By Richard Javad Heydarian

A key foreign policy consequence of President Barak Obama’s reelection is the growing possibility of face-to-face talks between the United States. and Iran. Both the US Secretary of State Hillary Clinton and Iran’s Foreign Minister Ali Akbar Salehi have expressed, albeit conditionally, their respective governments’ openness [...]]]> via Lobe Log

By Richard Javad Heydarian

A key foreign policy consequence of President Barak Obama’s reelection is the growing possibility of face-to-face talks between the United States. and Iran. Both the US Secretary of State Hillary Clinton and Iran’s Foreign Minister Ali Akbar Salehi have expressed, albeit conditionally, their respective governments’ openness to engage in comprehensive bilateral talks — for the first time in almost three decades — to primarily resolve the ongoing nuclear standoff.

Beyond the issue of urgently resolving the Iranian nuclear question, purportedly to prevent an Israeli pre-emptive strike and an Iranian nuclear bomb, the Obama administration’s growing interest in directly engaging Iran may have something to do with timing, opportunity, and leverage.

There is a feeling in Washington that the recent transatlantic sanctions may have created enough pressure  — and damage to Iran’s economy — to potentially extract major unilateral concessions from the Iranian regime. Namely, a “stop-shut-ship scenario”, whereby Iran would curb its enrichment capacity, open up all aspects of its nuclear program, shut down its heavily-fortified nuclear facilities, and ship out its stockpile of above 3-5 percent enriched uranium in exchange for some nominal — yet to be clarified — incentives from the West.

Since the imposition of Western sanctions against Iran, beginning in late-2011 and intensifying by mid-2012, the Iranian economy has begun whimpering on an unprecedented scale. Iran’s oil output is at its lowest in more than two decades, while oil exports have been halved; the inflation rate has surpassed the 25 percent barrier, while the budget-deficit is reaching its highest level in the last decade; and, the Iranian currency (rial) has lost about 80 percent of its value in less than a year. The sanctions against Iran’s ports, shipping industry, financial sectors, and central bank, Bank-e-Markazi, have also made it increasingly difficult to conduct even the most benign kind of international transactions, from the import of medicines, to food, diapers and medical equipments.

However, there are some recent indications that Iran’s economy is not exactly in a desperate shape, or at least not as frail and fragile as the Obama administrations hopes it to be.

According to the Paris-based International Energy Agency’s (IEA) most recent report, Iran’s oil exports have rebounded sharply – by around 30 percent – after seven months of steady decline, thanks to new contracts with giant Asian customers, China and South Korea. With oil exports constituting more than three-quarters of export earnings, Tehran is now in a relatively better position to defend its falling currency. In fact, the rial has indeed experienced some recovery in recent weeks, appreciating from the record-low of 37,000 rials against 1 dollar in early October to around 27,000 rials against 1 dollar today. Of course, the most recent financial and hydrocarbon sanctions by the European Union will further complicate the process by which Iran intends to translate its rising exports into a stronger local currency.

Another surprising development is in the tourism sector, which has also experienced an unexpected spike. “Although most sectors of Iran’s economy are struggling and oil revenue has steeply declined, foreign purchasing power is at an all-time high in Iran due to a plunge in the value of the Iranian currency, the rial,” reported Jason Rezaian of the Washington Post.

The Iranian government has circumvented transatlantic sanctions by an ingenious mixture of manifold countermeasures. It has negotiated sovereign insurance deals with major customers such as China, India, Japan, and South Korea, while considering barter deals (sweetened by heavy discounts and flexible payment arrangements) to woo major customers and continue large-scale oil trade. Iran has also expanded its tanker storage capacity by purchasing/building new oil-transporting vessels, smuggled oil through neighboring countries like Iraq, and stealthily transported oil — with off-the-radar and/or or ‘foreign flagged’ ships — from its ports to major destinations in East Asia. This explains Iran’s ability to increase oil exports by almost 30 percent in November, compared to previous months.

Moreover, the government has instituted some draconian measures to stave-off the impact of sanctions. It has further slashed imports, postponed its subsidy cuts, reduced money supply, raised interest rates, and jailed so-called ‘currency manipulators’. It has also encouraged domestic manufacturing. Aside from the government’s recent ban on imports of around 77 luxury products, atop reductions in 52 other non-essential goods, the fall of the Iranian currency  — especially in the black market – has also eroded the competitiveness of imported capital goods, which have hammered local producers in recent years.

It’s important to note that the Iranian government has considerable foreign exchange reserves, estimated at between $80-100 billion, giving it significant ability to sustain imports for an extended period and defend its currency amid growing international restrictions. With a multi-tiered foreign exchange system, the government has an ability to cushion the most vulnerable sectors — incidentally, the backbone of the regime – against major disruptions in the import of basic commodities. After all, Iran’s structurally high inflation more the product of a loose monetary policy and major subsidy cuts that begun in 2010.

In some ways, it is Iran’s relative resilience  — and ability to avoid a total collapse — that may explain its willingness to explore direct talks with Washington. Tehran feels that it has enough wiggle room to avoid total unilateral concessions and negotiate a more mutually-favorable, face-saving outcome — perhaps, before it’s tool late.

- Richard Javad Heydarian is a Philippine-based foreign affairs analyst, specializing on international security and economics. He can be reached at jrheydarian@gmail.com

By Richard Javad Heydarian

The recent war in Gaza has been portrayed as a political dividend for the main protagonists, namely Israel’s Benjamin Netanyahu, Egypt’s Mohammad Morsi, and the Hamas leadership in Gaza, despite the tremendous psychological, infrastructural and humanitarian costs borne by innocent civilians, especially the Palestinians.

