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Economy in 2014: Some Fixes, Few Solutions

Garrett Nada

            President Hassan Rouhani made significant headway in stabilizing Iran’s economy in 2014. During his first full calendar year in office, he began addressing mismanagement and corruption from President Mahmoud Ahmadinejad’s tenure. His policies brought inflation down from 39 percent to 17 percent. After two years of recession, Iran’s economy was expected to grow by 1.5 percent.
     But the Islamic Republic still faced daunting challenges. General unemployment was 10 percent and youth unemployment was more than double the national average, reaching 24 percent. Some seven million Iranians, about eight percent of the population, were also living in extreme poverty.
      Rouhani took a pragmatic approach to domestic reforms, in contrast to the inefficient populist policies of the Ahmadinejad years. In April, the government cut subsidies on gasoline, which sent prices soaring by 75 percent. It also appealed affluent and middle-class Iranians to forego $18 monthly handouts initiated under Ahmadinejad. Although 73 million people, or about 95 percent of the population signed up, Tehran projected monthly savings of $482 million because 2.4 million waived the payments.
            Nuclear diplomacy offered a slight reprieve too. The interim deal—implemented in January and extended twice in July and November—suspended some sanctions and allowed repatriation of oil revenues frozen in banks abroad. Iran gained access to $4.2 billion in frozen assets during the first six months, then another $2.8 billion from July to November.
            Anticipation of a nuclear agreement that eased sanctions generated international commercial interest in Iran. At the World Economic Forum, Rouhani appealed for new investment. Dozens of groups from Europe, Asia and Latin American visited Iran to assess opportunities and build relationships. In October, Boeing’s small sale of aircraft manuals, drawings and navigation charts to Iran Air carried symbolic weight as the first transaction between U.S. and Iranian aerospace companies since the 1979 U.S. Embassy takeover.
            But Tehran’s failure to get a deal with the world’s six major powers—and in turn ease more sanctions—was a major impediment to generating new jobs, new investment and new revenues. Recovery would require increased access to foreign exchange, oil markets and global financial flows.
            In 2014, Rouhani targeted corruption to account for billions lost during the Ahmadinejad years. An investigation of celebrity businessman Babak Zanjani revealed a deep network of corruption that extended from Iran to Turkey, Tajikistan to Malaysia. Zanjani also owed Iran’s oil ministry $2 billion. The Ahmadinejad administration reportedly had Zanjani help evade sanctions and sell oil abroad and transfer money through overseas banks. But Zanjani apparently never transferred the money back to the oil ministry.
            Plummeting oil prices were Iran’s biggest challenge. In December, Rouhani was forced to present a budget for 2015 based on an average oil price of only $70 per barrel, slashed from $100 per barrel in the 2014 budget. He also vowed to reduce Iran’s dependence on oil from an average of 45 percent of all revenues to about 31.5 percent.
            At the same time, however, the Rouhani government proposed a 33 percent hike in defense spending. The proposal notably included a 50 percent increase, to about $6.5 billion, for the Revolutionary Guards, a reflection that Iran had begun to build diplomatic bridges but still had broad and basic security concerns.

Highlights

● Inflation was down to about 17 percent in December from about 39 percent in January.
 
● Under the interim nuclear deal, Iran was granted moderate sanctions relief and access to some $7 billion in frozen assets held overseas.
 
● Joblessness remained a key problem, with youth unemployment at 24 percent and general unemployment at 10 percent.
 
● Dozens of political and business delegations visited Iran in 2014. But most companies held back from investing or signed memorandums of understanding stipulating that business would begin only when sanctions are lifted.
 
● At various points during the year, The World Bank, the International Monetary Fund and The Economist projected Iran’s economy to grow at least 1.5 percent by the end of 2014.
 
● Rouhani’s government took some steps toward domestic reform, including cutting the subsidy on gasoline and tackling corruption.
 
Chronology
 
Jan. 7 Minister of Science, Research and Technology Reza Faraji Dana estimated that brain drain cost Iran’s economy some $150 billion annually as a result of 150,000 highly skilled individuals emigrating each year. 
 
Jan. 14 In its Global Economic Prospects, The World Bank estimated that Iran’s economy shrunk by 1.7 percent in 2013. The bank projected a growth rate of 1.5 percent for 2014. 
 
Jan. 23 President Rouhani announced Iran’s intention to “reopen trade, industrial and economic relations” with all of its neighbors in an address at the World Economic Forum. He claimed Iran’s economy “has the potential to be among the world’s top 10 in the next three decades.”

Feb. 5 In a televised interview, President Rouhani expressed regret for problems with distribution of food rations, after three people reportedly died waiting in line in subzero weather. His administration had extended the food aid program from 3 million people to 17 million to counter inflation. Rations included cheese, chicken, cooking oil, eggs and rice.

Late Feb. India’s January oil shipments from Iran more than doubled compared to December, resulting in the highest monthly shipments since February 2012, due largely to Indian purchases after sanctions were eased.

March 12 Iran sealed a deal to export 10 billion cubic meters of gas per year to Oman during President Rouhani’s first visit to Muscat. The 25-year deal was valued at some $60 billion. Oman committed to building an underwater pipeline to Iran.
 
