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Thirty-five years ago today, millions of Iranians embraced a religious leader promising freedom from a corrupt monarchy and national independence. Now many want a better standard of living and improved civil rights.

“Living standards are 50 percent higher today than they were before the revolution, [...]]]> by Jasmin Ramsey

via IPS News

Thirty-five years ago today, millions of Iranians embraced a religious leader promising freedom from a corrupt monarchy and national independence. Now many want a better standard of living and improved civil rights.

“Living standards are 50 percent higher today than they were before the revolution, but so are expectations, which is why the average person believes they had a better time before the revolution,” said Djavad Salehi-Isfahani, an economist who regularly visits Iran.

After years of sanctions targeting Iran’s Central Bank and integral oil revenue, and government mismanagement of funds, the country is financially devastated, with a depleted budget and unemployment above 14 percent (25 percent for youth).

“Early on, revolutionaries focused their attention on the provision of health, education, and infrastructure [electricity, clean water, and roads] for underprivileged areas,”  the Virginia Tech professor told IPS.

“These developments have helped move large sections of the poor into the middle class and a modern life style,” he said.

Today, citizens from that expanding middle class and across Iranian society — now more educated than ever — desire better social and civil freedoms in addition to improved work opportunities.

“The Iranian president [Hassan Rouhani] has released a citizen bill of rights and one positive thing he did is put this out there and ask for comments, but it really falls short on women’s rights and the rights of minorities,” said Sussan Tahmasebi, an Iranian women’s rights activist and the co-founder of the International Civil Society Action Network (ICAN), an NGO dedicated to women’s rights.

Tahmasebi, who lived and worked in Iran from 1999-2010, also decried the continued imprisonment of student activists and reformist leaders, as well as Iran’s high rate of executions, which have increased in recent months.

“Iranians want to live in an environment that’s safe, where the law is there to protect them rather than punish them,” she told IPS.

Still, Tahmasebi acknowledges that the Rouhani government’s top agenda items are resolving the nuclear issue and improving Iran’s economy.

“Once he has made serious progress at the international level, he will have more clout to push for more controversial issues at home,” she said.

Iran’s ruling elite has meanwhile experienced a major overhaul since the June 2013 presidential election of Rouhani, a centrist cleric promising “hope,” “prudence” and “moderation.”

While Rouhani’s election would have been unlikely without the backing of reformist and centrist leaders, he must now maintain their support while also dealing with hardliners eager to regain their upper hand in politics.

Iran is currently implementing the first-phase “Joint Plan of Action”, a deal achieved with world powers known as the P5+1 in Geneva on Nov. 24, 2013. Talks for a comprehensive solution to the nuclear issue are set to begin in Vienna on Feb. 18.

Meanwhile, some of Iran’s most stalwart revolutionaries have raised the volume on their criticism of the Rouhani government’s handling of the nuclear issue.

Members of the Revolutionary Guard, a powerful paramilitary unit, and several parliamentarians claim that Rouhani has given much more than Iran has received in negotiations.

On Tuesday, anniversary commemoration rallies attended by millions in Tehran, according to state media, featured banners and posters responding to a Barack Obama administration mantra on Iran: “all options are on the table,” a reference to military force.

“We are eager for all options on the table,” read some of the placards.

Marchers also reportedly shouted an Iranian revolutionary mantra, “Death to America,” while others added, “Death to [Wendy] Sherman,” the U.S.’s lead negotiator and under secretary of state for political affairs.

But despite domestic criticism, the Rouhani administration enjoys the support of Iran’s Supreme Leader, Ali Khamenei, who has repeatedly urged unity and faith in the government.

“Considering the fact that it is only a few months [since] the administration has taken charge of the country, we should give executive officials time so that, by Allah’s favour, they can move things forward in a firm and powerful way,” said the Grand Ayatollah in a Feb. 9 speech to air force commanders posted on his website.

“We should not allow the enemies’ agents inside the country to take advantage of weak points and to create disorder,” he added.

Since last week, Iranian news outlets have been featuring stories on Iran’s military, showcasing comments by commanders stressing Iran’s preparedness to respond to military threats, and military weapons tests, such as the test-firing of domestically made missiles on Monday.

In a speech celebrating the revolution on Tuesday morning to a rally at Tehran’s Freedom Square, Rouhani declared, “Today, if any side plans to launch aggression against Iran, it should know that the Iranian nation will stand against aggressors with its full might and make them sorry,” according to the Iranian Student News Agency.

The president also emphasised Iran’s willingness to engage in “fair” and “constructive” talks on the nuclear issue.

“Our negotiations with the P5+1 have all been based on Iranians’ peace-seeking nature,” he said.

“We wanted to convey the Leader’s Fatwa [a religious decree against the creation of nuclear weapons] to the whole world during the negotiations and help them understand the Iranophobia project is a big lie,” stated Rouhani.

“While negotiating with the world powers, we want to say sanctions against Iranians are cruel and inhuman,” he added.

In Washington on Monday, a former hostage from Iran’s seizure of the U.S. embassy in Tehran, John Limbert, noted at a Wilson Center event that some Iranian participants in that divisive event, “now older and wiser”, joined reformist administrations in Iran.

Limbert, a historian who speaks fluent Persian, added that the recent opening of the embassy to the public “may be symbolic of larger changes in the Islamic Republic’s relations with the rest of the world, especially with the U.S.”

“Both sides, after 34 years, have made a very startling discovery, that diplomacy — long-neglected tools of listening, of seeking small areas of agreement, of careful choice of words — can actually accomplish more than shouting insults, making threats and the wonderful self-satisfaction of always being right,” he said.

