As 2010 began, there was global speculation as to the future of the Islamic Republic of Iran. Mass demonstrations after the disputed 2009 presidential election raised hopes among opponents of the Ahmadinejad regime that a new revolution beckoned, and any momentum in the Obama administration for engagement over Tehran’s nuclear program was thwarted by outrage at the suppression of Iran’s opposition ‘Green Movement’. When 2011 opens, the resilience of the Iranian authorities — both in overcoming domestic unrest and in coping with a new wave of American, European, Asian and United Nations sanctions — may create a better atmosphere for engagement.
The challenge — reaching a compromise over Iran’s nuclear program — has barely changed in seven or eight years. Tehran’s bottom line is its “right” to nuclear technology, especially as a signatory of the Nuclear Non-Proliferation Treaty. But the world powers insist is that Iran accepts a limit on its uranium enrichment and allows intrusive inspections by the UN’s International Atomic Energy Agency. As is often the case, the devil is in the details, but without the will to reach an agreement, no details are discussed.
During the 2003 to 2006 talks between Iran and the European Union — a time I was based in Tehran — it was clear that some on the Western side recognized that Iran would have some level of domestic enrichment, and that the European Union demand for suspension was temporary.
It was just as clear that there were those on the Iranian side ready for limits on enrichment in return for recognition of Iran’s “rights.” According to what I was told by two regime insiders, a majority of the leadership accepted this, at least until late 2006. Throughout those years, Iran’s leaders were trying to understand the United States’ motivation, and this remained true when President Barack Obama was elected. Was Washington serious in wanting an agreement?
And here’s the problem — as Djavad Salehi-Isfahani, economics professor at Virginia Polytechnic Institute and State University, has pointed out, for the US “all policy making [over Iran]… is evaluated through the lens of regime change.” By this he means the assumption of policy-makers — and it’s true of “Iran experts” and journalists as well — is that the “problem” with Iran is its “regime.” Every aspect of Iran is seen this way, feeding a sense that the Islamic Republic is on the verge of collapse. This has long encouraged a view of the Iranian economy as a basket case.
But while Iran has failed, like many oil exporters, to finance enough productive investment, it has — for a developing country — been relatively successful in reducing poverty and building an infrastructure. Most Iran-watchers see the Ahmadinejad government’s plan to phase out in 2011 the subsidy of everyday items — from bread to gasoline and electricity — merely as a potential cause of more unrest that can hasten the demise of the Islamic Republic, or at least lead it to abandon the nuclear program. The International Monetary Fund, however, backs the plan, applauding “a dual purpose” of generating more revenue and curbing waste. The fund recognizes that subsidies, at $100 billion annually, absorb resources that could go into investment. “There is something to be said for a populist president doing price reforms,” notes Salehi-Isfahani.
“Sanctions that bite,” to quote US Secretary of State Hillary Clinton, are the West’s means of choice to squeeze Iran. But the main losers are young Iranians, who are paying the cost through unemployment, as Salehi-Isfahani argues in a recent paper published jointly by the Dubai School of Government and the Kennedy School at Harvard. Iran’s opposition argues that sanctions strengthen the government; if they are right, sanctions may make nuclear compromise more elusive. Furthermore, should the Ahmadinejad administration’s subsidy gamble be successful, it may achieve a better economic performance.
Although removing subsidies will increase prices, Iran has leeway: inflation fell from nearly 30 percent in late 2008 to 9.2 percent in the Iranian month of Mehr (23 September to 22 October). And while economic growth has been only 1.6 percent this year, the IMF projects 3 percent in 2011, only 0.2 percent behind the United Arab Emirates. Improving inflation, success over subsidies, maintaining the nuclear program and enhancing the country’s standing across the Islamic world would add up to a very happy 2011 for Iran’s leadership.
GARETH SMYTH is the former Tehran
correspondent for the Financial Times