April 14 The Statistical Center of Iran reported that the average unemployment rate for the Persian year that ended on March 20 was 10.4 percent, down from 12.2 percent in March 2013. Female unemployment was 19.8 percent, more than double the rate for men at 8.6 percent. Youth unemployment was even higher at 24 percent for those between ages 15 and 24.
 
April 14 Deputy Energy Minister Rahim Meydani warned that water shortfalls could impact nearly half of Iran’s population, some 37 million people, in the summer if consumption wasn’t cut by up to 20 percent.
 
April 16 The IMF said Iran’s economy showed signs of stability under President Rouhani, but noted that the “near-term economic outlook remains uncertain,” in its first comprehensive report in two years.

April 23 73 million citizens — some 95 percent of Iranians — signed up for cash handouts, despite government attempts to discourage affluent and middle-class families from registering for the $18 monthly payments. Tehran was projected to save some $482 million per month after some 2.4 million waived the handouts.
 
April 25 Subsidy cuts on gasoline raised the price of gasoline 75 percent to 7,000 rials for the first 60 liters, up from 4,000 rials. The price of each additional liter beyond 60 was raised to 10,000 rials from 7,000.
 
April 27 – Rostam Ghasemi, head of the Iran-Iraq Economic Development Committee and a former oil minister, traveled to Erbil and signed an agreement with Iraq’s Kurdish Regional Government to build oil and natural gas pipelines. The Kurdish government would receive 3 to 4 million liters of refined oil and natural gas in return for pumping crude oil to Iran.
 
April 29 – The National Iranian Oil Company cancelled a $2.5 billion deal with China National Petroleum Corporation for developing the giant South Azadegan oil field. The project had been stymied by repeated delays.
 
May 6- 9 – Tehran hosted its 19th annual International Oil, Gas, Refining and Petrochemical Exhibition, drawing some 600 energy companies from 32 countries. Some 1,200 domestic companies attended the show.
 
Mid-May – The IMF projected real GDP growth rates of 1.5 percent for 2014 and 2.3 percent for 2015.
 
May 24 Billionaire businessman Mahafarid Amir Khosravi was executed at Evin prison over a scandal that cost 14 state-owned and private banks almost $2.6 billion, reportedly the largest fraud in Iran’s history.
 
Late May  Tehran and Islamabad extended the deadline to complete the multi-billion-dollar gas pipeline from December 2014 to December 2015. The nearly 1,000 mile pipeline would help Pakistan deal with its overwhelming energy needs.
 
June 9-10Iran and Turkey signed 10 cooperation agreements on tourism, joint ventures and customs cooperation during President Rouhani’s visit to Ankara, the first official visit by an Iranian president in 18 years. Turkey sought a discount on Iranian gas but the two sides failed to agree on a price.
 
June 23 Iran announced that Russia’s state nuclear power company Rosatom will build two more nuclear reactors at the Bushehr power plant. Rosatom expects to start construction before the end of 2014. The announcement came as the company’s deputy director general, Nikolai Spassky, visited Tehran.
 
June 23 Foreign tourist visits to Iran climbed 215 percent in spring 2014 compared to 2013, according to the deputy director of Iran’s Cultural Heritage, Tourism and Handicrafts Organization. “Over 23,600 foreign tourists visited Iran in the three-month period, compared with 7,500 last year,” said Morteza Rahmani-Movahed.
 
June 26 India paid Iran $550 million to partly clear pending oil dues, in accordance with the interim nuclear deal that allows Tehran to repatriate blocked funds across the world.
 
June 29 Iran transferred about $776.3 million worth of shares of state-run companies to the private sector in spring 2014, according to Tasnim News Agency.
 
June 29 Iran started exporting cars to Russia for the first time in five years. Iran-Khodro stopped shipping vehicles to Russia in 2009 when it adopted stricter Euro-5 emission standards. Iran’s largest auto manufacturer revealed plans to export 10,000 cars to Russia by 2015.
 
July 8 India paid a second tranche of $550 million to Iran in oil payments under the interim nuclear deal.
 
July 24 – India paid a third tranche of $550 million to Iran in oil payments under the interim nuclear deal. India imported 281,000 bpd of Iranian crude oil from January to June, up by a third compared to the same period last year, according to Reuters.
 
July 29 – The cumulative impact of U.S. sanctions since 2011 cost Iran some $120 billion in oil revenues as of July, according to the Treasury Undersecretary for Terrorism and Financial Intelligence David S. Cohen. “Iran's currency, the rial, has depreciated by about 50 percent since January 2012 and has declined by about 7 percent since the JPOA was announced last November,” he told the Senate Committee on Foreign Relations.
 
July 31China, Iran's biggest oil buyer, imported nearly 50 percent more in the first half of 2014 than in 2013, according to data collected by Reuters. Purchases by Japan and Korea were down compared to 2013. But the combined purchases of China, India, Japan and Korea were up nearly 25 percent from last year, at 1.2 million barrels per day versus 961,236.
 
Sept. 25 The Central Bank of Iran announced that the economy grew for the first time in two previous Persian years. The economy expanded 4.6 percent in the first quarter of the year that started on March 21.
 