Photo: Iran’s President Hassan Rouhani greets a rally in commemoration of the Islamic Republic’s 35th anniversary of its 1979 revolution in Tehran, Iran on Feb. 11, 2013. Credit: ISNA/Hamid Forootan

The following quote from this Washington Post article on last week’s nuclear talks with Iran stood out despite it being a regurgitation of past statements:

“I don’t want to overpromise, but we’re encouraged,” said the official, speaking to reporters accompanying Secretary of State John [...]]]> via Lobe Log

by Jasmin Ramsey

The following quote from this Washington Post article on last week’s nuclear talks with Iran stood out despite it being a regurgitation of past statements:

“I don’t want to overpromise, but we’re encouraged,” said the official, speaking to reporters accompanying Secretary of State John F. Kerry during a visit to Europe. “Our people who were there felt the sanctions have gotten Iran’s attention,” said the official, who spoke on the condition of anonymity to describe diplomatically sensitive negotiations.

Sanctions are working, says the Obama administration, repeatedly, for one reason or another. Yet practically everyone else — including those who initially pushed for and/or continue to tout sanctions on Iran — appear to disagree, while Iran hasn’t budged from its previous negotiating stance.

Sanctions probably won’t work, argues Clifford May, president of the neoconservative Foundation for the Defense of Democracies — possibly the most effective DC-based advocate of “crippling sanctions” on Iran — while pushing for ongoing sanctions. (This is also a great example of the supporting logic used by hardline sanctions advocates):

[Sanctions on Iran] are unlikely to succeed — if success is defined as stopping the regime’s rulers from developing nuclear weapons — yet they are an essential component of any serious and strategic policy mix.

And why are sanctions on Iran “essential”, according to May?

Sanctions may be most useful after a strike against Iran’s nuclear-weapons facilities. At that point, American and other Western diplomats will need all the leverage they can get. Their job will be to insist that Iran’s rulers verifiably end the nuclear-weapons program, halt terrorism sponsorship, and ease domestic oppression. In return: no further damage and the sanctions lifted. If such an agreement can be reached, the conflict will be over, cooperation can begin, and the people of Iran will soon be more free and prosperous, while Iran’s neighbors will sleep more soundly. If such an agreement cannot be reached, continuing and even tightening sanctions will make it more difficult for Iran to replace facilities destroyed after a military option has been exercised.

Now on to Israel’s former foreign minister, Shlomo Ben Ami, who notes that the kind of sanctions that Iran is currently enduring will likely only harden its leaders’ alleged nuclear drive:

Yes, a harsh sanctions regime might still gain additional supporters, but an Iran with its back against the wall would probably be even more obstinate in its nuclear drive. After all, Iraq was an easy target in the first Gulf War precisely because it had abandoned its nuclear program, and possessed no weapons of mass destruction. Similarly, Libya’s Muammar el-Qaddafi exposed himself to a NATO onslaught by relinquishing his WMDs.

Virginia tech economist and Lobe Log contributor Djavad Salehi-Isfahani argued in October 2012 that the current sanctions regime — and the Ahmadinejad government’s response to it — could harm Iran’s middle/upper classes (otherwise natural allies of the West), and judging by recent reports, he’s probably right.

The counterproductive effects of sanctions have compelled several experts to point out that the so-called “tool” can only be effective if it’s accompanied with the very real possibility of significant relief. Paul Pillar’s thoughts on Congress’ apparently unquenchable thirst for sanctioning Iran back in December 2012 still apply today, a week after members of the Senate and House introduced more legislation that’s unlikely to positively impact the diplomatic process with Iran:

It should be clear from the history of the past couple of years, as well as a little thought about incentives for Iranian policymakers, that simply piling on still more sanctions without more Western flexibility at the negotiating table will not attain the U.S. objective. The sanctions are hurting Iran and are a major reason Iran wants to negotiate a deal. But the Iranians have dismissed the only sanctions relief that has been offered so far as peanuts, which it is. They have no reason to make significant concessions if they don’t think they will be getting anything significant in return. If members of Congress were really interested in inducing changes in Iran’s policy and behavior, they would be devoting as much time and energy to asking why the powers negotiating with Iran evidently do not intend to depart much from their failed negotiating formulas of the past as they would in trying to find some new sanction to impose.

(On Friday Pillar elaborated on how elements of the Israel lobby in the US and Congress are sustaining Iran’s alleged nuclear drive.)

An here’s the essence of a major report on the effects and results of sanctions on Iran released by the International Crisis Group last week:

…rather than adjusting its nuclear policy to remove the sanctions, the [Iranian] regime likely will continue to adjust its economic policy to adapt to them. While important regime constituencies have been harmed by international penalties, not all of them have been harmed equally, and some not at all. Evidence suggests that groups with superior contacts to the state have been able to circumvent sanctions and minimise damage to their interests. Average citizens, by contrast, suffer the effects: reports of widespread shortages, notably of specialised medicines, abound.

Moreover, sanctions as a tool of coercive diplomacy are only as effective as the prospect of relieving them in exchange for policy shifts is real. Yet, sanctions on Iran have become so extensive and so intricately woven that it will be hard to offer significant, concrete relief short of a major – and improbable – turnaround in major aspects of the Islamic Republic’s domestic and foreign policies. That, in addition to considerable mutual mistrust, leaves as the best case outcome for now a time-limited (albeit renewable) suspension or waiver of some sanctions by the P5+1 (the five permanent members of the UN Security Council plus Germany) in exchange for time-limited (albeit renewable) Iranian steps providing reassurance as to the program’s peaceful intent.

