United States Institute of Peace

The Iran Primer

Iranian Generals Dismiss US Military Option

Three top Iranian military commanders have dismissed remarks by U.S. officials who have claimed Washington retains the ability to destroy Iran’s nuclear program. The commander of Iran’s elite Islamic Revolutionary Guards Corps (IRGC), Ali Jafari, said Western powers would attack Iran if they thought it would be successful. “The military option… is no more than a mockery,” he said on May 7. The IRGC’s deputy commander, Hossein Salami, even welcomed war with the United States, claiming it would be a chance to display Iran’s true military power. The remarks appeared to be in reaction to recent statements by U.S. Secretary of Defense Ashton Carter and Secretary of State John Kerry, who noted that Washington has a credible military option. The following are excerpted remarks.

 
IRGC Commander Major General Mohammad Ali Jafari
 
“The military option which the Westerners are constantly talking about is no more than a mockery, and they do know that if the military option against the Islamic Republic of Iran could yield results, they would use it time and again, and today they have shifted their focus to other types of threat and to the soft war front.
 
“Today, the Islamic Iran's pride and might has made the world's biggest materialistic and military powers kneel down before the Islamic Republic's might.
 
“They [enemies of Islam] could not drop their grudge against Islam and the Islamic Revolution and thus, they created ISIL.”
—May 7, 2015 according to Press TV
 
IRGC Lieutenant Commander Brigadier General Hossein Salami
 
“We have prepared ourselves for the most dangerous scenarios and this is no big deal and is simple to digest for us; we welcome war with the U.S. as we do believe that it will be the scene for our success to display the real potentials of our power.
 
“We warn their pilots that their first flight (to target Iran) will be their last one and no one will be allowed to go back safe and sound and they should call their flights as their last flight.
 
“When the arrogant powers grow united in different directions to weaken the Islamic community, we should use our different capacities to fight against the enemy, and the Islamic Iran has gained many experiences in fighting against the enemy so far.
 
“War against Iran will mobilize the Muslim world against the U.S., an issue which is very well known by the enemy.
—May 6, 2015 in an interview with state television (translation via Fars News Agency)
 
IRGC Lieutenant Commander Ground Force General Abdollah Araqi
 
“Today, the world arrogance is present in the region, has deployed its warships in the Persian Gulf and has military bases in the regional states, but we are not afraid of this [U.S.] presence and its so-called options on the table.”
—May 7, 2015 in a speech in Qazvin (translation via Fars News Agency)
 
Photo credits: Ali Jafari via President.ir

“Madam Secretary” and the Real Iran Deal

 
In a new article for The New Yorker, Robin Wright reports that officials involved in nuclear talks say that diplomacy is further along than was indicated by the so-called blueprint for a deal, which was announced in Lausanne on April 2. “What is more striking, after eighteen months of negotiations, is the changing climate, whether in popular culture, public opinion, or diplomacy,” according to Wright. “In the case of ‘Madam Secretary,’ an American TV drama dared to build a whole season around rapprochement with Iran.”
 

Click here to read the full article.

Report: Gulf States Outspend Iran on Military

The Arab Gulf states have a “decisive advantage over Iran in both the size of their recent military spending and the size and quality of their arms transfers and imports of military technology,” according to a new report by Anthony Cordesman at the Center for Strategic and International Studies. The report draws on official sources as well as research by the International Institute for Strategic Studies (IISS) and Stockholm International Peace Research Institute (SIPRI). The following are excerpts from the executive summary.
 
•    The limits to Iran’s military expenditures have been a matter of necessity more than intent, and this necessity has resulted from international pressure and sanctions as the limits imposed by Iran’s GDP and its need to support a large native population. Iran has been subject to expanding and crippling sanctions, leading to a devalued currency, significant reductions in oil exports, trade disruptions, higher inflation, and a shrinking economy; challenges that some GCC Gulf States are not facing. 
 