Oct. 4 Iran exported $16.7 billion worth of non-oil goods during the first half of the current Iranian calendar year. Exports to Asia, which accounted for 93 percent of total exports, increased by nine percent in comparison to the same period last year. And exports to Europe increased by 33 percent.
 
Oct. 9 Iran’s economy was projected to grow 2.2 percent in terms of real gross domestic product in 2015, according to the IMF’s World Economic Outlook for October.
 
Oct. 22 Boeing, a U.S.-based aerospace and defense company, announced that it sold aircraft manuals, drawings, navigation charts and data to Iran Air. The sale marked the first publically acknowledged transaction between U.S. and Iranian aerospace companies since the 1979 U.S. Embassy takeover.
 
Oct. 26 Some seven million Iranians, about eight percent of the population, were living in extreme poverty, according to Minister of Labor, Cooperatives and Social Welfare Ali Rabiei.  
 
Oct. 29 Crude oil revenues were cut by about 30 percent, according to President Rouhani. The president was likely referring to falling market prices worldwide.
 
Oct. 29  Iran was ranked 130 out of 189 economies by the World Bank in its new Doing Business report, two positions higher than last year. The report measured regulations affecting 11 areas of the life of a business.
 
Nov. 10Government spokesperson Mohammad Bagher Nobakht told the state news agency that the Supreme Administrative Council approved the reinstitution of the Planning and Budget Organization, which was merged with another organization in 2000 under President Mohammad Khatami and dissolved by President Mahmoud Ahmadinejad in 2007. 
 
Nov. 20 India paid another $400 million to Iran in oil payments under the interim nuclear deal.
 
Nov. 26 South Korea transferred $500 million to Iran in oil payments.
 
Dec. 1 The government implemented a 30 percent increase in bread prices. Mojtaba Khosrotaj, the deputy minister of industry, mines and trade, said the decision was made after some 70,000 bakeries complained about low prices.
 
Dec. 1 Iran’s trade deficit increased by less than $3 billion in the first eight months of the Iranian year that started in March, according to official customs data. Iran imported some $34 billion worth of goods, mainly food and automobiles, from China, India, South Korea and Turkey while it exported about $31 billion worth of goods, mainly to Afghanistan, China, India, Iraq and the United Arab Emirates.  
 
Dec. 1 Tehran hosted an international auto conference, which gathered more than 500 representatives from some 250 companies and 30 countries. The French ambassador to Tehran, who attended the event, said that his country’s companies are just waiting for constrains imposed by sanctions to loosen before investing.
 
Dec. 2During a visit to Tehran, Qatar’s minister of labor signed a memorandum of understanding that would send Iranian workers to the Gulf country. The move was aimed at helping Iran with its unemployment problems by providing Qatar with skilled workers. 
 
Dec. 3 President Rouhani attended the inauguration of a new 570-mile railroad connecting Iran to Turkmenistan and Kazakhstan that took seven years to build.
 
Dec. 4Parliament passed a resolution that would allow the taxing of religious foundations and military-linked companies, including those overseen by the supreme leader.
 
Dec. 7President Rouhani presented his budget of some 8,400 trillion rials, or about $312 billion at the official exchange rate, to parliament. It was based on an average oil price of about $70, down $30 compared to last year. The budget also included a 33 percent hike in defense spending.
 
Dec. 9Iran and Pakistan signed five memorandums of understanding to increase cooperation and enhance trade ties. One memorandum aimed to establish a sisterhood relationship between Iran’s ports of Shahid Rajaee and Chabahar with Pakistan’s ports of Karachi and Gwadar.
 
Dec. 11More than 722,300 cars were reportedly manufactured since March, indicating nearly a 70 percent growth compared to the same period last year.
Tags: Economy

From Baby Boom to Baby Shortage

Garrett Nada

            Iran has a numbers problem. Over the past 35 years, Tehran’s family planning policy has gyrated so radically—from encouraging too many babies to producing too few—that the Islamic Republic faces existential economic dangers.
 
      The origin of the problem dates to the 1979 revolution. Ayatollah Ruhollah Khomeini called on women to produce a new Islamic generation for both cultural and security reasons. Khomeini wanted to create a paramilitary force of 20 million religious volunteers to protect Iran from foreign influence. Over the next decade, a baby boom almost doubled the population from 34 to 62 million.
 
      But the theocracy, drained by the costs of the 1980-1988 war with Iraq, gradually realized that it could not feed, cloth, house, educate and eventually employ the growing numbers. So with the supreme leader’s approval, Tehran enacted one of the world’s most progressive family planning programs to slow population growth.
 
            The program broke many taboos in a culture that favored large families. Clerics gave sermons on reducing family size, while female volunteers were sent door-to-door to encourage women to have fewer children. New billboards declared, “Fewer Children, Better Life.” Before marriage, couples had to take family planning classes. Health centers dispensed free birth control pills and condoms.
 
