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(Update) Squeezing Iran

3:34 PM, Sep 10, 2006 • By DANIEL MCKIVERGAN
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(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 http://www.usatoday.com/money/world/2006-09-04-iran-economy-usat_x.htm target=_blank>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.