iran’s double-digit inflation, and its lack of access to SWIFT, the network that facilitates [...]]]>
by Derek Davison
American sanctions on Iran: what have they accomplished? There seems to be little dispute that the sanctions have hurt the Iranian economy, the oil revenues of which have been drastically cut, not to mention Iran’s double-digit inflation, and its lack of access to SWIFT, the network that facilitates most of the world’s international banking transactions. The conventional wisdom, especially here in DC, is that the economic hardship imposed by these sanctions has led to the current negotiations over Iran’s nuclear program, by creating the conditions under which moderate Hassan Rouhani could be elected president of Iran, or by forcing Rouhani to come to the negotiating table to get them eased, or both. Trita Parsi, President of the National Iranian-American Council (NIAC), opposed this notion in May, noting that Rouhani’s election was driven by a desire for reform and not by economic hardship, and that the resumption of talks was spurred by diplomatic overtures from Washington to Tehran. His argument is bolstered by Iran’s pursuit of a negotiated settlement with the United States years before the strongest nuclear sanctions were imposed.
Yet much of the DC foreign policy establishment, especially hawks and neoconservatives, has endorsed sanctioning Iran, in growing degrees, even while doubting the sanctions ability to get Iran to abandon its alleged nuclear aspirations. As the negotiations in Vienna get ever closer to the July 20 deadline imposed by last November’s Joint Plan of Action (JPOA), hardliners in Congress and the neocon establishment are insisting that there be no sanctions relief unless Iran not only dismantles its entire uranium enrichment apparatus, but also does away with its ballistic missile program, ends its “support for international terrorism,” and agrees to uniquely intrusive monitoring requirements for at least 20 years. If those demands, none of which can be acceptable to the Iranians, somehow didn’t scuttle the deal, the neocons would probably require an apology for the Battle of Thermopylae.
While some Iran hawks might prefer military action either instead of or in addition to the sanctions, others appear more concerned with punishing Iran — and, whether they want to or not, Iranians – than reducing the chances of military conflict. Indeed, just this week the Daily Beast’s Eli Lake wrote a sarcastic “Thanks Obama!” piece bemoaning and overemphasizing whatever slight improvement the JPOA’s easing of sanctions has spurred in Iran’s limping economy, based on a report by the neoconservative Foundation for Defense of Democracies, and Roubini Global economics. If US sanctions on Iran were indeed aimed at solving the conflict over its nuclear program through diplomacy rather than military force, then the tiny improvement in Iran’s economy following the interim nuclear deal should not be worrisome. Rather, it’s an indicator that incentives are more useful in achieving objectives than punishments; remember, the Iranians are still at the negotiating table where, slowly or not, progress is being made.
Everybody argues about what the sanctions have or have not done to Iran’s economy, but few seem interested in what they may be doing to America’s economy. That’s where a new report by NIAC, “Losing Billions: The Cost of Iran Sanctions to the U.S. Economy,” comes in. Using an economic model called the “gravity model of trade,” NIAC estimates that between 1995 and 2012 the US economy lost, at a minimum, between $134.7 and $175.3 billion in revenue that it could have earned via bilateral trade with Iran (the figures for several European countries are actually larger, relative to the size of their respective economies).
Using the US Department of Commerce’s calculations for the number of jobs created per additional billion dollars in exports, NIAC estimates that sanctions on Iran have cost the US somewhere between 51,043 and 66,436 job opportunities per year over the same period, on average. Any improvement in Iran’s economy over its real world 1995-2012 performance (which could be expected in the absence of sanctions) would push these estimates higher.