            Ironically, the world’s only modern theocracy was home to the only state-supported condom factory in the Middle East, which reportedly produced 45 million condoms a year in 30 different shapes, colors and flavors by 2006. The United Nations and population organizations cited Iran’s program as a model for the Islamic world and developing nations. The United Nations bestowed awards on Iranian practitioners three times from 1999 to 2011.
 
           The program worked. The fertility rate plummeted—from 5.5 births per woman in 1988 to about 2.22 births in 2000.
 
      But the initiative was almost too successful. By 2006, the birthrate dropped to 1.9 births per woman—below replacement rate. As a result, Iran’s population is aging. The average age is now 28.3 years. It is expected to increase to 37 years by 2030, according to a U.N. projection. An increasingly elderly and dependent population would heavily tax public infrastructure and social services.
 
      Last year, the government began debating steps to prevent the kind of population crisis facing Japan, where sales of adult diapers are expected to exceed baby diapers this year. So far, however, the executive and legislative branches have not agreed on how to raise the birthrate. Some lawmakers want to criminalize permanent forms of birth control, while health officials and experts favor creating government incentives for couples to have more children.
 
            The trend towards having small families may be difficult to reverse, especially without improvement in Iran’s struggling economy. The costs of getting married, let alone having children, are prohibitive for many youth, almost one quarter of whom are unemployed.
 
            In 2010, President Mahmoud Ahmadinejad tried to reverse the trend with new financial rewards. Every newborn was to receive a $950 award deposited into a government bank account, with another $95 added annually until the age of 18. The idea was that children could withdraw funds at age 20 for education, marriage, health and housing expenses. But the initiative was halted during its first year of implementation due to lack of funds and coordination across government institutions.
 
Khamenei’s Call to Action
            The government introduced more substantive changes in 2012, after Supreme Leader Ali Khamenei said the family planning program had been “wrong” and “one of the mistakes” of the 1990s. “Government officials were wrong on this matter, and I, too, had a part. May God and history forgive us,” he said. “If we move forward like this, we will be a country of elderly people in a not-too-distant future,” he warned.
 
            Khamenei urged the government to introduce measures to boost the population—now almost 80 million — to 150 million or more. The Ministry of Health then pulled funding from the family planning program and ended free vasectomies to encourage larger families. It eventually replaced birth control classes with ones that urged having more children.
 
            In late 2013, billboards depicting happy-looking families with four children were plastered across Tehran. Single fathers with one son were shown lagging behind larger families propelling canoes or bicycles. In 2013 and 2014, Khamenei’s office turned to social media to promoted idyllic visions of marriage and life in large families.
 
            In the spring of 2014, Khamenei began pushing even harder for an increase in Iran’s fertility rate. “A country without a young population is tantamount to a country without creativity, progress, excitement and enthusiasm,” he warned on May 5, which is International Midwives’ Day. Two weeks later, he issued a 14-point decree in letters to the heads of the legislative, judicial and executive branches as well as the Assembly of Experts. Key points included:
      · Removing barriers to marriage,
      · Encouraging marrying at an earlier age,
      · Dedicating new facilities for pregnant and breastfeeding women,
      · Providing insurance coverage for childbirth,
      · Treatment for male and female infertility
           
Government Response
            Since Khamenei’s decree, the government has reportedly added new incentives, which include lengthening maternity leave, ensuring female job security after childbirth, and subsidizing hospital care. In June, parliament debated controversial legislation aimed at criminalizing male and female sterilization. The bill, approved by 143 out of 231 members of parliament in August, must be reviewed by the Guardian Council to determine its compatibility with Islam.
 
            But the bill has produced a backlash from health officials and women’s groups. Mohammad Esmail Motlagh, a senior health official, argued that the legislation would violate citizens’ rights. He instead called on lawmakers to use voluntary incentives to encourage couples to have more children.
 
            Reformists particularly fear major changes to the family program could negatively impact women’s status, especially in the workplace, where they are already underrepresented. Some 60 percent of university students are female, but only about 12 percent of the workforce, according to the Statistical Center of Iran. Vice President for Women and Family Affairs, Shahindokht Molaverdi, noted that no other country has ever used punitive measures to increase fertility rates. She also warned that outlawing surgical procedures could push contraceptive services underground.
 
             The new policies may also be a hard sell, given changes in society over the past two decades—partly due to the smaller average family size, urbanization and spread of higher education, especially among women. In 2014, the government heralded Qassem Ali-Loui on state television as a national hero for having the country’s largest family—19 children. But nearly 70 percent of Iran’s population is urban and therefore unlikely to see the family’s pastoral lifestyle in Western Azerbaijan province as relevant or inspiring.
 
 
 
Garrett Nada is the assistant editor of The Iran Primer at USIP
 

 

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Economic Trends: Month of May

Garrett Nada

            The biggest news in May was reports of increased oil exports to Asia and discoveries of new fields. China’s imports of Iranian crude oil more than doubled in April compared to a year ago. And South Korea’s imports from Iran more than doubled between March and April. The Islamic Republic has been exporting more oil since the interim nuclear deal, which included modest sanctions relief, was implemented in January.
 
