WASHINGTON (Mint) — Iran is a country with incredible potential. Sandwiched between the Middle East, and Central and South Asia, with the Caspian Sea to the north and the Persian Gulf to the south, it’s situated in one of the most prime pieces of real estate on the planet.
It’s home to the largest gas reserves in the world and the second largest oil reserves. And it is one of the world’s top 20 largest economies, despite crippling sanctions.
“This is not North Korea. This is not Myanmar. This is not Cuba. This is a naturally large economy, large population, and has large young demographics hungry for all sorts of goods,” Alex Vatanka, a senior fellow at the Middle East Institute, a Washington-based institution dedicated solely to the study of the Middle East, told MintPress News.
At the 2014 World Economic Forum in Davos, Switzerland, Iran’s newly elected President Hassan Rouhani displayed an eagerness to start flexing some of the Islamic Republic’s economic potential. He stated, “The Iranian economy has the potential and capacity to be able in the next three decades to be considered [one of] the top ten economies of the world.” Rouhani also invited foreign investment into the country, called for normalized relations with Europe, and noted that interactions with the U.S. had entered a “new stage.”
But assuming a nuclear deal is signed on June 30, and sanctions do begin to get lifted, Iran faces tough decisions ahead about whom and what it wants to be, says Djavad Salehi-Isfahani, an economics professor at Virginia Tech, who specializes in Iran.
“The debate inside Iran is much more interesting than the debate here,” Salehi-Isfahani told MintPress.
“The debate here seems to be focused on Iran’s potential threat to Israel’s security. But in Iran it’s a deep structural nationalistic issue,” he continued. “There are people who think Iran should be integrated into the global economy, and there are people who think Iran should not be integrated into the global economy.”
The view from the West
“Imagine if you’re Boeing, and suddenly Iran comes, saying, ‘Can you sell to me?’ And the [U.S.] Treasury Department says, ‘Yea, Boeing, you can sell to Iran.’ And Iran says, ‘I need 200 brand new planes because my planes are 40 years old. I am going to borrow $200 billion,’ or whatever the hell it takes to buy 200 planes,” Vatanka exclaimed while attempting to impart how important the sanctions regime imposed on Iran looks to Western companies, which have the potential to profit from doing business with the Islamic Republic.
“There are certain goods that only America can deliver, and Boeing is one,” he said to further his point.
The National Iranian American Council (NIAC) released a study last July, titled “Losing Billions: The Cost of Iran Sanctions to the U.S. Economy.” The report asserts, “The United States is by far the biggest loser of all sanctions enforcing nations. From 1995 to 2012, the U.S. sacrificed between $134.7 and $175.3 billion in potential export revenue to Iran.”
The study singled out the oil and gas, automotive, telecommunications, power generation, construction, agriculture, food and medicine, water, and the aviation industries inside the U.S. as those which are likely being hit the hardest as a result of not dealing with Iran.
In support of Vatanka’s argument, NIAC’s report states:
“Iran’s Civil Aviation Organization also estimates that Iran’s four major airlines (Iran Air, Aseman Airlines, Mahan, Iran Air Tour) would need to purchase 40 aircraft every year for the next 10 years to bring its fleet up to date. Conservatively, that would mean Iran would have to spend between $10 to $20 billion dollars a year on aircraft. This does not include maintenance and spare parts that its aging aircraft still require. Boeing, General Electric, and United Technology (the latter two for aircraft engines and spare parts), could potentially be the biggest winners if Iran sanctions were lifted.”
Also, despite rhetoric to the contrary, Vatanka says Russia and China are not threats to U.S. and European business interests in Iran.
Rouhani has made it clear that he is open to doing business with Western countries, having emphasized restoring economic, political and social relations with Europe and the evolving relationship with the U.S. in his 2014 Davos speech. “The whole Rouhani camp has always prioritized the West over Russia,” said Vatanka.
While China is currently Iran’s biggest economic trade partner, agreements between the two countries are not always implemented or they proceed slowly, according to the Rand Corporation, a nonprofit global policy think tank. The relationship is based on China’s massive energy needs, and operates on a barter system that allows Beijing to exchange oil for goods and services from Tehran.
Vatanka told MintPress that the Chinese are very bad about “sharing technology,” which is something the Iranians are very big on. “They [Iran] want to learn from you,” he said. “The joint ventures have to be something where you bring know-how.”
Meanwhile, Russia has agreed to a $20 billion trade deal with Iran in August. It also announced that it may finally sell S-300 surface-to-air missiles to Iran — a contentious issue between Russia and the U.S. However, Vatanka speculates that Russia’s overtures are more for show than an actual commitment to the country.