Though NIAC’s overarching point (sanctions on Iran have blown back on the US economy) is sound, there are reasons to be skeptical of their exact figures. The gravity model of trade predicts bilateral trade based on the size of the two economies and the distance between the two nations, just as the actual theory of gravity estimates the attraction between two bodies based on their masses and the distance between them. It also incorporates additional variables like past colonial relationships, contiguous borders between the two nations, and linguistic affinities. The report then compares Iran’s trade volume with other countries to estimate how much trade it would have done with America in the absence of sanctions. But Kimberly Elliott, co-author of one of the academic studies underpinning the gravity model, told Al-Monitor that this method doesn’t include the extent to which any lost trade between the US and Iran has been offset by increased trade between the US and other nations. The Brookings Institution’s Barry Bosworth also noted that the US has been a weak exporter in general for much of the period that NIAC was studying, and so the actual impact of sanctions on the US economy may be less than the theoretical impact. The estimates also don’t take into account the particular complications in the US-Iran relationship; Washington didn’t suddenly cut diplomatic and economic ties with Tehran in 1995, so assuming, as the study does, more-or-less normal trade relations between the two countries over the period 1995-2012 seems problematic. Even absent formal sanctions, it’s unlikely that American and Iranian trade ties would have been that close.
Complicating factors aside, there is no denying that American sanctions on Iran have had a drag effect on America’s economy. NIAC’s report not only reminds us of that easily-forgotten fact, it also puts the dollar figure of that drag into some kind of a ballpark. Though NIAC makes no explicit claim as to whether or not the sanctions were “worth it” in the sense that trading economic growth for (presumed) leverage over Iran’s nuclear program may (arguably) still have been the right course of action, the negotiators in Vienna ought to take into account the damage done to the US and European economies as a result of these policies, even if China and Russia don’t want them to.
Photo: Port Newark and Port Elizabeth container complex in New Jersey, near Newark International Airport.
]]>by Farideh Farhi & Jasmin Ramsey
Editor’s Note: Following is Jasmin Ramsey’s introduction and interview with Farideh Farhi, an independent scholar and expert on Iran from the University of Hawaii who has been in Tehran since the end of August.
The Iranian President Hassan Rouhani was inaugurated [...]]]>
by Farideh Farhi & Jasmin Ramsey
Editor’s Note: Following is Jasmin Ramsey’s introduction and interview with Farideh Farhi, an independent scholar and expert on Iran from the University of Hawaii who has been in Tehran since the end of August.
The Iranian President Hassan Rouhani was inaugurated just three months ago and two important historic events have already occurred under his watch: the private meeting between Iran’s Foreign Minister Mohammad Javad Zarif and Secretary of State John Kerry on the sidelines of September’s UN General Assembly in New York and President Barack Obama’s 15-minute phone conversation with Rouhani on Sept. 28.
The hope that was generated in New York — where Rouhani and Zarif effectively presented Iran’s new administration to the world — carried through into the Oct. 15-16 resumed talks in Geneva between Iran and the 6-world power P5+1 team. While all parties have remained officially silent on the details of those talks, Iran, the US and the EU concluded with positive statements.
At the very least, it was obvious that Iran’s new negotiating team, led by Zarif — a well-known diplomat with demonstrable knowledge of the US and how to solve political quagmires — has entered negotiations with a serious plan and intent to resolve the nuclear issue once and for all. Of course, Iran and the P5+1 insist on certain bottom lines and it remains to be seen whether the stars will align in Tehran and Washington enough to allow a deal to happen. With that in mind, I spoke by phone with the Iran expert Farideh Farhi, who’s currently in Tehran, to get a sense of where things stand ahead of the next round of talks scheduled for Nov. 7-8 in Geneva.
Jasmin Ramsey: What is the political environment like in Iran right now in relation to the nuclear issue?
Farideh Farhi: A good part of the Iranian political spectrum is supportive of their nuclear negotiating team’s different approach and efforts for resolving this issue. The folks who are not supportive of this effort are effectively marginalized because of the presidential election’s results; the only argument that they have at this particular moment is: “it’s not going to work.” They’re hedging so that if the talks fail, they can come back and say: “we told you so.”
Does that raise the stakes for the Rouhani administration?