All this seems to suggest that a) sanctions aren’t working if the goal is to persuade Iran to agree to Western demands on its nuclear program; and b) the Obama administration’s Iran policy is incoherent.

Not necessarily, argued Iran scholar Farideh Farhi, here on Lobe Log last year:

The US’ Iran policy cannot be considered incoherent if the policy objectives and the instruments have become the same. It can still be considered immoral for trying to add to the economic woes of a good part of the Iranian population – irrespective of the fact that the Iranian government is most responsible for those economic woes – particularly at a time when so many people in the world are already suffering from unemployment and economic downturn. But it is not incoherent. It is intended to harass and it is doing so in a calculated and now rather routine, bureaucratic way. Weaning from routines and habits will be hard.

Iranian and Western officials expressed cautious optimism after talks with Iran concluded in Almaty, Kazakhstan last week with reports of moderate sanctions relief being offered by the 6 world-powers P5+1 negotiating team. But only moderate sanctions relief is unlikely to get the Iranians — who will reportedly respond to the offer during the next two months — to budge significantly. Mohammad Ali Shabani, an Oxford University PhD student with a solid understanding of the Iranian perspective, explained why in Al-Monitor on February 28. His conclusion is pertinent ahead of the March/April meetings:

Considering the lack of reciprocity, the upcoming Iranian presidential elections and the mere fact that Jalili’s team only listened in Kazakhstan, it would be wise to refrain from expecting a breakthrough in the near future. What would be wise is to appreciate the consensual desire to turn the talks from events into a real diplomatic process, as well as the time needed to bridge the wide gulf between Iran and the P5+1’s positions. Most importantly, it is crucial that all sides show the political will to move forward — and recognize that more than one party may be pursuing a dual-track policy.

Photo: The 19 September 2012 meeting of EU foreign policy chief Catherine Ashton and Dr. Saeed Jalili, the Secretary of Iran’s Supreme National Security Council, in Istanbul, Turkey. (Credit: European External Action Service – EEAS)

Virginia tech economist and Lobe Log contributor Djavad Salehi-Isfahani adds to the growing list of reasons why the Obama administration’s Iran sanctions policy is counterproductive in Foreign Policy Magazine:

Despite everything, Iran seems to be weathering the storm better than advertised. Sanctions were intended to inflict economic pain [...]]]> via Lobe Log

Virginia tech economist and Lobe Log contributor Djavad Salehi-Isfahani adds to the growing list of reasons why the Obama administration’s Iran sanctions policy is counterproductive in Foreign Policy Magazine:

Despite everything, Iran seems to be weathering the storm better than advertised. Sanctions were intended to inflict economic pain on Iran’s population, with the hope that Iranians would persuade their leaders to compromise with the West on the nuclear standoff. But these hopes have been dashed:Tehran may have fumbled its economic response to sanctions and failed to minimize their overall level of pain, but it does seem capable of dealing with their political fallout by managing the distribution of the pain. Its principal means in doing so is the multiple-exchange-rate system, which eases the sanctions’ impact on Iranians below the median income — Ahmadinejad’s political base. Meanwhile, the system shifts the burden to upper- and middle-income Iranians, who have shown little affection for the controversial president in any case.

To protect lower-income people, the Iranian government will likely act conservatively in supplying foreign exchange for nonessential needs and make sure that it has enough reserves for critical imports of food and medicine. This will mean the value of the rial in the free market will continue to fall — but such an event should not be interpreted as a sign of economic collapse.

Ironically, if this scheme succeeds, much of the pain will be borne by upper-income Iranians who are generally most friendly to the West and least likely to revolt, because they have more to lose. They will be the unintended victims of Western sanctions, which have so far proved a very blunt instrument of U.S. foreign policy. Upper-income Iranians have plenty to be upset about with their own government, but now there is a distinct possibility that they will also blame the West for their misfortune.

This is not only unproductive from the point of view of Western policymakers — but it will also complicate relations with Iran if and when the country rejoins the global economy.

Virginia Tech economist Djavad Salehi-Isfahani’s recent explanation of the rial situation in Iran generated a lot of attention, and much in the way of non-expert criticism, likely because it sways considerably from the prevailing narrative on Iran’s economy: it’s about to collapse. But Salehi-Isfahani is sticking to his guns. [...]]]> via Lobe Log

Virginia Tech economist Djavad Salehi-Isfahani’s recent explanation of the rial situation in Iran generated a lot of attention, and much in the way of non-expert criticism, likely because it sways considerably from the prevailing narrative on Iran’s economy: it’s about to collapse. But Salehi-Isfahani is sticking to his guns. He elaborates on his reasoning and the effect of sanctions on his personal website:

Admittedly, the situation in Tehran is both confusing and shrouded in secrecy– for understandable reasons –and I do not claim to fully understand what is going on between oil exports, frozen and unfrozen Central Bank of Iran (CBI) accounts abroad, and rupees and yuans.  But some reporters I talked to in the last few days did not know that Iran had a multiple exchange rate system, or that currency crises in oil exporting countries are different from those in which private sector earns the bulk of the foreign exchange.  So, it seemed there was reason to say something.

With its diminished oil revenues the government can still shield large sections of the economy from the adverse impact of large devaluations in the the parallel market.  The import classification system put into place last December was precisely for that.  I do not know how much of the CBI forex goes to basic goods, how much to the Exchange Center, and how much, if any, to the parallel market.  My guess is that, for obvious reasons, this market is not near the top of the list CBI priorities for cash infusion.  I am not sure if any central bank faced with the same difficulties would use its foreign currency to calm a currency market gripped by fears stemming from tightening sanctions, even war.  Any politician who decides otherwise would have to answer to voters (or people in the streets) when the country runs out of foreign exchange for essential  imports.

