(Marc Sumerlin, formerly deputy director of the National Economic Council, outlines a sanctions strategy in the current Weekly Standard. He notes: "The most important policy would be to announce without delay a coordinated release of strategic petroleum stocks…. Global government-controlled petroleum of IEA member countries could offset about 20 months of Iranian oil exports--a figure that should not only make Tehran nervous, but could also allow for an over-release, providing more oil to markets than was taken off-line. A coordinated oil release would shift supply from religious fanatics to known allies and demonstrate that oil vulnerability can be a two-way street. During the Persian Gulf war, a release of the Strategic Petroleum Reserve was announced on the same day that the war began.") Posted September 5, 2006: David Lynch has a very interesting piece in today's USA Today. It suggests that that the conventional wisdom on Iran - that it holds all the economic cards in the nuclear showdown - is largely wrong. The regime may be much more vulnerable to comprehensive sanctions than many realize. Lynch notes that foreign direct investment in Iran is one-tenth that of Turkey, unemployment hovers in the double digits, and, since Ahmadinejad took office, Iran's stock market has plummeted 32 percent. He writes:
As Iran hurtles toward a confrontation with the United States over its nuclear program, the nation's economy remains a dysfunctional wreck…. The official unemployment rate is 11%, although economists such as London Metropolitan University's Parvin Alizadeh say the actual total is twice that figure. Even government ministers acknowledge jobless rates as high as 18% in some provinces…. Foreign direct investment in the current year is expected to reach just $1.5 billion; neighboring Turkey, of comparable size, anticipates $11 billion. For the Iranian year that ended in March, the economy grew an estimated 6%, but that mostly reflects the impact of surging oil revenue and expansionary government spending, which has doubled in four years, says the International Monetary Fund. Three years of confrontation between Iran and the U.S. over the nuclear issue have chilled domestic businesses that depend upon the outside world. Near the ancient ruins at Persepolis, about 30 miles outside Shiraz, restaurateur Rasoul Azeemzadeh mourns lost opportunities…. Likewise, in the lobby of the Tehran Stock Exchange, glum investors gather to stare at the overhead screens displaying sinking share prices. Since Ahmadinejad's election, the market has dropped 32%…. Ahmadinejad's surprise victory in last year's presidential election, however, was fueled by public dissatisfaction with the clerical regime's economic track record. During the campaign, the former Tehran mayor denounced soaring inequality and widespread corruption among Iran's clerical elite. He also attacked the "oil mafia" running the country's key industry and vowed to spread the wealth. From Tehran's venerable central bazaar, with its smells of coriander and cumin, to the Internet cafes where young Iranians gather, there is talk of a turn to the East. To many Iranians, China and India appear as both potential business partners and economic models for their country, with its well-educated population and strategic location, to emulate. That explains why some of the political "carrots" the U.S. and Europe are offering in return for a halt to Iran's uranium enrichment program may not sway Ahmadinejad. Iran is vulnerable to a cutoff of international bank loans and gasoline imports, which make up around 38% of domestic consumption. Iranian officials insist that, given Russian and Chinese reluctance to act, real punishment may never materialize.
Other reports have also touched on Iran's shaky economy. In May, the Washington Post pointed out: "Experts on Iran point to a number of reasons it might be reluctant to cut oil exports. Oil accounts for 85 percent of Iran's exports, according to an International Monetary Fund report issued last month. Revenue from those exports makes up 65 percent of government income. And Iran uses a good chunk of that money to raise public-sector wages and to subsidize its own gasoline prices, one way to keep domestic discontent in check when unemployment is running at more than 12 percent and inflation at 13 percent." And in April, Radio Free Europe reported that Iran's president had been traveling around the country reassuring people on the economy:
President Ahmadinejad has discussed the issue of unemployment -- estimated to be at least 11 percent and closer to 20 percent -- in several recent speeches, hinting at his recognition that he must satisfy voters' most immediate concerns. He announced in the northeastern town of Quchan on April 11 that 180 trillion rials (approximately $200 million) will be distributed in the provinces for job creation, IRNA reported. In a speech in Mashhad on April 10, he said, "Employment is one of the most important issues to be tackled by the nation and the government," state television reported. "There are so many young people who have a specialization. They have learned and studied but there is no employment opportunity for them."
All this suggests that the regime's stability would be highly vulnerable to UN Security Council-imposed sanctions. But passing Chapter 7 sanctions would require Russia and China to act responsibly, which is why John Bolton is making alternative plans on the sanctions front.
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