•    It is scarcely surprising that the GCC collectively spends more on their military than Iran. Saudi Arabia, alone, spent nearly $56.5 billion on its military in 2012, compared to Iran’s $10.6 billion. Collectively, the GCC spent nearly $98.5 billion on their militaries, outspending Iran nearly 10:1. This spending superiority allows the GCC to invest in newer technology, weaponry and defense acquisitions.
 
•    IISS estimates of total military expenditures show that that the GCC, as a whole, spends far more than Iran on its military. Saudi Arabia alone spent about 5.5 times more than Iran on its military and the United Arab Emirates spent almost twice as much as Iran during this period. And, as a whole, the GCC combined spent just over 9 times more than Iran on its military.
 
•    SIPRI data show a similar Arab lead over Iran. Saudi Arabia spends some 4-5 times as much as Iran, and the UAE alone has outspent Iran since 2007. If Saudi Arabia and the UAE – the two Arab Gulf states with the most modern Arab Gulf military forces are combined – they have consistently spent more than six times as much as Iran.
 
•    Data issued by the Congressional Research Service show that the GCC took $38.5 billion worth of new arms transfers between 2004 and 2011: 35 times Iran’s deliveries of only $1.1 billion.  The size of new orders during 2004-2011 has been less favorable, but the Gulf states still ordered $106.1 billion worth of arms to Iran’s $9 billion – an uneven spending ratio of almost twelve-to-one (12:1).
 
•    SIPRI data also indicate that the Arab Gulf states in the GCC have a massive lead over Iran in arms imports. The gap is so great in given periods that the GCC states lead Iran by nearly 7:1 during 1997-2007, 10:1 in 2004-2008, 33:1 in 2009-2013, and 27.5:1 in 2007-2014.
 
•    The Arab Gulf states had a clear advantage between 2004 and 2008 in terms of both total spending on arms imports and access to modern US and European arms. Saudi Arabia’s expenditures alone were twice as large as Iran’s, and the UAE was more than seven times larger.
 
•    The gap between Iran and the Arab Gulf states widened sharply from 2009-2014, during which Saudi Arabia’s arms imports have been more than 18 times larger than Iran’s. The UAE’s imports are 16 times larger.
 
The GCC advantage in importing weapons and military technology has been partially offset by the lack of standardized, and to some extent interoperability in GCC and allied forces that come from each country buying a different mix of weapons and equipment from different suppliers, as well as from the lack of standardization in doctrine, training, supply, and logistics. 
 
At the same time, the GCC states benefit from access to outside training facilities, military experience, and access to advanced US Intelligence, Surveillance, and Reconnaissance (IS&R) capabilities and Command, Control, Communications, Computer, and battle management capabilities (C4I/BM). They also do not face technological risk since they can choose between proven systems while any Iranian produced systems that are not exact copies of foreign systems mean Iran must assume the risk of problems in performance, delivery delays, and cost escalation.
 
Click here for the full report.
 
Click here to read Anthony Cordesman’s chapter on Iran’s conventional military.
 
Tags: Reports

Iran's Economy, By the Numbers

Increasingly strict U.S. and E.U. sanctions during the last decade, coupled with corruption and mismanagement under President Mahmoud Ahmadinejad (2005-2013), took a toll on Iran’s economy. But President Hassan Rouhani made significant headway in stabilizing the economy after he took office in 2013.

The economy grew by three percent in 2014, after contracting in 2012 and 2013. Inflation had dropped from nearly 40 percent to 15.6 percent by early 2015. 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. Between January and November 2014, Iran gained access to $7 billion in frozen assets.
 
But the Islamic Republic still faced daunting challenges. General unemployment was above 10 percent and youth unemployment was more than double the national average, reaching nearly 27 percent. Some seven million Iranians, about eight percent of the population, were also living in extreme poverty. Plummeting oil prices were Iran’s biggest challenge. In December, President Hassan Rouhani was forced to present a budget for 2015 based on an average oil price of only $70 per barrel, reduced from $100 per barrel in the 2014 budget. The projected price was slashed again to $40 per barrel in January.
 
