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10.12.2012

IRAN AND SANCTIONS

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Sevak Sarukhanyan
Deputy Director of “Noravank” Foundation. Head of the Center for Political Studies, Ph.D. (Political Science)

Sanctions imposed against Iran caused serious changes in the economic life of the Islamic Republic of Iran. At the same time they have had a great impact on political processes either.

Economic impact of the sanctions

Among the sanctions imposed by the United States and E.U. against Iran rather these two following decisions than the restrictions on oil import can be considered as the most crucial ones:

1. The first one is freezing up of the transactions of the Iranian banks and suspension of Iran’s participation in SWIFT system. In consequence, Iran in fact lost an opportunity to buy U.S. dollars from international financial organizations and banks, which has reduced the currency inflows into the country and restricted import of the goods of prime necessity.

2. Almost all the international insurance companies refused to insure tankers transporting Iranian oil which has considerably axed the volume of the Iranian oil export (on about 30%). The essence of the problem is that even the countries which do not support the sanctions were obliged to restrict buying of the Iranian oil as its transportation was not insured and in case of any force majeure the buyers would loose the oil and all they paid for it.

As a result of these sanctions Iran has appeared in a real macro-economic crisis. On the one hand the revenues from the oil export have shrunk, on the other hand these revenues are received neither in dollars nor in Euros; they are received in the currencies of the countries which buy the Iranian oil. In consequence, Iran is obliged to import goods from countries which buy its oil, which in its turn limits seriously the variety of imported goods, because, for example, Iran cannot import necessary quantity of grain. If previously Iran bought grain from Canada, today Tehran has to search new sources among the countries which buy Iranian oil.

In consequence of sanctions rise in inflation can be observed in Iran: e.g. chicken meet, 50% of which is imported and which is in a good demand in Iran, became 4 times expensive. Other goods of prime necessity – butter, sunflower oil and flour – have also got more expensive.

At the same time in consequence of the sanctions and economic problems, at the end of September, the Iranian Central Bank demonstrated that it cannot curb depreciation of the currency. In one day it went down in value by 70%, which demonstrated the real scale of macroeconomic recession in the country.

It should be mentioned that Iran takes serious measures to improve the economic situation in the country. The most important of them are:

First. For the first time since the Iranian-Iraqi war Iran has fallen back to the formation of the oil “black market”. The main purpose is the arrangement of alternative ways of oil export to the countries which formally refused to cooperate with Iran. To attain this goal the Iranian authorities in September-October factually abolished the monopoly of the National Iranian Oil Company on oil export, thus allowing newly formed “cooperatives” independently export oil and at the same time not to inform where it is exported.

Second. By the decision of the Central Bank of Iran $5 billion was allotted to the National Iranian Oil Company for the establishment of the Insurance Iranian National Fund, which would allow insuring oil transporting ships by their own means and stimulating the former buyers to restore the volume of oil purchase from Iran.

Third. On the foreign political plane Iran has started looking for new allies and partners which could help Tehran to solve their economic problems. Strange as it may seem in this issue Tehran is actively supported not by China, which has reduced the Iranian oil purchase volume by 30%, but by India, which has never shown special interest in the Middle East affairs. The latter came to terms with Tehran in October on supplying grain to Iran at special prices which would help Tehran to avoid a sad perspective of raising the prices for bread. India has also directed its all oil processing capacities to the processing of the Iranian crude oil, which has to be re-exported to Iran by means of “petrol for oil” barter method. No less important are the measures taken by India in the direction of implementation of big joint projects with Iran. The most expensive of them is the building of the railway from the Persian Gulf to Afghanistan which total cost will be $10 billion. Due to the building of this railway, which will be implemented mainly by funding of the Indian side, Pakistan will appear in the factual transport blockade and the Afghani market and economy will receive a direct access to the Persian Gulf and South Asian markets by-passing Pakistan, which has a considerable influence on political and economic life in Afghanistan today.