This government has a lot riding on the resolution of the nuclear issue because it made it a campaign promise and priority. Had Mr. Rouhani’s rival, Tehran mayor Mohammad-Baqer Qalibaf, been elected a failure on the nuclear diplomacy front would have posed less of a problem since Mr. Qalibaf’s campaign platform was more focused on the better management of Iran’s economy. But Rouhani’s campaign promise, as well as a quick jump on the nuclear issue, has raised the stakes for him and his foreign policy team (failure on this front may also end up impacting his promises on the domestic front). This is not to say that Rouhani is ready or desperate to make any deal in order to save his presidency or his other agenda items. The Iranian political environment continues to make the acceptance of an agreement that does not acknowledge Iran’s rights under the Nuclear Non-Proliferation Treaty (NPT) impossible. So, the acceptance of a bad deal is politically even more dangerous for Rouhani than not reaching an agreement.
Are the Iranians reasonable in terms of what they are expecting from the other side as part of a mutual deal?
While discussing the complex web of sanctions that have been imposed on Iran, Iran’s Deputy Foreign Minister for Europe and Americas, Majid Takht-Ravanchi, argued that in exchange for Iran’s confidence-building moves, at least one of these sanctions should be removed as a first step. This suggests that Iran will not be asking for the removal of all sanctions immediately, as it has done in the past, but is looking for something that will show a change of direction in the U.S. approach to this issue. A reversal of the sanctions trend is important for selling whatever compromises the Iranian nuclear team makes to its audience back home.
As I mentioned previously, this government has a lot riding on this issue and if it is unable to frame the results of the negotiations as also protective of Iran’s rights, then it will not only be unable to sell the agreement domestically, it will also begin to face serious challenges regarding its domestic agenda.
Can you elaborate?
Mr. Rouhani’s election platform had three prongs. One was related to foreign policy; he promised a reduction of tensions with the Western world at least partly through successful nuclear negotiations. Then there was the economic prong, which has a management component. Against the backdrop of deteriorating economic conditions, Rouhani promised both better management of the economy and more rationalized state support for the private sector and productive activities. Finally, he called for the de-securitization of Iran’s political environment.
The continuation and further tightening of the sanctions regime will force the private sector and producers in Iran to rely even more on the state for protection against a deteriorating economic environment and the challenges of getting around sanctions. It will also increase the threat perception of the political system as a whole and as such make the further easing of political controls more difficult.
What about what’s happening in Iran domestically. Earlier this month the daughter of a key opposition figure, Mir Hossein Mousavi — who’s currently under house arrest — was reportedly harshly harassed by a guard outside of Mousavi’s home. Can movement on the nuclear issue aid the de-securitization of Iran’s domestic environment?
If a movement on the nuclear issue ends up reversing the economic war that has been waged and eliminate the threat of military attack that keeps being issued against Iran, then it is not too outlandish to think of the further opening of the Iranian political system. It should be noted that the high participation rate in the presidential election has already had some impact in terms of reducing the systemic fears that motivated the terribly restricted political environment of the past four years. In other words, on the domestic front the move towards the center, supported by the electorate, has already eased tensions within the country. The removal of external threats is likely to further this process. But if Mr. Rouhani’s foreign policy agenda is blocked by the United States taking a maximalist position, then there is no guarantee that this process will continue. In fact, it is more likely that old fears about outsiders — and particularly the US — trying to foment domestic disturbances will once again resurface.
So President Rouhani definitely wants to relax the state’s hand in the personal lives of Iranians?
He has certainly expressed his desire for a less interventionist state in the personal lives of the citizenry as well as a less repressive state in the treatment of critics and dissidents. His Intelligence Minister even said recently that dealing with security issues through securitizing the political environment is not something to boast about. So the expression of desire and/or pretense is there.
But there has been more than an expression of desire or hope. As I mentioned before, the political environment has also opened up considerably since the election. No doubt hundreds of political prisoners, including former presidential candidates, remain. Abuses such as the one you mentioned regarding Mousavi’s daughters also continue to occur. Just last week, a reformist newspaper was shut down for an article that should have been challenged through a critical engagement rather than shutting down a whole newspaper. Still, I arrived in Tehran two months ago and have yet to meet someone who does not acknowledge a vastly different political environment than prior to the election. This may be just temporary given how bad things were after the 2009 election, but there is nevertheless a palpable and acknowledged sense of relief and political release.
