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Dealing with Iran

An overview of the relationship between Iran and the rest of the region

by Gareth Smyth

Iran’s influence in the region and the Islamic world will likely continue to increase in 2007, as the United States fails to come up with credible strategies for managing Iraq or for reaching international consensus on Tehran’s nuclear program. If Washington is serious about talks, however, Iran may gradually return to the less confrontational style that characterized its 2003-2005 negotiations with the European Union.

Nonetheless, such talks cannot bring tangible fruit as long as the US and EU continue to demand concessions—in particular, the complete cessation of uranium enrichment—that Iran’s political class is unwilling to make. As Iranian UN envoy Mohammad-Javad Zarif recently told James Baker, the ex-diplomat trying to produce a new Middle East policy for President George W. Bush, any deal comes with a hefty price tag.

Lebanon will remain a point of contention between the US and Iran (and Syria), as Tehran has neither reason nor desire to weaken long-term alliances with Hizbullah and militant Palestinian groups. American and Israeli pressure on Lebanon—diplomatic or military—will keep the Levant a dangerous flashpoint in a volatile region.

Tehran will continue to foster relationships within the Muslim world and with Russia and China, using its vast energy resources as a prize and always seeking to extract some political benefits. A deal over the proposed $7 billion pipeline to take natural gas to India via Pakistan would be both a major step towards closer links with the sub-continent and a blow to American diplomacy. If the US and EU impose sanctions on Iran over the nuclear program, European oil majors will see their interest in Iranian oil and gas slipping away both to China and to domestic Iranian companies, including those affiliated to the Revolutionary Guards.

Tehran’s close relationship with the Shia parties and the Kurds in Iraq will ensure its influence with its troubled neighbor remains strong. America’s disastrous management of Iraqi affairs has served as an example to Iranians of the woes of “regime change,” and no amount of US or British-funded Farsi broadcasting to Iran is likely to overcome their skepticism about the West.

Domestically, President Mahmoud Ahmadinejad will lose some popularity as he fails to deliver on egalitarian election promises of “social justice.” With no meaningful market reforms of an economy shot through with restricted practices, protected interests and a bloated state sector, inflation and unemployment will creep upwards to 17.5% and 15% respectively, and growth will remain sluggish at around 4% despite high oil prices. Record oil revenues, however, will bolster the economy and the government.

Growing numbers of cars and the government’s failure to develop refineries mean petrol imports will increase from the current 30 million liters a day unless the government is prepared to take the unpopular steps of rationing or ending generous subsidies. At the equivalent of nine cents a litre, Iranian petrol is among the cheapest in the world.

But President Ahmadinejad’s government will continue to draw support from most Iranians’ backing for the nuclear program, as long as the stand-off with the US and EU produces no tangible costs. The popular reaction of Iranians to any military strikes by Israel or the US is uncertain, but might easily be an upsurge of nationalist defiance.

In the run-up to parliamentary elections in 2008 and presidential elections in 2009, domestic political competition will intensify, but Supreme Leader Ayatollah Ali Khamenei will continue to work for consensus on important issues (including the nuclear program) to prevent any single faction—including the fundamentalists—becoming too powerful.

Iran’s reformists have spent 2006 licking their wounds and regrouping after defeats in the 2003 municipal, 2004 parliamentary and 2006 presidential elections. The next 12 months will show whether they are prepared to roll up their sleeves for political battle, across the country and beyond their settled constituency of the educated and upper classes.

While some reformists have advocated steps to restore “international confidence” over the nuclear program, it is unlikely they would be beneficiaries of any swing away from Ahmadinejad. The coming year will be crucial for Mohammad Bagher Ghalibaf, who ran as a conservative modernizer in the 2005 presidential elections and then replaced the victorious Ahmadinejad as mayor of Tehran. Ghalibaf could end 2007 looking the most credible challenger in the 2009 presidential election.

Akbar Hashemi Rafsanjani, the influential former president, will remain a formidable player. Having survived the attempt by Ahmadinejad to remove him and his allies from important positions, Rafsanjani has stabilized his relations with Ayatollah Khamenei and will continue to work for greater pragmatism at home and abroad.

Meanwhile, Iranian exiles in the US and American “Iran experts” will continue to offer faulty assessments from a distance of 7,000 miles. Who knows? There may well be more “student leaders” like Manouchehr Mohammadi, or “journalists” like Amir Taheri, turning up in America to proffer easy solutions for “regime change.”

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Gareth Smyth

Gareth Smyth has reported from around the Middle East for more than two decades and is the former Financial Times correspondent in Tehran.

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