In my view, given the sanctions and the emergency conditions that the country faces, the rise in the value of the rial in the parallel market is not at all surprising   It should be no more a source of shock or surprise to see high ticket prices outside sports or entertainment events, especially when the quality of the event is uncertain beforehand.  There are people who believe that scalpers should not be allowed to buy and sell concert tickets, and there are those who believe that such trades at the curb even at very high prices have their place.  I happen to belong to the latter group.  However, I fear that with the hoopla over the “rial’s collapse,” the government may run out of patience with the free market and send it underground.  That would be unfortunate.

Some readers of my Lobelog post thought that it painted an overly optimistic picture of the situation.  I had said that the currency crisis did not amount to economic collapse.  It is also true that, as a matter of habit, I did not discuss conspiracy theories (which I rarely believe), such as those that would blame the government for creating this mess on purpose in order to make more rials, or those that blame a few ringleaders for corrupting the system.  (But, as they say, just because you are paranoid it does not mean that they are not out to get you!)

Sanctions are not a game. They are designed to inflict pain on the people of the country they are imposed on, and as we have seen they are doing just that in Iran, and not all social strata feel the pain at the same rate.  Iran’s government is in a position to decide who gets hurt more and who get off with less pain.  For example, it has decided that keeping chicken production going is more important than paying the tuition of thousands of students abroad.  That is a choice that many would disagree with, but to say that it makes sense from the point of view of Iran’s government is not to minimize the gravity of the situation or the level of pain on those who lose more than others.  If the economy has not collapsed, economic growth has and with it the hopes of young people for finding a job and setting up new families.

The sharp drop in the value of the rial in the last two weeks has created much excitement in Iran and abroad, but mostly for the wrong reasons. In the parallel (or free) market for foreign currencies, the [...]]]> Iran’s economy is not on the verge of collapse

via Lobe Log

The sharp drop in the value of the rial in the last two weeks has created much excitement in Iran and abroad, but mostly for the wrong reasons. In the parallel (or free) market for foreign currencies, the rial fell by 15% in one day this week, reaching its lowest value ever — 35,000 rials per US dollar — down by more than 50% compared to a month ago and 300% to last December when international sanctions tightened against Iran.

What all the related excitement overshadows is that this devaluation is not comparable to those in other countries where large devaluations caused severe shocks to the economy, such as those that swept through Asia in 1997-98. That’s because in those situations all prices were affected because all foreign exchange was traded at the same (rising) rate. This is not the case in Iran because nearly all foreign exchange is earned by the government, which has decided to sell most of it at a lower rate for the import of goods and services that it deems essential.

The rial devaluation that has created the media excitement is actually taking place in a narrow market that is shrinking in size and diminishing in importance. Iran’s Central Bank has classified a long list of goods into categories with priorities 1 through 10, leaving it to the parallel market to take of all other needs. Priorities 1 and 2 are food and medicine, receiving foreign exchange at the official rate of 12,260 rials per dollar, followed by other categories with lower priorities, which are mostly intermediate goods used in industrial production.

The government has been promising to do something for the import of these non-essential but important commodities, which account for about two-thirds of Iran’s imports, offering them some sort of preferential treatment. But the Central Bank was slow to respond and those producers who did not want to wait bought their currency needs in the parallel market, competing with speculators and people taking their money out of the country. The uncertainty about the sanctions, bewildering pronouncements from government officials in Iran, and hype over a possible Israeli attack, all combined to throw this market into chaos.

To protect Iran’s producers from what the government considers the consequences of “psychological war”, the Central Bank set up a “Currency Exchange Center” and invited licensed importers and exporters to trade their foreign currencies there, hoping that the auction rates reached there would be more stable and lower than the parallel market rate. When the Exchange Center opened just two weeks ago, the volume of transactions quickly jumped from $10 to $181 million per day, with most of the supply likely coming from the Central Bank. The Exchange Center diverted some of the supply of currency away from the parallel market, which I believe caused the rate there to soar.

Curiously, the Central Bank had predicted the opposite: that by arranging trade in the Exchange Center it would help lower the rate in the parallel market. This miscalculation added to the confusion and fear that the government did not know what it was doing. While the Exchange Center has produced a lower rate than the parallel market and can potentially shield producers from the worst psychological effects of sanctions and war, the shock to the parallel market has caused a serious political if not economic crisis for the government of Mr. Ahmadinejad.

Does all this mean that Iran’s economy is on the verge of collapse, as Israel’s Finance Minster reportedly said?  The answer is no, because most of the economy is shielded from this exchange rate, though not from the ill effects of the sanctions, which will continue to bite for a while. Would it cause sufficient economic pain that would push the Iranian government to make concessions in its nuclear standoff with the West?  The answer is not likely.  The multiple exchange rate system, as inefficient as it is, will protect the people below the median income, to whom the Ahmadinejad government is most responsive.

But the government can ill afford to ignore millions of Iranians, mostly upper income Iranians, who are affected by the gyrations of the parallel market. Among them are millions of people who are seeking a safe place for their savings, parents who send money to their children for education abroad or need to travel there to see them. They are not all importers of luxury items or those who want to take their money out of Iran. In allocating its limited — perhaps shrinking supply of for foreign currency — the government has a difficult time balancing the needs of the lower middle class and the poor with those of upper income Iranians that it cannot rely on for political support.