President Rouhani and the Iranian nuclear negotiating team have referenced a limited timeline for reaching a deal. How long do you think it will be before they say too much time has passed?
The process has become accelerated, but I don’t think anyone is expecting the sanctions regime to crumble within 6 months. People have even talked about some sanctions remaining for a long time — they reference the sanctions on Iraq and the time it took for them to be lifted. Nevertheless, there is expectation or hope regarding a reversal of these deteriorating trends.
The bottom line is that a good part of the Iranian population as well as the leadership is ready for a compromise. Under these circumstances, there is readiness for a full-fledged process of give and take and as such, agreements to keep meeting are no longer deemed satisfactory. Hence the expectation that something needs to happen by the next meeting. I don’t think this necessarily means immediate major concessions from either side, but I do think that once the first step is taken, there is no reason why this process cannot become even more accelerated.
In a speech on Sunday, Supreme Leader Ali Khamenei essentially voiced support for Iran’s nuclear negotiating team and told hardliners to hold back for now. Does this signal a shift on his part?
It does not signal a shift, but it does highlight two key elements of Iran’s approach to the nuclear talks. First, his words make clear that despite the noise made by the hardliners criticizing the negotiation team’s softness, excitement, and perhaps even gullibility, Zarif and his aides have full systemic support in their efforts to find a reasonable solution to the nuclear conflict — a solution that addresses both Iran’s bottom lines in relation to the right to peaceful uranium enrichment as well as western concerns regarding potential weaponization. Secondly, Khamenei’s words also made clear that Iran’s approach to negotiations is quite pragmatic. As he said, if the negotiations work, “so much for the better”, if not, Iran will carry on with a more inwardly oriented approach to its development. By giving full support to the negotiating team — led by the very popular Foreign Minister Javad Zarif — the Leader is positioning himself on the side of public opinion, which favors talks, while making sure that the same public opinion eventually does not consider him a stumbling block to a reasonable solution. Such a positioning will make it more likely that domestic public opinion will blame US unreasonableness, egged on by the Israeli government, and not inflexibility or lack of diplomatic acumen of a Zarif-led negotiating team if talks fail.
Do you sense that Iran’s hardliners are willing to support a nuclear deal?
It’s not a question of their willingness; despite the hardliners’ loud voices at this particular moment, they’re marginalized. A systemic go-ahead has been issued for the perusal of some sort of compromise that acknowledges Iran’s right to enrichment despite limitations on the levels and extent. The hardliners will come out of the margins if the Obama administration insists on the maximalist position of no enrichment that is being pushed by Prime Minister Benjamin Netanyahu or is unable to offer any kind of meaningful sanctions relief in exchange for significant Iranian concessions.
So Rouhani is walking a fine line in trying to balance his foreign policy agenda on the nuclear issue with the tricky situation he’s dealing with politically at home?
No doubt, but I would say that at this particular moment, President Rouhani and his team have some leeway regarding how to frame an agreement because of the consensus that was generated by the election. I would even argue that their hands are less tied than President Obama’s, considering Congress’ hardline position on the sanctions regime.
On that point, it’s quite interesting, because on one hand there’s almost a sense among those who are hopeful here regarding negotiations that Obama needs help. But on the other hand there seems to be a tactical urge on the part of others to mirror US policy on Iran. So, while some would like to reduce expressions of anti-Americanism that have long been present in the Iranian public sphere through slogans, posters and so on, others argue that the pursuit of diplomacy while emphatically chanting “Death to America” is Iran’s version of the US’ dual-track policy of sanctions and diplomacy on Iran.
Do you think the taking down of anti-US billboards earlier this month in Tehran is part of that?
