It is hard now to recall that 2009 began with such optimism over engagement between Iran and the newly-elected United States President Barack Obama. The year ended with the Washington-Tehran dialogue ruptured without truly starting, a domestic Iranian political situation drawing Obama into critical pronouncements that Tehran saw as interference, and the prospect of more economic sanctions for Iran.
With two fifths of the world’s oil passing through the narrow Strait of Hormuz on Iran’s southern coast, a vast US regional military presence and Israel anxious to shift Washington’s attention from the Palestinians, 2010 will see Iran at the center of a web of geopolitics and energy needs.
Many who were hopeful about Obama’s promise of a fresh start are now disappointed. The US president’s recorded video message for Iranians, timed for the Iranian new year in March, is remembered as “opening a genuine window of opportunity” by Marsha Cohen, fellow at the Middle East Center of the Florida International University.
Trumped by domestic demands
Cohen, a seasoned Iran analyst, believes the US administration has since retreated into old ways. “The window was soon shuttered,” she told Executive, “by the retreat to Bush-era talk of ‘carrots and sticks,’ the mistaken conflation and confusion of ‘sanctions’ with ‘diplomacy,’ and the administration’s apparent acquiescence to Israeli pressure for a deadline for Iranian compliance.”
This drift came through the summer and autumn. When in June Iran informed the International Atomic Energy Agency (IAEA), the United Nations regulatory body, that its supply of uranium from Argentina for medical purposes would run out in 2010, the Obama administration adopted a new tactic.
As Iran lacked the capacity to enrich uranium to the required 20 percent level, Washington suggested a swap: it would agree to Iran importing the medical fuel in return for Tehran exporting the bulk of its existing stocks of domestically produced low-enriched uranium (LEU).
The proposal — which quickly won the support of Washington’s allies — was presented to Iran at a meeting in September with the “P5+1,” the permanent members of the UN Security Council and Germany. Even that level of engagement drew criticism from within the US and Israel. And the proposal was quickly criticized in Iran itself, first by conservatives but also by reformists.
Wary officials in Tehran began to talk of a phased swap and “100 percent guarantees,” while prominent parliamentary deputies rejected the whole idea of exporting Iran’s LEU.
When the two sides met in mid-October in Vienna, the IAEA chief Mohamed el-Baradei was unable to bridge the gaps. Gareth Porter, an investigative journalist and analyst of US foreign and military policy, told Executive that the Geneva process therefore failed to tackle the wider issues that the US and Iran must confront to address their differences.
“This was an opportunity to craft a much more difficult agreement that would establish incentives for Iran to remain a non-nuclear weapons state power in return for its agreement to allow a more intrusive IAEA system of surveillance,” Porter said. “That would have meant being willing to talk about reducing or eliminating the elements of US policy that are inherently hostile to Iran, including the threat of military aggression or the tolerance of it by Israel, the economic and financial sanctions against Iran, and the refusal to give Iran a seat at the table in regional consultations.”
Porter believes that Obama avoided such talks because “the pressure on him at home was simply too great,” and that “the level of dissidence within Iran after the election clearly played a major role in making it all the harder for him to give serious consideration to anything but a zero enrichment demand.”
Tough times for dissidents
Events in Iran after June’s disputed presidential election indirectly undermined engagement.
“The manipulation of the presidential election and the brutal crackdown on political dissent undercut the position of advocates of rapprochement and normalization in the US and Europe,” said Florida International University’s Cohen.
The Obama administration has headed back toward a policy of imposing further sanctions, aiming to undermine the Iranian authorities by hitting the economy. Longstanding US sanctions have deterred the major Western energy companies from the lucrative Iranian market, a trend that continued in 2009.
Resources are limited in Iran, but those with access to oil revenue or political influence have an advantage — hence a privatized 51 percent plus one share in the Telecommunications Company of Iran in September was won at an auction by a consortium including retirement funds for members of Iran’s Islamic Revolutionary Guards Corps (IRGC).
Turkish and Asian companies have also moved in. The most recent agreement, in November, saw China’s Sinopec sign a memorandum of understanding for $6.5 billion worth of oil refineries, adding to Sinopec’s existing interests, which include a 51 percent stake in the huge Yadavaran oilfield and daily imports of between 150,000 to 160,000 barrels of Iranian crude. Two Korean companies, GS Engineering & Construction and Daelim, in October announced multi-billion deals tied to Iran’s vast South Pars gas field.
