TEHRAN: Motorists queuing in Niavaran Street, north Tehran, for gasoline at 8 cents a liter show no sense of crisis at the growing pressure on Iran. “What’s new?” says one, nozzle in hand as he steps around large puddles of petrol.
President Mahmoud Ahmadinejad, meanwhile, tours the country promising crowds his government will prioritize development and cheap bank loans. “Nuclear energy is our legitimate right,” they chant for a man whose election slogan last year was “putting oil money on the sofreh”, the cloth Iranians place on the floor for meals.
Vilified in the west, Ahmadinejad has showed himself an adept politician. Nasser Hadian, politics professor at Tehran University, says his friend from school is a quick learner.
“Once he got the reaction [from the west], he saw the chance to establish himself among the Muslim masses outside Iran, standing against the US and Israel.”
In the process, Iran’s president has complicated the politics of Iran’s nuclear program, alarming Washington, Europe and some of the Arab Gulf. But the opportunity cost of nuclear power drops as oil prices rise.
Ali Akbar Salehi, Iran’s former representative at the International Atomic Energy Agency and now dean of Tehran’s Sharif University of Technology, explained that the Natanz plant, even at full capacity, could supply only one reactor: “We are to construct seven, so we need to buy uranium from outside. This is a bargaining chip for us.” Hence Iran says it’s open to joint ventures with western companies – at the right price.
But it’s not just economics. The nuclear issue is a piece of a wider jigsaw of geo-politics as Iran tries to build bridges to the east, enhance a regional role and resist the US. Ahmadinejad’s government often disparages foreign investment – even as its rhetoric undermines the private sector.
The Tehran stock exchange index plunged from highs of 13,800 in mid-December 2004 to around 9,500 in mid-May. Iran’s credit rating fell further in April as Fitch Ratings downgraded ratings from BB- to B+, four levels below investment grade, citing increasing risk of sanctions.
With the world’s second largest reserves of both oil and gas, Iran’s largely state-run economy is kept afloat by an average daily production of 4.04 million barrels per day of oil and 3.22 million cubic feet of natural gas. Without disruption, oil and gas income for the Iranian year March 2006-7 will top 75bn dollars, up from 55bn in 2005-6.
But while every extra $1 per barrel adds $4 million daily to Iran’s coffers, rising tension also threatens the energy deals Iran needs.
Asian oil deal tensions
Growing questions are asked over a deal with Tokyo inked two years ago for developing the Azadegan oil field. Iran is unhappy at the pace of development by the Japanese company, Inpex. Political clouds also hover, with Mohsen Talaei, Iran’s ambassador to Japan, last month speaking of “action against Japan” if Tokyo joined sanctions on Tehran.
Even the $100 billion deal with China to supply natural gas for 25 years and give Chinese company Sinopec a 49% stake in Yadavaran oil field faces problems. Kazem Vaziri-Hamaneh, the oil minister, warned Iran would make other plans if negotiations “do not reach a satisfactory conclusion”. The Chinese press has reported Tehran wants a yield of 300,000 barrels per day from the field, whereas the Chinese are unwilling to commit beyond 180,000.
Uncertainty is enhanced by the growing debate within Iran’s political elite over international policy. Pragmatic conservatives including Hassan Rowhani, the former top security official, argue for “less emotion”. Mr Rowhani, a close ally of former president Akbar Hashemi Rafsanjani, is unhappy at Ahmadinejad turning the nuclear issue into a crusade.
Some Ahmadinejad allies leave little doubt where they think things are heading. “All signs show Iran and America are about to grab each other by the scruff of the neck,” Mohsen Rezaei, the former Revolutionary Guards commander, told a recent conference. “On the one hand the Americans say the issue is our nuclear program, and on the other they allocate $70 million to overthrow the Islamic Republic.”
Rezaei was referring to President George Bush’s decision to fund exiled opposition groups, but the real concern is over military intervention. However calm the motorists in Niavaran street, Iran’s political class now wonders if the 26-year conflict with the US is entering a decisive stage.
Gareth Smyth is the Financial Times Tehran
correspondent and a former Executive contributing editor