Yes, they were taken down by the Tehran municipality and that was apparently on Mayor Qalibaf’s order. I saw smaller versions of those billboards, calling on the Iranian negotiators not to trust the American negotiators, being carried by demonstrators on Nov. 4, the anniversary of the US embassy takeover.
The protest rally in front of the former US embassy was more robust this year as well. Many people showed up or were bused in and instead of avoiding “Death to America” chants, Saeed Jalili, the former nuclear negotiator and presidential contender, made the case that it is perfectly fine to simultaneously negotiate and chant “Death to America.” He added that the chant is not directed at the American people, only at the US government. There was a clear rhetorical play on the US’ dual track of sanctions and diplomacy; the underlying point was that chants of “Death to America” are not directed at the US public in the same way that both the Obama administration and US Congress make the claim that sanctions are not directed at the Iranian people.
There have been several reports recently that foreign commercial actors such as oil companies are thinking about how they could return to Iran in the event of a nuclear deal. Are you seeing any of that on the ground?
Not yet. The sanctions regime is still in full force. I was talking to an Iranian businessman the other day and he told me that he can’t even receive brochures through the mail from German companies because they fear they would be violating sanctions. Of course, he then told me how he gets around that issue byway of Dubai.
Iran’s Oil Minister Bijan Zaganeh has stated that the Petroleum Ministry is re-evaluating its terms and conditions for investment in the country’s oil and gas sector with an eye for offering better terms. He has also acknowledged conversations with some European companies but he said all of this is just at the level of initial talks. So, people do seem to be getting ready for something — the mood for now seems to be that things may work out well because people are also sensing some change in the Obama administration. That said, everybody remains extremely cautious; they know very well that things could also fall apart very quickly.
]]>by Djavad Salehi-Isfahani
Four months after the collapse of the rial earlier this fall, Iran’s economy is still reeling from its effects. The rial lost 40% of its value in one week late last September, succumbing to accumulating pressures from free spending by the Ahmadinejad government, overvaluation caused by years of [...]]]>
by Djavad Salehi-Isfahani
Four months after the collapse of the rial earlier this fall, Iran’s economy is still reeling from its effects. The rial lost 40% of its value in one week late last September, succumbing to accumulating pressures from free spending by the Ahmadinejad government, overvaluation caused by years of booming oil revenues, and international sanctions.
Financial sanctions imposed by the United States against third-party countries that trade with Iran have seriously disrupted Iran’s international trade, reducing its ability to sell its oil or spend the revenues from what it can sell. Sanctions have inflicted enormous pain on millions of Iranians, who have watched the boom of the last decade deteriorate into stagnation, inflation triple and critical items such as medicine disappear from stores. Iranians are meanwhile unsure who to blame, those who have imposed the collective punishment or their own government.
For the moment, there is no sign that what the West was hoping sanctions would do — soften the position of Iran’s leaders as a result of rising dissatisfaction — is actually happening. There are three reasons for this. First, the government has so far skillfully protected the poor from the worst aspects of the economic crisis. It has done so by offering cash payments (amounting to half the minimum wage for a family of four), and by keeping the price of basic necessities like food and fuel from rising as fast as inflation.
Second, those who suffer most — the salaried middle class — are least likely to pour into the streets in protest. And third, even those who believe that sanctions are the root cause of the current economic mess are not likely to ask their government to capitulate to Western demands.
Bringing inflation down and reviving investment are the two biggest challenges that the Iranian government currently faces. There are signs that inflation, after jumping to 4.5% per month (equal to an annual rate of 70%) during October and November, is coming down. Monthly inflation was 2.5% in December and fell to 1.7% in January 2013.
The moderation in inflation is no thanks to Iran’s free-spending president, whose two most important programs — cash subsidies and an expensive low-cost housing program — have been largely financed by printing money. The parliament has been trying to rein him in, and even tried to fire his Central Banker last month on a charge that he had raided the reserves of member banks, a move that had ironically helped reduce inflation.