            Iran also hosted its 19th annual International Oil, Gas and Petrochemical Exhibition. Some 600 major energy companies from 32 countries attended the four-day event. State television reported that only 195 companies from 15 nations attended last year’s show. More companies appear to be interested in returning to the Islamic Republic, assuming that Iran and the world’s six major powers can secure a final nuclear deal.
 
            On May 29, President Hassan Rouhani told bank managers and staff that Iran is gradually coming out its recession. But not all of the economic indicators from Iran were positive in May.
 
            Iran's Statistical Center announced that youth unemployment reached 24 percent. Labor Minister Ali Rabi'i warned that 1.1 million college students entering the job market will not be able to find work and that another 4.5 million would soon be graduating. And the unemployment rate for women is even worse at 43 percent, according to one of the president's senior advisors.
            Iran’s currency is still on a downward trend, despite President Rouhani's efforts to slow inflation. The rial has reportedly lost about 10 percent of its value since the new Iranian year started on March 21. A new International Monetary Fund (IMF) report warned that government spending “needs to balance supporting domestic demand and helping disinflation.” The IMF projected a modest growth rate of 1.5 percent for 2014. The following is a run-down of the top economic stories with links.
           
 
Domestic Developments
Oil and Gas: Iran’s Oil Ministry announced plans to extract 30,000 barrels per day of oil from the Azar oilfield in 2015. The field, shared with Iraq, is thought to contain some 2.5 billion barrels of oil.
 
Iran discovered five new oil and gas fields, according to Managing Director of the national Iranian Oil Company’s Exploration Department Hormoz Qalavand. He noted that Iran projects discovery of some 400 million barrels of recoverable crude oil per year.
 
Phase 19 of the massive South Pars gas field could start oil production next year, ahead of schedule. Construction of a coastal refinery and offshore facilities are 75 percent completed. The project aims to produce 50 million square meters of gas on a daily basis. A 2,700-ton platform was also installed as part of Phase 16.
 
 Currency: The rial has lost about 10 percent of its value since March 21, 2014, Persian New Year. The conversion rate was about 33,000 to the dollar in May.  
 
Inflation: Point-to-point inflation hit 17.2 percent, a 0.4 percent drop compared to last month, according to government spokesperson Mohammad-Baqer Nobakht.
 
Unemployment: Minister of Labor Ali Rabei warned that 4.5 million educated Iranians are now unemployed.
 
Projected Growth: The International Monetary Fund projected real GDP growth rates of 1.5 percent for 2014 and 2.3 percent for 2015.
 
Tourism: “A tsunami of foreign tourists” is visiting Iran, according to Iranian Cultural Heritage, Handicrafts, and Tourism Organization Director Masoud Soltanifar. He said that most of the four and five-star hotels in Isfahan, Shiraz, Yazd and Kashan have been fully booked by European tourists for the next six months. More than 4 million tourists visited Iran from March 2013 to March 2014, each accounting for $1,200 in revenue.
 
Administrative regions: Minister of Interior Abdolreza Rahmani Fazli announced the formation of a working group to investigate dividing the country into new regions that would spur development. The position of a regional governor could replace the five or six provincial governors currently in place.  
 
International News
 
Oil and Gas: China’s imports of Iranian crude oil more than doubled in April compared to a year ago. The Asian giant imported nearly 800,000 barrels per day.
 
Foreign buyers of oil owe Iran some $4 billion, according to Mohsen Qamsari, director for international affairs at the National Iranian Oil Company.
 
South Korea’s oil imports from Iran more than doubled between March and April. South Korea imported 552,884 tonnes in April, up from 274,808 in March. But India cut its crude imports by 42 percent in April from March.
 
Iran began exporting crude oil to South Africa and Sri Lanka under single shipment contracts, according to the National Iranian Oil Company’s director for international affairs, Mohsen Qamsari.
 
Oil minister Bijan Namdar Zanganeh’s working group held meetings with Royal Dutch Shell, which owes Iran $2.3 billion. But the two sides did not reach an agreement on collecting the debt.
 
Tehran hosted its 19th annual International Oil, Gas, Refining and Petrochemical Exhibition, drawing some 600 energy companies from 32 countries. Some 1,200 domestic companies attended the show. The following profile of the show and Iran’s oil industry was aired on state television.
 
Tehran and Islamabad extended the deadline to complete the multi-billion-dollar gas pipeline from December 2014 to December 2015. The nearly 1,000 mile pipeline would help Pakistan deal with its overwhelming energy needs.
 
Iran plans to export natural gas to Iran as early as March 2015, or when a new 167-mile pipeline is completed, according to Deputy Oil Minister for International Affairs and Trading Ali Majedi. The pipeline would deliver gas from Assalouyeh, near the South Pars oil and gas field in southern Iran, to Iraqi power plants.
 
Iraqi: Iran-Iraq trade volume hit $12 billion in 2013 and is projected to reach $20 billion over the next three years, according to Iranian Minister of Economic Affairs and Finance Ali Tayebnia. Iraqi Deputy Prime Minister for Economic Affairs Rose Nuri Shaways led a 23-member delegation to Tehran and signed an agreement to boost bilateral trade and economic cooperation.
 
Turkey: Turkish Minister of Economy Nihat Zeybekci reported that 3,350 Iranian companies are operating in Turkey. Iranian companies have invested some $101 million in Turkey.
 