The following is a rundown of the most recent economic data available on Iran.
 
Gross Domestic Product (GDP) 
 
  • Iran’s GDP was $406.3 billion in 2014. The Islamic Republic has the second largest economy in the Middle East, behind Saudi Arabia.
  • The World Bank classifies Iran as an “upper middle-income” country.
  • Iran’s GDP was ranked 32nd worldwide as of 2013.
Source: The World Bank, 2013-2014
 
Growth
 
  • The Iranian economy grew three percent in 2014, after shrinking 6.6 percent in 2012 and 1.9 percent in 2013.

 
Trade
 
  • In 2014, Iran imported $63.8 billion of goods and exported $94.2 billion of goods, according to the Central Bank of Iran.
  • U.S. exports to Iran totaled $182.1 million in 2014, according to the U.S. Census Bureau.
  • Iran’s non-oil exports rose 24.2 percent in the first ten months of the last Iranian calendar year (March 21, 2014-January 20, 2015) compared to the same period the previous year, according to the World Bank.

 
*This data represents the 4th quarter of Iranian year 1392 (January-March 2014), and the first three quarters of 1393 (March-December 2014). Oil imports include the value of oil products, natural gas, natural gas condensate and liquids imported by National Iranian Oil Company (NIOC), National Iranian Gas Company (NIGC), National Iranian Oil Refining and Distribution Company (NIORDC), and others. Oil exports include the value of crude oil, oil products, natural gas, natural gas condensate and liquids exported by NIOC, NIGC, NIORDC, petrochemical companies, and others.

Sanctions Impact
 
  • GDP: Iran’s GDP shrank by nine percent between March 2012 and March 2014. It is 15-20 percent smaller than it would have been without the latest round of sanctions, if it had stayed on its pre-2012 growth trajectory.
  • Oil: U.S. and E.U. sanctions have cost Iran more than $160 billion in oil revenues since 2012.
  • Hard Currency Reserves: Iran holds around $130 billion in hard currency reserves in accounts abroad, but around $100 billion of that amount cannot be repatriated because of sanctions.
  • Currency Value: The value of the rial declined by 56 percent between January 2012 and January 2014.
  • Inflation: The decline in currency value caused inflation to increase between 2011 and 2013, reaching around 40 percent.
  • Industrial Production: Automobile production fell by around 40 percent between 2011 and 2013.
 
Inflation

  • The inflation rate dropped to 15.6 percent by March 2015, down from around 40 percent two years ago, according to the Central Bank of Iran. 

 

Source: World Bank, 2014
 
Unemployment
 
  • As of December 2014, 10.5 percent of Iranians were unemployed, and 9.5 percent were underemployed. Only 37.3 percent of the population was economically active (either employed or unemployed and looking for work).
  • Unemployment rates by province ranged from 5.5 percent in Markazi to 14.9 percent in Lorestan

 

Group
Unemployment rate
Youth, aged 15-24
25.7 percent
Men
8.7 percent
Women
20.3 percent
Residents of urban areas
11.7 percent
Residents of rural areas
7.4 percent

 

 
Income and Employment
 
  • Per capita income (PPP) was $15,610 in 2013, according to the World Bank
  • Of those employed, 16.8 percent worked in agriculture, 34.4 percent worked in manufacturing, and 48.8 percent worked in services in 2014.

 
Oil & Gas
 
  • Iran holds the world’s fourth largest oil reserves, with 157 billion barrels of crude oil. It also holds the world’s second largest natural gas reserves, behind Russia, with 1,193 trillion cubic feet of natural gas. It is home to the South Pars field, the largest natural gas field in the world.
  • Iran produced around 2.8 million barrels of oil per day in March 2015. Oil production averaged 3.379 million barrels per day throughout 2014.
  • Iran exported around 1.1 million barrels per day in March 2015, down from 2.2 million at the beginning of 2012.
  • China, India, Japan, Korea, and Turkey are the top importers of Iranian liquid fuels.
  • Managing Director of the National Iranian Gas Company Hamid-Reza Araqi said that Iran exported eight percent more natural gas in the last year compared to the year before, an increase of one billion cubic meters.
 