- Djavad Salehi-Isfahani is a professor of economics at Virginia Tech and a nonresident senior fellow at the Brookings Institution. 

As Iran faces economic unrest, discussion is intensifying over the impact sanctions are having on Iran’s economy.

But experts doubt that the current situation portends the end of the Iranian regime or Iranian capitulation to Israeli and Western-led demands that it change its nuclear stance.

“You have now a market [...]]]> via IPS News

As Iran faces economic unrest, discussion is intensifying over the impact sanctions are having on Iran’s economy.

But experts doubt that the current situation portends the end of the Iranian regime or Iranian capitulation to Israeli and Western-led demands that it change its nuclear stance.

“You have now a market that is under a lot of tension” which has “created a big economic crisis for the government”, said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech, during a meeting here Wednesday at the Wilson Center.

But Salehi-Isfahani added that there is a “lot of misunderstanding about the currency system in Iran”, noting that people are confusing it with huge devaluations that occurred in East Asian countries and Zimbabwe.

“Iran is nothing like that,” he said.

While expressing varying views about the severity of Iran’s economic problems, the Wilson Center’s panelists agreed that it’s still able to manage its ailing economy and the resulting unrest.

“Iran has a lot of experience with sanctions. In fact, what they did immediately is open up the books from the 1980s about how to deal with a currency crisis,” he said.

Demonstrators clashed with police outside Tehran’s central bazaar on Wednesday during protests about the Iranian currency’s declining value. The rial has lost an estimated 80 percent of its value against the U.S. dollar in the last year.

Ali Vaez, a senior Iran analyst at the International Crisis Group, told IPS that “the regime is likely to nip it in the bud to prevent (the protests) from snowballing.”

“Although it’s not clear if there will be more protests, one thing is certain: Iran will experience a much more securitised environment in the run-up to the 2013 presidential elections,” he said.

Iranians are also struggling with rising inflation and unemployment amid escalating U.S.-led sanctions linked to the Islamic Republic’s controversial nuclear programme.

Iran maintains that its nuclear programme is entirely peaceful but Western countries led by the U.S. claim that Iran is working towards achieving nuclear weapon-making capability.

Israel has been pushing the Barack Obama administration to move its previously stated “red line” on Iran, a nuclear weapon, to preventing Iran from obtaining nuclear weapons capability, something which Israel claims would seriously endanger its existence and the stability of the surrounding region.

“I’ve been speaking about the need to prevent Iran from developing nuclear weapons for over 15 years…I speak about it now because the hour is getting late, very late,” said Israeli Prime Minister Benjamin Netanyahu during his speech at the 67th annual U.N. General Assembly meeting last week.

Already under six rounds of sanctions imposed by the United Nations Security Council, Iran saw Western sanctions tighten markedly this year with an EU ban on Iranian crude oil purchases going into effect in July.

U.S. sanctions are also increasingly targeting banks that deal with Iran’s central bank, thereby seriously impeding Iran’s ability to conduct international transactions and trade.

Sanctions have not yielded tangible progress toward a diplomatic solution over Iran’s alleged nuclear ambitions, but the protests Wednesday and protests in July in the northeastern city of Nishapur over the rising price of chicken – a main food staple for the Iranian working class – indicate that segments of Iranian society will express their dissatisfaction when faced with serious pressure.

“The chicken prices got the government’s attention,” said Salehi-Isfahani, adding that the “government made a wise move in trying to stabilise the chicken market and not worry about the dollar.”

“The aim of sanctions is to raise pressure against the regime in order to solve the nuclear crisis in a peaceful manner,” Alireza Nader, a senior international policy analyst at the RAND Corporation, told IPS.

“But as we’ve seen, sanctions are also leading to major unrest in Iran and weakening the regime at home and abroad,” he said.

Bijan Khajehpour, an Iranian businessman and specialist on the Iranian economy, explained during the Wilson Center event that a number of factors have been harming Iran’s economy.

“It’s not just the sanctions…Iran’s economic developments have been undermined by sanctions, subsidy reforms, mismanagement and corruption,” he said.

“The degree of instability has reminded many citizens of the days of the Iraq-Iran war” and “public anger is reflecting itself in sporadic unrest, strikes, blogosphere protests and critical comments by artists,” he said.

But Khajehpour disagrees with reports suggesting that the Iranian economy is collapsing. “The current deterioration of the Iranian economy is less a period of economic collapse and more a period of economics adjustment,” he said.

“The citizens are suffering, but the macro economy could potentially benefit,” said Khajehpour, noting that sanctions which have impeded Iran’s ability to purchase the equipment it needs to develop key industries have forced it to produce them itself.

Khajepour added that, “The future story of Iran is in (its gas industry),” which is projected to grow over the next five years despite sanctions.

“The additional gas capacity will generate the potential of investments in gas-based industries with export potential,” said Khajehpour.

Suzanne Maloney, another panelist and Iran analyst at the Brookings Institute, said it’s “incredible and tragic” that “Iran’s economic horizons are more limited today than the last 50 years.

“There are huge constraints on Iran’s growth and development and that presents tremendous political vulnerabilities,” she said.

“Sanctions are working, but we’re not getting anywhere on the nuclear programme and that cannot be lost on anyone,” she said.

Michael Singh, the managing director of the Washington Institute, echoed the consensus among a number of well-known neoconservative analysts Wednesday by writing that more aggressive pressure and punitive measures are needed to change Iran’s nuclear calculus.