South and Central Asia: Between March 21 and April 21, Iran exported almost 400,000 tons of non-oil goods to seven of its neighbors — Kazakhstan, Kyrgyzstan, Turkmenistan, Tajikistan, Afghanistan, Uzbekistan and Pakistan. The value of the goods totaled some $212 million. Iran’s total non-oil exports worldwide exceeded $2.8 billion.
 
Food imports: Western banking sanctions have reportedly made importing commercial food cargo to Iran difficult. Hundreds of thousands of grain and sugar have been stuck in transit for several weeks outside ports such as Bandar Abbas and Bandar Imam Khomeini.  
 
International flights: Deputy Director of Iran’s Airports Abraham Sushtari announced that international flights to Iran increased 18.6 percent in May 2014 compared to May 2013.
 
Investment: Iran’s head of business development, Afkhami Rudd, discussed advantages of investing in Iran in the following clip from state television.
 
Tags: Economy

Rouhani Under Fire

Garrett Nada

      President Hassan Rouhani faces growing pressure from hardliners for trying to improve Iran’s pariah status and, even tepidly, open up Iranian society. In recent weeks, politicians and media critics have lambasted Rouhani in the run-up to the latest nuclear talks between Iran and the world’s six major powers, which began on May 13. “We fundamentally disapprove of this administration” which is made up of “radical reformists,” lawmaker Ruhollah Hosseinian told Arya News on April 23.

             The president countered with a tough defense of his foreign and domestic policies in a television address on April 29. Rouhani dismissed his critics and said that his government had created an atmosphere in which citizens could actually criticize policies – “even though sometimes [they] make a mountain out of a molehill.”
 
            Hardliners fear that nuclear talks could enhance Rouhani’s leverage on human rights and social issues. The president, who will mark the first anniversary of his election in mid-June, is under fire especially on four fronts.
 
Nuclear Talks
 
      Hardliners have accused the Rouhani administration’s negotiators of caving to Western demands. In the run-up to the mid-May negotiations between Iran and the six major world powers, Rouhani’s critics held a conference entitled “We’re Worried.” The event — advertised as “the great gathering of critics of a weak deal”— was held at the former U.S. Embassy in Tehran on May 3-4. Speakers vowed to retain Iran’s “nuclear rights” and warned the government of President Hassan Rouhani against giving too many concessions. They claimed that Iran’s negotiating team may sacrifice national interests to secure a final deal.
 
            More than 100 lawmakers, students, academics and activists attended the event, which was reportedly organized by Basij paramilitary. Officials of former President Mahmoud Ahmadinejad’s administration attended. Participants carried placards which vowed "Nuclear energy is our absolute right" and "Economic reform does not mean political capitulation."
The conference communique included several demands:
 
•Clear recognition of Iran’s right to enrich uranium
•Continued development of peaceful nuclear activities
•Refusal of additional measures requested by the United Nations beyond the Nuclear Nonproliferation Treaty
•Imminent removal of financial and banking sanctions
•Release of Iran’s frozen properties
•Transparency on the negotiations and timelines
•Advance approval by parliament and the Supreme National Security Council of any deal with the U.N. nuclear watchdog
 
            The hardliners followed up the conference with a rally after Friday prayers on May 9. Demonstrators calling themselves the “Committee for the Preservation of Iran’s interests” reportedly chanted slogans including “Nuclear development is our absolute right!” and “No Compromise! No surrender! Battle with America!” The group issued a statement accusing the nuclear negotiators of acting with “haste” and lacking expertise.
 
Internet Censorship
            Rouhani campaigned for better access to information and less government oversight. After his June 2013 election, Rouhani warned, “In the age of digital revolution, one cannot live or govern in a quarantine.” But hardliners have sabotaged efforts by his administration to ease web censorship.
 
      In one example, the Committee for Determining Criminal Web Content, part of the judiciary, moved to block WhatsApp, a popular and inexpensive mobile application. Committee secretary Abdolsamad Khorramabadi said the acquisition of WhatsApp by Mark Zuckerberg, whom he described as “the American Zionist manager of the blocked site Facebook,” was one reason for the ban.
 
            Rouhani reversed the decision. “Until the time that we have a replacement for these sites, the government opposes filtering them,” Telecommunications Minister Mahmoud Vaezi told the press.
 
            But Rouhani has failed to unblock Facebook, Twitter and other social media. Last year, Minister of Culture and Islamic Guidance Ali Jannati said that social media should be “accessible for everyone” and called for filtering to be reduced. In January, he told Al Jazeera that the judiciary was holding back the new government’s attempts to open up society. He has since been publicly chastised. Prosecutor General Gholamhossein Mohseni Ejehi told the press that Jannati “is not at the level to define the judiciary’s responsibilities.”
             
Women’s Dress Code
            Although he is a cleric, Rouhani has criticized police enforcement of Iran’s strict Islamic dress code, which requires women to cover their head and shoulders. “If there is a need for a warning on the hijab issue, the police should be the last to give it,” he told police academy graduates in October. “Our virtuous women should feel safe and relaxed in the presence of the police,” he added.
 