But success in harnessing inflation will not shield the population from the worst effects of the sanctions. The government has done well in fighting them by finding alternative sources of supply for basic imports, and has successfully engaged in bilateral trade with several countries that are willing to withstand the wrath of Washington such as China, India, Turkey and Argentina, but it will have a very hard time getting private investment back on track with cumbersome arrangements for international trade.
Iran’s private sector is the main source of jobs for the country’s 20 million youth, and the only hope for its 4 million unemployed. The more realistic value of the rial after devaluation has done much to bring the productivity of these youth closer to their wages, which should boost their employment. But uncertainty surrounding the future of the dispute with the West will keep private money on the sideline and in liquid assets, waiting for a sign that normal times are about to return.
Remarks by US Vice President Joe Biden and Iran’s Foreign Minister Ali Akbar Salehi this past weekend that raised the prospects of direct talks between the US and Iran was perhaps a sign, for it immediately sent the rial up against the dollar by nearly 5% in the free market for foreign exchange. If this means that Iran’s private investors have not given up on the country’s future, it should serve as an inducement for Iranian leaders to do their best to reduce tensions with the West — even better, to resolve the nuclear standoff once and for all.
]]>The Guardian is reporting that a ”reformulated” proposal including “limited sanctions relief” will be launched by the five permanent members of the UN Security Council plus Germany (p5+1) after the US presidential election.
Earlier this week Al-Monitor reported along the same lines and Secretary of State Hillary Clinton made
The Guardian is reporting that a ”reformulated” proposal including “limited sanctions relief” will be launched by the five permanent members of the UN Security Council plus Germany (p5+1) after the US presidential election.
Earlier this week Al-Monitor reported along the same lines and Secretary of State Hillary Clinton made similar general comments. But according to Reza Marashi, a former Iran-desk State Department staffer, we’ll have to wait and see if the comments result in substantial changes on the part of the negotiating powers.
“The rhetoric we’re hearing from these unnamed U.S. and EU officials is positive, and it should be both praised and reinforced,” Marashi told Lobe Log. “But as we’ve learned over the past four years, actions speak louder than words for officials in Washington, Brussels and Tehran.”
Marashi noted that Western officials had already recognized the need for offering Iran a deal that it could sell at home “but domestic political realities forced the U.S. to move the goalposts.” If there is to be any real progress, it will happen after the US presidential election on November 6th. According to Marashi, “until then both sides recognize the need for better PR. We’re already seeing this on Iran’s end with Foreign Minister Salehi.”
“Both sides are spending political capital to shape the narrative in case talks fail, rather than spending the necessary political capital to ensure talks succeed,” he said.
Ever since negotiations resumed and began heading downhill this year, analysts have been saying that a successful deal requires sanctions relief to also be on the table. In July, former top CIA analyst Paul Pillar explained why the “Nothing-But-Pressure Fallacy” is doomed to fail if an acceptable deal for both sides is the objective:
…And the story of stasis in the nuclear talks is also pretty simple. The Iranians have made it clear they are willing to make the key concession about no longer enriching uranium at the level that has raised fears about a “break-out” capability in return for sanctions relief. But the P5+1 have failed to identify what would bring such relief, instead offering only the tidbit of airplane parts and the vaguest of suggestions that they might consider some sort of relief in the future. The Iranians are thus left to believe that heavy pressure, including sanctions, will continue no matter what they do at the negotiating table, and that means no incentive to make more concessions.
But success from the declared US perspective (that is, verifiable moves from Iran showing that it will not build a nuclear weapon) also depends on what kind of, as well as how much sanctions relief is offered (consider George Perkovich’s comment at the end of Chris McGreal’s report); Iranian acceptance of the notion that the US will not seek regime change once Iran makes serious concessions; what Iran is willing and able to do to prove good and true intentions; and who is running the show in Iran and the US when the new deal is offered.