Source: Energy Information Administration
 
State Budget

 

  • President Rouhani presented his budget of some 8,400 trillion rials, or about $312 billion at the official exchange rate, in December 2014. 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.
  • Rouhani said oil revenues earmarked for the budget would be $24 billion next year, down from $27.5 billion, meaning less than half the government's income would come from exported crude.
  • Total government spending in Rouhani’s budget increased 8.5 percent from the previous year.
 
Business Environment
 
  • In October 2014, Iran ranked 130th out of 189 countries in the World Bank’s Doing Business Report, which measures regulations affecting 11 areas of the life of a business.
 
Poverty
 
  • Seven million people are living in extreme poverty, according to the Minister of Labor, Cooperatives and Social Welfare Ali Rabiei, in October 2014

 

Tags: Economy

After Sanctions: Iran Oil & Gas Boom?

Cameron Glenn

As the world’s six major powers negotiate a nuclear deal with Iran, U.S. and European oil companies are already eyeing the potential benefits of reinvesting in Iran’s petroleum sector. If sanctions are eased, they are well positioned to provide the advanced technology and equipment Iran needs to further develop its oil and gas industries.
 
Iran has major potential because it holds the world’s fourth largest oil reserves and second largest natural gas reserves. The Islamic Republic is highly dependent on petroleum resources for government revenues. Growth has been crippled, however, by the costs of an eight-year war with Iraq, periods of low oil prices, and international sanctions.
 
Iran’s inability to get access to foreign investment and new technologies forced it to cancel projects to explore new oil fields and develop refineries. Its capabilities have fallen significantly behind its oil-rich Gulf neighbors.
 
The immediate global impact of greater energy production by Iran would be uneven, however, even if sanctions are lifted. Increasing production would face major challenges, at least in the short run.
 

 

A Petro-relationship
 
American oil companies began buying Iranian oil in the 1940s through contracts with the Anglo-Iranian Oil Company. After World War II, Iran became an anchor of US foreign policy in the Middle East for a quarter of a century. The relationship was based on energy trade and common security concerns during the Cold War. Interest in Iran’s petroleum industry ran so deep that the United States and Britain orchestrated the overthrow of prime minister Mohammad Mossadeq after he nationalized the Anglo-Iranian oil company in 1953.
 
In 1979, on the eve of the revolution, Iran exported 700,000 barrels per day (bpd) to the United States, accounting for 8.6% of American oil imports, according to Oil & Gas Journal. Amoco, Exxon, Mobil, and Shell were among the companies importing Iranian crude oil. By the late 1970s, US companies had also invested $457 million in Iran’s oil industry. The relationship changed after the monarchy was overthrown. The Carter administration began banning oil imports from Iran after the 1979 takeover of the US embassy.
 
Through subsidiaries, American oil companies continued to buy Iranian oil—worth up to $3.5 billion a year—off the international market in Rotterdam until the mid-1990s. In 1994, U.S. companies purchased more than 600,000 bpd from Iran, around 23 percent of Iran’s oil exports.
 
In 1995, president Hashemi Rafsanjani attempted to thaw relations with the West by offering a $1 billion contract to the US oil company Conoco, the most lucrative oil deal Iran had ever offered any foreign company. The Clinton administration, under Congressional pressure, blocked the deal and expanded sanctions. France’s Total picked up the contract.
 
Over the years, Washington has imposed escalating waves of sanctions on Tehran on three broad subjects: support for terrorism, failure to comply with UN resolutions on its nuclear program, and human rights violations.  
 