“Rather than hoping that giving current sanctions “time to work” will force Iran back to the negotiating table, the United States and our allies should add further pressure to the regime and the elites who comprise it, including through additional targeted economic sanctions, diplomatic isolation, bolstering the credibility of our military threat to the regime, and support for the Iranian opposition,” he wrote in an op-ed for Foreign Policy.

According to Trita Parsi, the president of the National Iranian American Council, more pressure alone will not bring about favourable results. “I don’t find it likely that the regime will capitulate due to the sanctions as long as sanctions relief is not part of the mix,” he said.

“The possibility that sanctions will lead to general regime change exists, but the question is what type of regime change would the devastation of the Iranian economy generate?” Parsi asked.

This past week a couple of articles have been published that hint at the central incoherence of the United States’ Iran policy. The arguments are not necessarily new, but they show in concrete terms how the stated objective of US sanctions, which is to change the calculations and behavior of Iran’s [...]]]> via Lobe Log

This past week a couple of articles have been published that hint at the central incoherence of the United States’ Iran policy. The arguments are not necessarily new, but they show in concrete terms how the stated objective of US sanctions, which is to change the calculations and behavior of Iran’s leaders, is undermined by the same sanctions that end up weakening – at times even endangering – the domestic forces presumably required to leverage the sanctions’ power and result in a change of behavior.

Virginia Tech economist Djavad Salehi-Isfahani explains how the sanctions regime is threatening Iran’s bond to the global economy, not only through the straight-jacketing of the middle class and private sector, which is the promoter of that bond, but also hindering the point of view that is supportive of that bond. In other words, instead of helping to promote a developmental state whose behavior is moderated by the multi-faceted links created, the sanctions regime strives to sever those links based on the claim that severing those links will eventually make the Islamic Republic a better global citizen!

James Ball’s article in the Washington Post is even more damning. The domestic actors striving to change the behavior of the Iranian state, it turns out, do not merely constitute unfortunate collateral damage. They are the direct recipients of policies that deny them protective tools, leaving them vulnerable to significantly more powerful entities which always find ways to get around sanctions and access the instruments of repression that they need to carry out their objectives.

These arguments are slightly different from the suggestion that sanctions are a form of collective punishment with the Iranian population ending up as the victims of Iranian leaders and foreign powers locking horns. The sanctions policy is assessed in the way that all policies should be assessed: What is the policy intended to do, who is supposed to benefit from it or be harmed by it, and are the policy instruments aligned with the policy objectives. In this case, the evidence offered suggests they are not.

There are, however, other ways of addressing the question of inconsistency between instruments and objectives. One way is to ignore the inconsistency while giving rhetorical lip service to the sublime cause of the Iranian people freeing themselves from the yoke of dictatorship. The objective of this policy, it is said, is to change the behavior of the Iranian government. External pressure will also eventually payoff on its own. No need to worry about what sanctions will do to Iran’s social fabric, economy, and the private sector in the meanwhile. Sanctions are both feasible and effective given American muscularity and the Iranian historical tendency to give in to overwhelming pressure eventually. This formulation is apparently based on a joke Iranians make about themselves: “Iranians never give in to pressure unless it is lots of pressure.” As for those freedom-loving Iranians, they’ll find a way to foment change in Iran and aim it in a favorable direction even in spite of us making their path more difficult because of their incredible desire and energy to be free.

The problem with this argument lies first in giving a lofty role to desire (as opposed to instruments for fulfilling that desire) and second, in refusing to acknowledge that in no country is there “a people” with a collective desire. Iran, like elsewhere, is a country consisting of a multiplicity of interests, desires, power centers, and a differentiated population with vastly different means of access to resources. Democracy, like elsewhere, will not arise out of Iranian collective desire but out of negotiations and accommodations among these multiple interests. This very basic point is not rocket science – especially given the US’ own experience with democracy. The refusal to understand this point reveals either the shallowness of the commitment to any kind of democratic project in Iran or a naïve hope that external pressure will delegitimize the regime and open a path for a more democratic Iran.

But perhaps I am searching for coherence in the wrong places. The US’ Iran policy is not that incoherent if the objective is not aimed at changing the calculus of the Iranian government and rather intended to simply harass, isolate, or even destabilize Iran. In fact, one can argue that the Obama Administration, unlike the Bush Administration, has found a perfect formula for this intent, which is also a good fit for the way the American bureaucratic structure works.

Rather than confronting Iran with an all-out sanctions regime, the US has settled on an escalating sanctions regime. Every couple of month or so, it announces a new set of sanctions to keep the Islamic Republic off balance and in search of new ways to get around sanctions. Of course, this is partly necessitated by the reality of the oil market. The complete shut off of Iran’s oil exports would have had a drastic effect on oil prices. But in any case, an escalating sanctions regime is a much better tool for harassment – or what some in Iran call psychological and economic warfare – than an all-out sanctions regime.

The Iraqi sanctions regime is a good example of why going for an all-out sanctions regime is not a good instrument; after a while, the sting wears off and ways are found around it. Even Donald Rumsfeld, by July 2001, was suggesting that one US policy option was to “publicly acknowledge that sanctions don’t work over extended periods and stop the pretense of having a policy that is keeping Saddam in the box when we know he has crawled a good distance out of the box”.

An escalating sanctions regime, on the other hand, assures that the initiative remains in US hands and the Islamic Republic – and by implication the people who live and work in the Islamic Republic – are kept off balance. It also has the added value of making a whole lot of people in various bureaucracies work hard for their paycheck.