The former communist state is not a traditional ally of Iran, despite how it looks in some news media. During World War II, Russia, along with the United Kingdom, invaded Iran. The occupation didn’t even last a year, but it sorely affected relations between the two countries. Following the collapse of the Soviet Union, Iran and Russia became rivals, Vatanka explained.
“It is only after the crisis in Ukraine that relations have strengthened, with both Russia and Iran looking for connections outside the global economy,” Vatanka said.
While he also noted that those relations have mostly been confined to talks, not concrete economic partnerships, Vatanka pointed out deals that have been made to construct nuclear power plants and conduct weapons trades.
Ultimately, though, Iran-Russia relations are not a priority for either country, Vatanka says. “If relations with the West are good, Iran will not prioritize Russia,” he asserted.
Who’s profiting off relations with Iran?
Funnily enough, one of Iran’s trade partners is France, which is the biggest war hawk in terms of nuclear negotiations. France is also home to the Iranian government’s main opposition party outside of Iran – the People’s Mujahedeen of Iran (MEK).
Vatanka says he doesn’t know why this is. Officially, the French government says it’s because they’re concerned about nuclear proliferation, but Vatanka is skeptical of this argument. In the 1980s, France supported Saddam Hussein’s nuclear program. “It might be because of their Saudi and Israeli partners,” he speculated.
Last year, more than 100 French executives arrived in Iran to restore bilateral relations, making the Parisian nation a potentially large foreign presence in the country with companies like Groupe Danone S.A., Peugeot, and Renault. Total France, a petrochemical company, currently appears ready to scale up operations and re-enter the country once sanctions are lifted.
Other countries operating in the Iran include Switzerland, South Africa, and the United Arab Emirates.
The view from Iran: An internal debate
“The debate inside Iran is so much more rich and interesting. It’s not focused on what Israel wants,” Salehi-Isfahani told MintPress, referring to the debate inside Iran regarding the current nuclear deal and sanctions.
One side of the debate includes the Rouhani camp, which wants to implement dramatic reforms to the Iranian economy, starting with sanctions relief. Many believe that Rouhani and Foreign Affairs Minister Mohammad Javad Zarif were elected to get sanctions lifted — a goal they appear to be on the path toward achieving.
On April 3, Zarif returned home to an Iran where he was treated like a rock star for negotiating with the U.S. on terms that give Iran power. The Iranian team did not kowtow to American power, which is vital if the agreement is to be supported in Iran. The country has an opposition similar to the Republicans in the U.S. that is desperately doing everything it can to derail the nuclear deal.
These opposition forces – known as the Principlists – may represent a minority of Iran’s population but they are very influential in the parliament. They prefer a defiant and isolated Iran, more like North Korea, according to Salehi-Isfahani. They prefer a strong state and a pliable citizenry and private sector. “This is a group that’s never seen the benefits of the West and globalization,” he noted.
These are the same people opposing the nuclear deal, Salehi-Isfahani added. They include people like Hossein Shariatmadari, the editor of Kayhan, an ultra-conservative newspaper in Iran.
Principlists do not want Iran to trade with the West because trading with the West historically carries implications beyond economic benefits.
“It brings along with it ideas about democracy, freedom, human rights and women’s rights,” said Salehi-Isfahani. But trade with China or Russia, he says, doesn’t carry with it a lifestyle model that Iranians want to attempt to emulate.
“The Principlists don’t oppose the deal because they want to build a bomb. They don’t want the deal because it can open up the economy to global forces that may not favor them,” he said.
For the Rouhani camp, this North Korea-like scenario is a nightmare, but the Principlists view a return to the world market as selling out. Indeed, they question why Iran would endure sanctions and resist imperialist forces, only to give in and re-enter the world economy.
At the moment, the moderates, Rouhani’s camp, have the upper hand in the debate. Salehi-Isfahani says Rouhani attributes his economic and political outlook to having taken a long, hard look at reality, and what will be best for the country.
Hopes and dreams
The Islamic Republic can expect a number of desirable outcomes from sanctions relief, explained Zubair Iqbal, the former assistant director of the Middle East and Central Asia Department at the International Monetary Fund.
“The first of these would be a short-term effect in which confidence in the market would increase,” said Iqbal. There would be an improvement in the exchange rate, which would help with the cost of living that has increased with inflation due to sanctions and the drop in oil prices. There would also be a greater flow of goods and services into the country. Iran is dependent on imports because it is so integrated with the world economy.
In short, Iqbal said, “The economy would grow.”