Regarding the last two points: sources say that this SPIEGEL interview with Iranian Foreign Minister Ali Akbar Salehi where he implies that Iran could halt 20% enrichment (a major p5+1 requirement) in exchange for a guaranteed fuel supply echoes previous statements that Iranian officials have been making for quite some time. Iran-watchers have also been speculating that the country’s hardline leaders will not allow Mahmoud Ahmadinejad to achieve any diplomatic successes while he is in office and any deal is therefore only possible following his exit in June 2013.
Meanwhile, Jim reports for IPS News that earlier this week Republican Sen. Lindsay Graham said he is working on a new Congressional resolution which he hopes to pass in any lame-duck session after the Nov. 6 elections that would promise Israel U.S. support, including military assistance, if it attacks Iran. And after the new Congress convenes in January, Sen. Graham suggested he would push yet another resolution that would give the president – whether the incumbent, Obama, or his Republican challenger, Mitt Romney – broad authority to take military action if sanctions don’t curb Iran’s nuclear programme.
Not to mention the fact that while Iran’s economy and people continue to struggle under the weight of sanctions, the US and EU are piling more on, making the Iranian hope of an end to sanctions and the domestic suffocation at home, seem like a far away dream.
]]>Lobe Log publishes Hawks on Iran every Friday. Our posts highlight militaristic commentary and confrontational policy recommendations about Iran from a variety of sources including news articles, think tanks and pundits.
Michael Singh (WINEP), Washington Post: The managing director of the Washington Institute for Near East Policy (aka [...]]]>
Lobe Log publishes Hawks on Iran every Friday. Our posts highlight militaristic commentary and confrontational policy recommendations about Iran from a variety of sources including news articles, think tanks and pundits.
Michael Singh (WINEP), Washington Post: The managing director of the Washington Institute for Near East Policy (aka the Washington Institute or WINEP), a think tank that was created by the American Public Israel Affairs Committee (AIPAC), calls for imposing more pressure on Iran while bolstering the military option:
Like any good pugilist, Washington should follow the heavy blow of oil sanctions with further unrelenting pressure.
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Finally, Washington should bolster the credibility of its military threat. Recent steps to strengthen its force posture in the Persian Gulf are a good start. They should be accompanied by more serious statements about U.S. willingness to employ force and an end to statements exaggerating the downsides of military action.
Former top CIA middle east analyst Paul Pillar responds in the National Interest:
If the oil sanctions aren’t enough, what other pressure does Singh say should be used? One is “bolder” efforts, whatever that means, to oust the Assad regime in Syria, and regardless of whatever implications that may have for escalation of that conflict. Another is an ill-defined reference to “cultivating Iranians outside the narrow circle around” the supreme leader or “providing support to dissidents” in Iran. No mention is made of how to get around the inherently counterproductive aspect of outside efforts to manipulate internal Iranian politics, or how one more indication that regime change is the ultimate Western objective is supposed to make the current regime more interested in making concessions. Finally, Singh calls for more military saber rattling—as if the threat of a military attack is supposed to make the Iranians less, rather than more, interested in a nuclear deterrent to protect themselves from such attacks. That makes as much sense as pushing yet again on the “pull” door.
We probably should not take the purveyors of such advice at their word. Surely at least some of them, including probably Singh, are smart enough to understand the basics of Sanctions 101. Their objective evidently is not success at the negotiating table but instead the indefinite perpetuation of the Iranian nuclear issue for other reasons or the checking off of a box on a pre-war checklist.
Lee Smith (FDD), Tablet Magazine: Hawks on Iran regular Lee Smith of the neoconservative-dominated Foundation for Defense of Democracies (FDD) quotes retired Army Gen. John Keane (see biographical note below) before undermining repeated warnings from high-level defense and administration officials that a military strike would only set back Iran’s alleged nuclear aspirations by a few years:
In contrast, the Obama Administration has pulled out of Iraq and will soon pull out of Afghanistan. Yet the White House continues to repeat the trope that the program can, at best, be delayed a few years. Just as politics informed the Bush White House’s insistence on the delay-not-destroy mantra, politics of a different sort are informing this White House: This administration is conducting a public diplomacy campaign with the purpose of undermining the capability of a U.S. attack because the administration has no intention of striking.