The folks at the Treasury Department strive hard to find new ways and new entities to sanction; folks in the State Department work hard to get exemptions for allies (and even non-allies) who presumably have done well in reducing their oil imports from Iran exactly at the same time that the Treasury is tightening the noose in some other areas. Folks in the Department of Energy also work hard to determine exactly how much of Iranian oil can be kept off the market before prices rise.

And the game continues.  Just watch to see what happens after the six-month exemption period is up for Japan, South Korea, and…

The US’ Iran policy cannot be considered incoherent if the policy objectives and the instruments have become the same. It can still be considered immoral for trying to add to the economic woes of a good part of the Iranian population – irrespective of the fact that the Iranian government is most responsible for those economic woes – particularly at a time when so many people in the world are already suffering from unemployment and economic downturn. But it is not incoherent. It is intended to harass and it is doing so in a calculated and now rather routine, bureaucratic way. Weaning from routines and habits will be hard.

via the Federation of American Scientists

I have been less than a week in the medium-sized city of Neishabour, Iran, visiting relatives, and I can see no sign of a country hunkering for intensifying sanctions and looming difficult times. Sidewalks are full of shoppers and people seem to go [...]]]> By Djavad Salehi-Isfahani

via the Federation of American Scientists

But all is not well, not by a long shot. The dollar has gone through the roof, food prices have skyrocketed, industrial production is down, and unemployment is rising. The oil embargo has cut into Iran’s oil revenues and financial sanctions have limited the country’s access to the global economy. Spot shortages and sharp price increases for key food items are already being felt across Iran. This provincial city was rocked on July 23 when hundreds marched down its main street protesting the shortage of chicken at the official price. There is no doubt that ordinary Iranians will pay a heavy price as sanctions intensify; the big question is how sanctions will influence Iran’s behavior in the international stage.

When sanctions were “smart” and aimed to make life difficult for Iran’s leaders, ordinary Iranians acted as disinterested bystanders. But now that sanctions aim to make life difficult for them, they will have to take sides. Or so goes the theory: put pressure on the people — “economic warfare,” as one conservative commentator told the New York Times — so they get their government to compromise.

Since this theory is about to be put to an extremely costly test, it is important to consider a few things before we commit to this path.

First, international sanctions only work when the population they are imposed on identifies with the objective of the sanctions. This is the big difference between the sanctions to end apartheid in South Africa and those to force Iran to abandon nuclear enrichment. Most Iranians are not all that invested in nuclear enrichment, one way or the other, but few would see stopping Iran’s enrichment as their cause.

Furthermore, history shows that, when threatened by sanctions, Iranians are unlikely to rise up against their own government. In 1952, a Western-imposed embargo on Iranian oil devastated Iran’s economy, but people tolerated the pain and stood with their government. It took a US-sponsored coup a year and a half later to topple the nationalist government and help Western powers achieve their objectives.

True, Iranians are more polarized today, especially after the rise of the Green movement following the controversial election of 2009. But it is a misreading of Iran’s political scene to believe that sanctions will revise or strengthen the protest movement. The opposite may be true. The Green movement was built on economic growth and an expanding middle class. Thanks to economic growth fueled by rising oil revenues, 40percent of Iranians have joined the middle class and the lower 40 percent aspire to the same. The economy has not been doing well lately, the average Iranian still enjoys a decent standard of living, has access to basic services, health, and education. Significantly, last year’s Human Development Report that ranks countries based on income, health, and education placed Iran above Turkey, which is the best performing country in the region.

Sanctions are slowly transforming Iran from a country with an expanding middle class and a rising private sector into a country with a shrinking middle class and private sector. Financial sanctions have placed private firms at a disadvantage relative to government-owned firms in making global transactions. Where the private sector withdraws, the state is often ready to move in.

More severe sanctions will go beyond hurting the private sector and threaten the living standards of the middle class. As basic services deteriorate, and the shortages and long lines that were common sights during the Iran-Iraq war reappear, the government will once again become not the source but the remedy to their problems.

The sanctions will do much to undermine the belief among Iranians about the benefits of the global economy. Such beliefs are what distinguish India from Pakistan. If there is hope for Egypt and Tunisia after the Arab Spring to become stable societies it is the belief in the benefits to their citizens of remaining connected to the global economy. The short-term gains from nuclear gamesmanship must balance the long-term cost of alienating the Iranian middle class.

Spreading faith in global cooperation used to be the White Man’s Burden, but no longer. Leaders in Brazil, China, India and Turkey have done a lot to persuade their people that working within the global economy is not a threat but an opportunity. Many leaders of the Islamic Republic have pushed a similar view. The year President Ahmadinejad took office, in 2005, the Fourth Development Plan he inherited was subtitled “In Conformity with the Global Economy.” These leaders believed in the Islamic Republic as a development state. They built infrastructure and schools and promoted family planning. Naturally, they do not want to gamble all they have achieved in a high stakes nuclear game. If by chance they are contemplating to revive the Islamic Republic as a development state, the world should help them succeed, not undermine their effort.

The International Civil Society Action Network (ICAN) has published a useful brief aptly subtitled “Killing them softly” about the impact of sanctions on the lives of ordinary people who live in Iran, particularly women and other vulnerable groups such as Afghan refugee women and children. I recommend [...]]]> via Lobe Log

The International Civil Society Action Network (ICAN) has published a useful brief aptly subtitled “Killing them softly” about the impact of sanctions on the lives of ordinary people who live in Iran, particularly women and other vulnerable groups such as Afghan refugee women and children. I recommend it to everyone who thinks that sanctions can be potential instruments for positive change in Iran.