It should be mentioned that the economic programmes carried out by Tehran are very likely to be successful because in fact new system of avoiding the sanctions is formed. How the further development will proceed depends on the measures taken by the re-elected president of the United States B. Obama; if he supports new sanctions against Iran, Tehran will face new kind of economic problems. And if Washington chooses a dialogue with Tehran, which has been spoken about very often recently, Iran will manage to avoid further aggravation of economic situation.

Nevertheless, the resignation of the head of the CIA D. Petraeus can be considered rather painful for Iran, as the latter was active supporter of the Iranian-American dialogue.

Political influence of the sanctions

Economic problems and worsening social situation have had serious impact on the domestic political life in Iran. On the one hand the Iranian parliament with the majority of its members, which are connected with the spiritual authorities of the country, criticized the president and claimed him to be the main person to blame for the misfortunes, and on the other hand M. Ahmadinejad seems to realize that the spiritual authorities and Majlis would not choose the way of impeachment of the president in order not to aggravate economic situation in the country by panic and he acts bravely. That is why in October the president initiated Iranian “prison scandal” by expressing a wish to visit prison in Tehran and meet the prisoners. There are many supporters and friends of Ahmadinejad among the latter. They has been arrested and sentenced to prison on different charges in a course of the year. Though the General Prosecutor and heads of the Supreme Court rejected his appeal, nevertheless M.Ahmadinejad demonstrated to his political team that he was still independent and did not compromise to the spiritual authorities of the country.

Quite opposite today is the behavior of the ex-president of Iran A.A.Hashemi-Rafsanjani, whose relations with the spiritual leader Ali Khamenei in recent months has become rather warm. Setting relations between Hashemi-Rafsanjani and A.Khamenei is more than necessity because it is Khamenei who can influence the criminal cases opened against the son and daughter of the former president. It can be stated that Hashemi-Rafsanjani has already achieved this goal – the charge of “anti-state actions” brought against his son was changed to “abuse of official position” and the charge of “treason” brought against his daughter was changed to “participation in civil commotions”. As for Khamenei, he is also obliged to set the relations with Hashemi-Rafsanjani because under the aggravating confrontation with the West returning of “pro-American” Hashemi-Rafsanjani to the mainstream politics can be used for arranging a possible dialogue with the West. In this aspect it is not strange at all that at the Summit of the Treaty of non-Aligned States which was hold in Tehran in August, together with Ali Khamenei Hashemi-Rafsanjani who sat next to the spiritual leader also played a host.

Strange as it may seem, in Iran the rumors that Hashemi-Rafsanjani is going to stand for the presidency in 2013 elections and receive the support of Ali Khamenei are spread. This is conditioned by the fact that the ex-president of Iran is known all over the world as reformer and supporter of the dialogue which may result is softening of the situation round Iran. One cannot say it for sure how possible the nomination of Hashemi-Rafsanjani is but while making forecasts, it should be mentioned, that even if everything goes the way they say, Hashemi-Rafsanjani will hardly change sharply the line of the nuclear programme because it was the ex-president of Iran who restored in 1991 the suspended after the Islamic revolution nuclear programme of Iran and directly assisted the development of the uranium enrichment technologies in the IRI.

At the same time one more fact should be mentioned – the economic crisis demonstrated real consequences of absence of mutual cooperation between the government and parliament. As a rule, adoption of a bill by Majilis directed to the resolution of certain economic issue becomes a real problem because any document which is received from the government is used for criticizing the president; this postpones adoption of that bill and hampers dynamic response.

That is the reason why the parliament and spiritual circles started to discuss eagerly the issue of abolishment of the post of the president and its substitution by the post of the prime-minister. Unlike president who is elected by means of a direct voting the prime-minister should be elected by the parliament and represents interests of the majority in the legislative body. This, in its turn, should result in more serious cooperation between the parliament and government and bring bigger opportunities for taking operative governmental decisions.

It should also be mentioned that the political relations and discussions in Iran in the months to come will even more stir up, because on the one hand they will be influenced by the economic crisis and on the other hand by the approaching presidential elections.

“Globus” analytical journal, #11, 2012

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