            But hardliners have fought against relaxation of dress code enforcement. On May 7, some 4,000 men and women reportedly took to Tehran’s streets to protest “bad veiling.” “Preserving public chastity, observing Islamic hijab and moral security are strategic matters which shall not be forgotten under the pretext of economic sanctions or government change,” the demonstrators warned in a statement. The group dispersed after Tehran’s police chief talked with the group, which did not have an official permit to gather. 
 
Cultural Issues
 
      Shortly after his election, Rouhani said, “A strong government does not mean a government that interferes and intervenes in all affairs.” But Khamenei and other conservatives have warned Rouhani’s government against loosening cultural controls. “Entrusting cultural issues to the people does not negate the regulatory role and guidance of the administration,” Khamenei said at High Council of Cultural Revolution meeting in December. In March, Khamenei said the Rouhani administration should pay attention to cultural issues and advised officials to not be “reckless.”
 
            Even the Revolutionary Guards have weighed in. In April, General Mohammad Ali Jafari said that cultural threats are “the most important threats presently facing the Islamic Revolution” and that the revolution’s “fundamental essence” is “opposing the dominant [Western] system.”
 
            On May 9, two influential hardliners warned Rouhani’s government against expanding freedoms. Tehran’s Friday prayer leader Ayatollah Movahedi Kermani told Rouhani’s culture and science ministers in a sermon to avoid “returning to the Reformist period in the fields of culture and morality.”
 
            Ayatollah Mesbah Yazdi, one of Rouhani’s harshest critics and the leader of the ultraconservative Endurance Front, warned against following the teachings of the West. He had earlier blamed “those who were educated in the United Kingdom, United States and France” for the cultural division in Iran. The comment appeared to be an indirect potshot at Rouhani and his cabinet, which includes several ministers who earned university degrees in the West—including the U.S.-educated head nuclear negotiator and foreign minister, Mohammad Javad Zarif. Rouhani earned a law degree from Glasgow Caledonian University in Scotland.
 

Photo credit: Rouhani via President.ir, Tehran bazaar photo by Robin Wright, Khamenei.ir via Facebook

Garrett Nada is the assistant editor of The Iran Primer at USIP

 

Economic Trends : Month of April

Garrett Nada

      The biggest news in April was a gasoline price hike as President Rouhani began long-delayed subsidy reform. The cost of a liter jumped 75 percent; consumption reportedly declined by half within days. The move follows Supreme Leader Ayatollah Ali Khamenei’s warning that Iran will have to develop an “economy of resistance” to handle hardships. Additional cutbacks planned for food, water and electricity subsidies may have deep political and social impact—and potential opposition. But if consumption of water is not curbed, Iran could face water shortages this summer because of misuse or overuse of a dwindling resource.

            The International Monetary Fund reported that Rouhani’s government has taken effective steps toward economic stability. But economists also warned that more comprehensive reforms are needed to spark growth and create new jobs. The Statistical Center of Iran reported that youth unemployment averaged 24 percent during the previous Persian year, which ended on March 20. 
 
            Despite the uncertain outlook for Iran’s economy, several European delegations – from Austria, Britain, France and Switzerland—visited Tehran in April to strengthen bilateral ties and explore future trade. Iran’s non-oil exports actually rose by 10.4 percent compared to the same month in 2013. But oil exports fell for the second month in a row, down to 1.1 million barrels per day from 1.3 million in March. The following is a run-down of the top economic stories, with links, and videos of Rouhani’s comments in April.
 
 
DOMESTIC DEVELOPMENTS
 
Subsidies: 73 million citizens — some 95 percent of Iranians — signed up for cash handouts, despite government attempts to discourage affluent and middle-class families from registering for the $18 monthly payments. Tehran is projected to save some $482 million per month after some 2.4 million waived the handouts. Rouhani pledged to be transparent about how the money will be spent.
 

 

Gasoline: Subsidy cuts on gasoline raised the price of gasoline 75 percent to 7,000 rials for the first 60 liters, up from 4,000 rials. The price of each additional liter beyond 60 was raised to 10,000 rials from 7,000. Gasoline consumption was nearly halved in the days following the April 25 subsidy cut.
 
Natural gas: Iran is on course to become the world’s largest importer of natural gas by 2025 unless it controls rising consumption, according to the head of Iran’s Ministry of Petroleum Research Center.
 
Utilities: Electricity and water prices have risen by 20 percent on average since March.
 
IMF report: The International Monetary Fund reported that Rouhani’s administration has taken important steps to lower inflation. But economists warned that “Iran’s near-term economic outlook remains uncertain.”
 
Corruption: Iran’s judiciary has given Babak Zanjani until March 2015 to pay back his $2 billion debt to the National Iranian Oil Company. The businessman was allegedly involved in skirting oil sanctions and financial corruption. He never forwarded the oil revenue to the oil ministry, citing sanctions-related difficulties
            
Military’s role: Chief of Staff Genearl Hassan Firuzbadi claimed that the armed forces have “no economic mission” but will fully support Rouhani’s government with its workforce and resources.
 