Sanctions, and the repeated talk of military strikes on Iran’s nuclear facilities, have also shaped Iranian domestic politics.
“Threats of military action against Iran by Israel, with or without the assent and/or assistance of the US, as well as the instability and violence on Iran’s borders with Iraq, Pakistan and Afghanistan, are being used to justify unprecedented levels of domestic securitization,” said Cohen.
The most visible signs came with the violent dispersal of demonstrators who contested Mahmoud Ahmadinejad’s presidential victory. Arrests and show trials — including leading opposition figures like Saeed Hajjarian, the “brain of the reformists,” and Mohammad Ali Abtahi, a vice president under Mohammad Khatami — undermined but did not silence an opposition led by defeated presidential candidates, Mir-Hossein Mousavi and Mehdi Karroubi.
Iran’s critics argued the country had become a military dictatorship under the IRGC, who deployed the Basiji militia to break up demonstrations. But many experts dispute such an analysis.
Chilling the investment environment
“While there has been a qualitative elevation of the position of the Revolutionary Guards, there does not yet appear to be a single military strongman or junta with absolute dictatorial powers who is making all of the country’s decisions and displacing the supreme leader, Ali Khamenei,” said Cohen. “Nor is Khamenei himself an autocrat who can act without accountability… Ironically, the ‘Islamic’ aspect of Iran’s governing institutions may actually be serving as a bulwark against a takeover by a secular, militaristic cabal.”
Farideh Farhi, an Iran specialist at the University of Hawaii, agrees. “The decision to identify the current situation as ‘crisis’ and give the command to IRGC was a decision taken by Iran’s civilian leadership,” she told Executive. “The Iranian state is relying more on dictatorial means to control or address the deep challenge that it is facing.”
This challenge includes the pressing economic issues highlighted by the June election campaign. Rather than run on traditional reformist slogans about political freedom, Mousavi challenged Ahmadinejad on his cherished ground of “social justice,” creating jobs and improving the lot of the less well off.
The fall in oil price from around $150 a barrel in the summer of 2008 to around $65 at the end of May 2009 (albeit a recovery from lower levels earlier in 2009) made it hard for presidential candidates to ignore the need to reduce Iran’s $100 billion annual bill for universal subsidies, which cover basic items including bread, electricity and gasoline.
Since his disputed election win, Ahmadinejad has pressed ahead in parliament with a plan to phase out subsidies, recognizing that reform is needed urgently to reduce consumption, increase investment and so stimulate economic growth.
The International Monetary Fund projected growth of just 1.5 percent in 2009, after 2.5 percent in 2008, 7.8 percent in 2007 and an average 5.4 percent from 1996 to 2006. Yet, in January 2009, Ayatollah Ali Khamenei announced a five-year plan for 2010 to 2015 with an 8 percent target for annual growth.
“Iran’s economy was not able to reach this rate in the best years of the Fourth plan [2005-10], which had the same target,” said Djavad Salehi-Isfahani, an economics professor at Virginia Polytechnic currently visiting Tehran. “The Iranian year 2008 to 2009 was bad, and there is no reason to think 2009 to 2010 will be better.”
Salehi-Isfahani has calculated that 7 percent growth is needed to reduce unemployment to 8 percent over time, from the current level of 12.5 percent.
“If [Ahmadinejad’s] plan is implemented and prices on energy products are raised while preventing adverse impact on income distribution, it will help growth in the long run,” he said. “But the plan faces serious obstacles in implementation and is yet to be approved by the Guardian Council [the constitutional watchdog].”
Skeptics also fear Ahmadinejad sees savings from reducing subsidies more as a means to buy political favors than to generate investment.
“Iran’s parliament is challenging Ahmadinejad for the right to decide how the savings from the subsidies will be put to use,” said Cohen. “There’s suspicion that Ahmadinejad might use the proceeds of the subsidy cuts as a political tool, rewarding [his] political base, targetting his opponents and contributing to a climate of corruption”.
Farhi is equally doubtful. “Ahmadinejad is on record stating that more than 70 percent of the population will continue to get some sort of subsidy and his policies have not been very investment-friendly,” she said.
As oil prices decline, Iran needs to reduce its $100 billion annual bill for universal subsidies