As Hamas and [...]]]> via Lobe Log

By Richard Javad Heydarian

The recent war in Gaza has been portrayed as a political dividend for the main protagonists, namely Israel’s Benjamin Netanyahu, Egypt’s Mohammad Morsi, and the Hamas leadership in Gaza, despite the tremendous psychological, infrastructural and humanitarian costs borne by innocent civilians, especially the Palestinians.

As Hamas and other militant groups bombarded Israeli cities with rocket attacks, Prime Minister Netanyahu’s enormous show of force — by mobilizing all elements of the Israeli Defense Forces (IDF) against Gaza — allowed him to shore up greater support among a rattled Israeli populace, crucially ahead of the upcoming parliamentary elections. On the other hand, Hamas — and other militant groups such as the Islamic Jihad — were able to claim victory by not only circumventing Israel’s sophisticated ‘Iron Dome’ missile defense-shield system, and preventing a ground invasion by the IDF, but also because they may have finally gained enough leverage to end the Israeli-imposed siege on Gaza, which has resulted in a protracted humanitarian crisis in one of the most densely populated areas in the world. As for the Islamist president of Egypt, he was able to considerably boost his international profile and domestic popularity by leveraging the Muslim Brotherhood’s strong ties with Hamas and his country’s strong military ties with the US so as to strike a lasting truce.

After three decades of strategic irrelevance/acquiescence, Egypt has once again become an indispensable nation in the region.

Yet, what is missing from this mainstream narrative is how Iran — increasingly isolated in recent years — has actually been vindicated by the most recent Gaza crisis. While the first decade of the 21^st century witnessed the dramatic rise of Iran as a regional power, largely precipitated by the US-led elimination of anti-Iranian rulers in neighboring Iraq and Afghanistan, the advent of the Arab uprisings — beginning with the late-2010 Tunisian revolution and the early-2011 Egyptian revolution — have presented a mixed package of some initial strategic gains, but steady and gradual decline overtime, most especially after the outbreak of the Syrian revolution in March 2011. Although Iran benefited from the downfall of leading US allies in Egypt and elsewhere, while sensing some opportunity in the Bahraini and Yemenis revolutions across the Arabian Peninsula, its image and popularity — especially among the Arab populace – took a nosedive when it threw its weight behind the embattled Baathist regime in Syria.

With leading regional powers such as Turkey, Saudi Arabia, and Qatar portraying Iran’s support for Bashar Al-Assad as a cynical attempt to maintain a sectarian, Persian-led ‘axis of resistance’, Tehran has been gradually sidelined, prompting the Sunni Hamas leadership — with strong ties to the dominant Muslim Brotherhood faction within the Syrian opposition — to seek patronage elsewhere, especially in Ankara and Doha. In effect, the Arab uprisings have not only overshadowed Iran’s 3 decade-old support for the Palestinian cause, and empowered rising powers such as Turkey and Qatar, but they have also ideationally relegated Tehran to a new pejorative status of a non-Arab, non-Sunni state, perceived to be standing against a democratic uprising in Syria.

However, the recent crisis in Gaza has brought the Palestinian issue back to the center of popular political discourse across the Islamic world. Thus, it has indirectly reminded everyone of Iran’s continuous support for the Palestinian resistance – a long-time basis of Tehran’s popularity among the Arab street. Also, the crisis has slightly diverted attention from the ongoing civil war in Syria, where Iran — in the eyes of many Arabs — has been heavily implicated due to its support for the Assad regime.

The fact that this time Israel balked from repeating its brutal 2008-2009 military campaign against Gaza is a testament to the shifting balance of forces on the ground. Sure, the advent of Arab uprisings  — giving birth to more populist/pro-Palestinian post-revolutionary leaders — may have placed a new element of constraint upon Israel’s strategic impunity: its ability to re-shape the immediate strategic environment, through a combination of economic coercion, diplomatic obstructionism, and brutal military force, without considerable costs. It is also true that regional powers Turkey, Egypt, and Qatar have provided considerable economic and political support to Hamas, forcing Washington to exert growing pressure on Israel to cease military operations against Gaza. But, without Iran’s concrete military-logistical support, Hamas would have never been in a position to deter an all out Israeli invasion, especially under the current hawkish leadership in Tel Aviv. After all, no regional power, aside from Iran, has dared to directly support Hamas in military terms. Neither Qatar nor Turkey wishes to jeopardize crucial strategic ties with the West by doing so, while Egypt — the second largest recipient of US military aid – is still too vulnerable to take on Israel and/or jeopardize ongoing negotiations vis-à-vis Western economic assistance, either through bilateral mechanisms or international organizations such as the IMF. Iran’s position as the leading revisionist force in the Middle East has provided it a unique wiggle room to prop up Hamas-led resistance in Gaza.

It was the Iranian-designed/made Fajr-5 missiles — scoring an unprecedented success rate (reportedly ranging between 15 to 40 percent) against the Iron Dome system — that gave Hamas and other militant groups not only an element of deterrence against a total Israeli invasion, but also a crucial bargaining chip to force Israel back to the negotiating table to end the siege of Gaza – and perhaps even kick-start negotiations over the future of Palestinian statehood. Hamas’ ability to strike missiles as far as Tel Aviv is a major game-changer, thanks to Iran’s ballistic technology. No wonder, after the conclusion of a truce between Hamas and Israel, Khalid Mishaal, one of Hamas’ most important figures, formally thanked Iran for its role in arming and financing Gaza during the war.

This is perhaps why Iran stands as a major beneficiary of Israel’s recent truce with Hamas.

- Richard Javad Heydarian is a Philippine-based foreign affairs analyst, specializing on international security and economics. He can be reached at jrheydarian@gmail.com