To be sure, most individuals and organizations that push for “crippling” sanctions do so in the name of Israeli security and/or non-proliferation with little or no regard for the resulting impact on the Iranian population and civil society. In a world where economic warfare is considered diplomacy, more sanctions will apparently be the name of the game “until Iran begins to negotiate seriously” or “chooses a different path” — whatever that means. Pretensions or hope regarding the utility of blunt and wide-ranging sanctions for changing the way the hardline leadership in Iran treats its population, or, even better, for bringing about a change of regime in a “peaceful” way, are also out there.

The ICAN brief, while using the words of activists in Iran, does a good job of explaining how draconian sanctions imposed by the United States and the European Union ultimately harm Iranians who are caught in the middle of a battle that has very little do with their dreams of living decent lives and impacting their government’s policies through civil activism.

This is not to suggest that the Iranian government has escaped the impact of sanctions unscathed. The leadership is held responsible for the mishandling of an economy which, by all accounts, is faced with both stagnation and hyperinflation. And, if we take at face value the words of parliamentary speaker Ali Larijani, 20 percent of Iran’s current problems can be attributed to sanctions that have limited Iran’s access to the foreign exchange needed for the import of strategic goods from abroad due to the reduction of oil exports and Iran’s inability to acquire exchangeable currency for the exported products. Larijani attributed the remainder of the problems, mostly related to rampant inflation, to the poor implementation of a subsidy reform plan that did not give enough attention to production in both industry and agriculture.

The right or wrong belief that better economic management can help Iran overcome the impact of sanctions perhaps explains why internationally imposed draconian pressure has not led to a change in the leadership’s calculations regarding the nuclear program. In fact, according to Iran’s Leader Ali Khamenei, Western governments

…openly say that it is necessary to force the Iranian government officials to revise their calculations by intensifying pressures and sanctions, but looking at the existing realities causes us not only to avoid revising our calculations, but it also causes us to continue the path of the Iranian nation with more confidence.

In other words, instead of a recalculation on the part of the Iranian government, the Iranian population is going to have to get used to a “resistance economy”. What does that entail? Mr. Khamenei’s answer:

Putting the people in charge of our economy by implementing the general policies specified in Article 44 of the Constitution, empowering the private sector, decreasing the country’s dependence on oil, managing consumption, making the best of the available time, resources and facilities, moving forward on the basis of well-prepared plans and avoiding abrupt changes in the regulations and policies are among the pillars of an economy of resistance.

Considering how these objectives have been in the books since at least 2006 when privatization, empowerment of the private sector and efficiency became official policy — and produced little in the way of concrete results — it’s not clear what an administration that is working through its last year can achieve beyond perhaps “managing consumption.”

A few steps have already been taken towards that goal. This week, several economy-related ministers as well as the head of the Central Bank of Iran (CBI) met with members of parliament in a closed session. Parliamentary meetings are by law open and publicly broadcasted. Article 69 of the Constitution only allows for closed sessions under “emergency conditions, if it is required for national security”. This closed meeting and Khamenei’s words clearly suggest an understanding of the emergency situation that Iran is facing.

The first decision that resulted from this meeting was the CBI’s elimination of what is called “travel currency”. Until now, Iranians could get $1,000 a year at the lower government exchange rate of 12,260 Rials per dollar for their trips abroad (the lower $400 per year for pilgrimage travel to Iraq and Saudi Arabia was maintained). According to the head of the Majles’ Economy Commission, Arsalan Fathipour, the $10 billion worth of travel currency that leaves the country every year has no economic justification and has been halted. Travelers now have to rely on an unofficial, but not illegal, floating market rate that has hovered between 19,000 and 20,000 Rials per dollar during the past couple of months.

The lower official exchange rate will remain for the import of basic and strategic goods from abroad in order to limit spiraling inflation. But everything else will probably be imported at the higher rate. As pointed out by Virginia Tech economist Djavad Salehi Isfahani, this multiple exchange rate system, despite inefficiencies, makes some sense when a country is being denied access to global markets, provided action is also taken to:

…minimize misallocation and corruption, for example by publishing a complete list of all official foreign exchange sold to private importers along with the list of the items they import.  The alternative, which is to sell all currencies at the rate set in the parallel market, is to give too much influence to sanctions and to sentiments that underly capital flight.

Whether these steps will also be taken is yet to be seen. Another announcement after the close of the Majles meeting was that some sort of command center comprised of representatives from of all branches of government has in effect been created for the resolution of economic problems and will soon gain implementation powers through legislation. According to Donyaye Eqtesad, the country’s most influential economic daily, the push by some influential MPs is for this command center to have “special powers so that in the coming year it can take the necessary steps for the implementation of the strategy of resistance economy.”

To my mind, this also means that there is not much confidence among the Iranian political class in the Ahmadinejad Administration’s ability to steer the country in a positive direction during the last year of its tenure. This political class holds President Ahmadinejad responsible for his incompetent handling of the country, but due to the urgency of the escalating sanctions regime, no longer considers challenging him and his ministers a useful way of expending their energy. Talk of “working together” and “unity” has permeated the language of the conservative and hardline politicians who are currently running Iran. This language is not meant to extend to the reformist and even centrist politicians and technocrats who have been essentially purged since the 2009 presidential election, but does indicate a closing of ranks among an even narrower circle of politicians in the face of adversity and in the name of resistance.

If ICAN’s analysis is accurate, it also foretells harsher economic realities for the most vulnerable elements of Iran’s population, a harsher political environment for those agitating for change, and a more hostile setting for those who have tried to maintain historical links between Western societies and Iranian society.

Sanctions impact calculations, but usually not in the intended fashion.