Inflation: The Statistical Center of Iran reported that inflation dropped 5.7 percent during the second half of the previous Persian calendar year, which ended on March 20. By the end of the year, inflation was down to 34.7 percent.
 
Rouhani announced that serious steps will be taken to curb inflation this year and that price hikes would be minimal.
 
Unemployment: The Statistical Center of Iran reported that the average unemployment rate for the Persian year that ended on March 20 was 10.4 percent. Female unemployment was 19.8 percent, more than double the rate for men – 8.6 percent. Youth unemployment was even higher at 24 percent for those between ages 15 and 24.
 
Exchange: The official exchange rate hovered around 25,500 rials to the dollar for much of April. Vice President for Planning and Strategic Supervision Mohammad Baqer Nobakht announced that Iran will take a phased approach to unifying the multi-tier exchange rates.
 
Housing: Minister of Housing and Urban Development Abbas Akhundi announced that some 700,000 Mehr housing units would be allocated to low-income families.
 
Water: “Tehran, along with 10 other major cities, is at risk of water shortage,” according to Deputy Energy Minister Rahim Meydani. He warned that water shortfalls could impact half of Iran’s population in summer 2014 if consumption isn’t cut by as much as 20 percent.
 
INTERNATIONAL NEWS
 
Oil: Reuters reported that Iran’s oil exports fell in April for the second month in a row. Exports were down to about 1.1 million barrels per day from 1.3 million in March, perhaps due to lower demand from Indian buyers.
 
Chinese contract canceled: The National Iranian Oil Company cancelled a $2.5 billion deal with China National Petroleum Corporation for developing the giant South Azadegan oil field. The project had been stymied be repeated delays.
 
Energy deal with Iraqi Kurdistan: Rostam Ghasemi, head of the Iran-Iraq Economic Development Committee and a former oil minister, traveled to Erbil and signed an agreement with the Kurdish Regional Government to build oil and natural gas pipelines. The Kurdish government would receive 3 to 4 million liters of refined oil and natural gas in return for pumping crude oil to Iran.
 
Exports: Non-oil exports rose by 10.4 percent to $2.82 billion in the first month of the new Persian year (March 21 to April 20) compared to the same period in 2013.
 
Imports: Imports grew to $2.51 billion during the first month of the Persian year, up 21.53 percent compared to the same period in 2013.
 
Spare aircraft parts: Boeing and General Electric announced that they received licenses from the U.S. Treasury to export certain spare parts for commercial aircraft to Iran. Sanctions relief for Iran outlined in the interim nuclear deal allowed the Treasury to issue the licenses.
 
Russia oil-for-goods deal: Iranian officials have reportedly made progress on brokering a $20 billion oil-for-goods deal with Russia. Moscow would buy up to 500,000 barrels a day in exchange for equipment and goods.
 
Turkey free trade zone: Iran’s ambassador to Ankara, Alireza Bigdeli, announced that Tehran is planning to start talks on setting up a free trade zone in Salmas city near Turkish border.
 
Indian payments: India is expected to pay Iran $1.65 billion in oil payments during the next three months thanks to limited sanctions relief under the interim nuclear deal, according to Reuters.
 
Foreign Delegations: Diplomats, lawmakers and businesspeople from the United Kingdom, France, Austria, Switzerland, Nicaragua, Latvia, and Azerbaijan visited Tehran to boost bilateral ties and trade.
 
Pakistan pipeline: Pakistani Foreign Ministry spokesperson Tasnim Aslam denied reports that plans to complete the multi-billion dollar natural gas pipeline from Iran to Pakistan have been scrapped. She blamed delays on international sanctions on Iran and lack of investment.
 
Garrett Nada is the assistant editor of The Iran Primer at USIP
 
Photo credits: Gas station in Arak by SaMin SAmIN (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
 
EVENT: The Rubik’s Cube (tm) of a Final Agreement

The clock is ticking on a nuclear deal with Iran. The deadline is July 20. An unprecedented coalition of eight Washington think tanks is hosting three discussions on the pivotal diplomacy to coincide with the last three rounds of talks. The first event — "The Rubik’s CubeTM of a Final Agreement" — on May 13 will explore the 10 disparate issues to be resolved and the many formulations for potential solutions.
 
The coalition includes the U.S. Institute of Peace, RAND, the Woodrow Wilson Center, the Arms Control Association, the Center for a New American Security, the Stimson Center, the Partnership for a Secure America, the Ploughshares Fund, and staff from the Brookings Institution and the Center for Non-Proliferation Studies.
Agenda:
 
9:30- 9:35 AM: Welcome
 
    Ambassador William Taylor
    Vice President, Center for Middle East & Africa, U.S. Institute of Peace
 
9:35- 10:15 AM: Moderated Panel Discussion
 
    Robert Einhorn
    Senior Fellow, Brookings Institution and former Special Advisor to the Secretary of State
    Alireza Nader
    RAND Corporation and author of Iran After the Bomb
    Joe Cirincione
    President of the Ploughshares Fund
    Colin Kahl, Moderator
    Center for New American Security and former Deputy Assistant Secretary of Defense
 
10:15-11:00 AM: Q&A
 
 

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