There would also be long-term effects, including a psychological shift prompting Iranians to think more positively about their future. This should lead to policy changes as well, as the current government has been charged with bringing about major improvements, explained Iqbal. If oil prices go up, there could be budget surpluses that allow the government to invest in the public sector projects and reform the tax system.
As an added benefit, Iqbal believes that human rights will be improved once the economy gets better, although he explained it is a secondary issue. He said, “Unless people have enough to eat, unless people look at the future in a more positive sense, unless they know that they have to abide by the rules of the global economy, human rights are not going to improve because the forces are not going to develop who can then stand up against those that are perpetuating the existing system.”
Coming out of the negotiations with pride
Ultimately, one of the most important triumphs for Iran in terms of emerging from negotiations with the West and winning sanctions relief would be respect, Salehi-Isfahani told MintPress.
Echoing his remarks, Ayatollah Ali Khamenei said in 2013, “In the nuclear issue, Iran only wants the world to recognize its right to enrichment, which is Iran’s natural right. Government officials of the countries that are claiming to be after a solution should admit that the Iranian nation has a right to domestic nuclear enrichment for peaceful purposes. Is this too much to expect?”
Writing in Foreign Affairs last summer, Foreign Minister Zarif likewise asserted, “[I]t is imperative for other states to accept the reality of Iran’s prominent role in the Middle East and beyond and to recognize and respect Iran’s legitimate national rights, interests, and security concerns.”
Iranians are by and large friendly to the West and quite sophisticated. They are tired of the way Iran is portrayed in the Western media and want it to end, Salehi-Isfahani says.
This becomes clear when comparing the United States’ “don’t ask, don’t tell” policy toward Israel’s nuclear weapons program to its efforts to force Iran to undergo the most stringent inspections regime in world history.
Following these negotiations, one of the most positive outcomes could be that this insult hurling would stop and Iran would be treated as an equal, Salehi-Isfahani explained.
Sanctions are not a “magic bullet”
Even if the sanctions are relieved, Iran still faces a long uphill battle within, says Salehi-Isfahani. There are deep structural issues which need to be dramatically reformed if Iran is going to move ahead following sanctions relief.
First and foremost, Iran needs to implement a jobs program. The Islamic Republic’s overall unemployment rate is at 10.4 percent with some sources saying it is closer to 20, and among women it is officially at 24 percent. Young people represent one-fifth of the country’s unemployed.
The country needs to build a better business climate especially for job-creating sectors, such as manufacturing and agriculture, Salehi-Isfahani asserts.
Further, there need to be governmental policies that directly affect the labor market, with a focus and emphasis on youth employment, he continued. Young people are staying in university because of the lack of jobs, and this is turning those institutions into “diploma mills,” he says. He offered as an example programs that would put wage subsidies on young people, and efforts to reorient universities toward developing practical skills rather than just issuing diplomas. The private sector needs to get moving with an emphasis on mid-sized businesses, he urged.
While the removal of sanctions is a necessary prerequisite for these types of reforms, sanctions relief alone is not sufficient, said Salehi-Isfahani.
Boeing and other foreign businesses aren’t concerned about youth unemployment in Iran. If sanctions are relieved and the country opens up to outside investors, those business people are going to be calling on Iran to buy their products because the country relies heavily on imported goods.
“Currently, the Rouhani administration is focusing on sanctions as if they’re a magic bullet,” said Salehi-Isfahani. “But they’re not.”
Additionally, the country’s abundance of oil and gas creates a problem for the type of real structural changes that are needed because those resources can provide the country with an easy dollar, he explained.
Salehi-Isfahani says Rouhani understands this but the country is suffering in terms of human resource infrastructure. “Most good economists have left Iran,” he said.
Salehi-Isfahani compared Iran and other Middle Eastern countries with those in Asia, like China and India. “The world calls up China and India and says, ‘Can you do some work? We need you.’ Whereas they call up Iran and they say, ‘Do you want to buy something?’”
This difference is significant. Salehi-Isfahani talked about other countries in the Middle East, like Saudi Arabia, which grew rich from oil money, but have failed to make deep structural changes that give people work and a sense of purpose.
“You get oil money and people go on the phone and order stuff, the stuff arrives, and everybody’s happy,” he said.
Yet he also pointed out that even though they may be happy, people still don’t have jobs. Salehi-Isfahani wants Iran to be seen as contributing to and producing for the world market, not just posing as an untapped resource for foreign oil companies to exploit and Boeing to sell planes to.
“I think you need to have economic policies that harness the private sector energies towards national goals, towards creating jobs, rather than just getting imported TVs and home appliances into people’s homes,” he said.