Note: Keane has close ties with U.S. neoconservatives and was one of the main architects of George W. Bush’s surge in Iraq. In 2006, Gen. George Casey and the chief of the U.S. Central Command, Gen. John Abizaid recommended reducing troop levels in Iraq, but Keane and his neoconservative allies started looking for someone that would support escalation instead–ultimately General David Petraeus. As documented by Bob Woodward in the War Within, Keane ignored the chain of command while heavily promoting Petraeus. He also helped persuade Bush to reject the Iraq Study Group’s findings and recommendations by aggressively pushing an alternative strategy he wrote with Frederick Kagan at the American Enterprise Institute called “Choosing Victory: A Plan for Success in Iraq.” That report led to the military buildup that followed.
Lee also uses Keane’s words to repeat his call for a ramped up military option:
…long before the United States decides to attack Iran, we need to communicate our seriousness to the regime. “There is only one guy you need to convince here to voluntarily give up the nuclear program and that is the Supreme Leader Khameini,” Jack Keane argues. “He must know we are dead serious about a military strike, as a last resort, and this is not just about the nuclear facilities—their military will be decapitated. This is the U.S. military. Believe me, we will destroy you.”
United Against Nuclear Iran (UANI): The neoconservative-aligned Iran sanctions-enforcement organization ramps up its pressure campaign against the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the financial messaging system used to arrange international money transfers, aimed at further crippling Iran’s economy:
Said UANI CEO, Ambassador Mark D. Wallace:
Now is the time for a full banking blockade against the Iranian regime, and SWIFT needs to play its part. SWIFT made the right decision in February to deny access to Iran’s Central Bank and some other institutions, but it has thus far failed to cut off all Iranian banks and entities. SWIFT should immediately sever its ties with all Iranian banks, particularly the ten that have been sanctioned by the U.S. government but still maintain SWIFT access.
Every day that SWIFT permits these illegitimate banks to have continued access to its network is a day the Iranian regime will continue to circumvent international sanctions. As the world weans itself off of Iranian crude, there is not a need to maintain conduits for energy related payments, but a need for an international banking embargo against Iran.
Clifford D. May (FDD), Scripps Howard: The president of the FDD repeats colleague Mark Dubowitz’s recommendation of blacklisting the entire Iranian energy sector as a “zone of primary proliferation concern” and reiterates his own call for U.S.-assisted/backed regime change:
[President Obama] should announce his support for legislation introduced by Rep. Ted Deutch (D-Fla.), Rep. Robert Dold (R-Ill.) and Sen. Mark Kirk (R-Ill.) that would blacklist the entire Iranian energy sector as a “zone of primary proliferation concern.”
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Such a speech should be followed by other measures in support of Iranians willing to take the risks necessary to replace a regime that has failed domestically, a regime that has been at war with the U.S. since it seized our embassy in 1979; a regime that four years later instructed Hezbollah to suicide-bomb the U.S. Marine barracks in Beirut; a regime that has facilitated the killings of hundreds of Americans in Iraq and Afghanistan; a regime that plotted to blow up a restaurant in Washington, D.C., just last year.
Alan Dershowitz, Times of Israel: The pro-Israel Harvard Law Professor who “met for 45 minutes one-on-one with US President Barack Obama to discuss Iran” criticizes the J-Street lobbying group for “undercutting American policy toward Iran” by not pushing the military option on Iran:
]]>Dershowitz said that by “explicitly undercutting Obama on Iran,” it actually “makes it more likely that Israel will have to go alone. As George Washington said a long time ago, the best way to preserve peace is to be ready for war, and that’s been the Obama policy.” For J Street to undercut it and misrepresent prominent Israelis’ positions on it, he said, “takes it out of the pro-Israel camp. I don’t think it’s debatable that J Street is pro-Israel. It is not.”