In 2011 and 2012, the United States and European Union imposed the harshest round of sanctions to date. In mid-2012, Iran’s oil exports plummeted from 2.5 million bpd to 1.4 million bpd, their lowest levels since 1986. The limited sanctions relief in the 2013 interim nuclear deal allowed Iran to modestly increase its export of condensates to China and India, but progress has leveled off since then.
 
Sanctions have taken a toll. Iran produced six million barrels of oil per day during the final years of the monarchy in the late 1970s. But it has since struggled to maintain production levels. By early 2015, Iran only produced around 2.8 million bpd and exported around one million bpd. Despite its large reserves, Iran could barely meet its domestic natural gas needs in 2015.
 

 Source: Energy Information Administration

Western Interests
 
Western companies clearly have an appetite for doing new business with Iran, if sanctions are lifted. In the early 2000s, Chevron and Conoco expressed interest in developing Iran’s South Pars gas field and Azadegan oilfield. In late 2013, shortly after the announcement of an interim nuclear deal, an unnamed US oil executive told Reuters, “We’re willing to talk: Iran’s got tremendous potential…Once sanctions are removed, we’d definitely be interested in investing.”
 
European companies, including Total SA of France, ENI of Italy, Royal Dutch Shell, and British Petroleum (BP), are also keen to resume oil investments in Iran. Some continued to operate in Iran long after their American counterparts left, but were forced to scale back activities after sanctions in 2011 and 2012.
 
Tehran is eager to revive Western investment in its oil and gas industries too. Since President Hassan Rouhani took office in 2013, Tehran has courted Western oil companies. Rouhani’s oil minister is Bijan Zanganeh (left), who has been labeled Iran’s “second foreign minister” in the local press. During his previous stint as oil minister from 1997-2005, he signed deals with foreign companies that brought billions of dollars of investments in Iran’s petroleum industries.
 
Oil companies have so far been cautious about responding. A nuclear deal might ease tensions in U.S.-Iranian relations and end some sanctions. But Washington is unlikely to lift all sanctions without a change in Tehran’s support for terrorism and human rights abuses. U.S. oil companies would be less likely to invest in Iran until all types of sanctions are lifted.
 
Global Prospects
 
New oil and gas exports from Iran could have a global impact. First, Iran’s return to the market and an increase in its oil production could offset the effects of supply disruptions—and the resulting spike in oil prices—from political crises in Iraq, Libya, and other conflict zones. It could also keep prices low. On April 7, the U.S. Energy Information Administration noted that removing oil-related sanctions on Iran, in the event of a comprehensive nuclear deal, could lower its 2016 oil price projections by $5 to $15 per barrel.
 
Second, increased production could eventually create more options for countries dependent on oil imports, especially as petroleum needs rise in the developing world. Some countries, such as Japan and South Korea, are already dependent on Iranian oil. Along with China, India, and Turkey, they buy virtually all of Iran’s liquid fuel exports.
 
 
Third, Iran’s reemergence in the global market could have geopolitical implications, especially as Europe’s dependence on Russia, a large oil and gas producer, are strained over the Ukraine crisis. Iranian officials have openly talked about providing an alternative to Russia for European energy needs. In September 2014, Rouhani told Austrian president Heinz Fischer, “Iran can be a secure energy center for Europe.”
 
Iran holds nearly 17 percent of the world’s natural gas reserves, and it is home to the South Pars field, the largest natural gas field in the world. Iran could begin exporting natural gas to Europe as early as 2020 if sanctions are lifted, according to experts.
 
The Losers
 
Opening up Iran’s petroleum industry could also negatively affect the current balance among oil powers. Some countries would not welcome a new burst of Iranian oil and gas on the market. First on the list would be oil producers, including some neighboring states that already feel threatened by Tehran. They could face new competition in international markets. Oil-producing countries would also take a hit if Iranian oil and gas cause oil prices to drop further.
 
Second, some countries that import oil have received discounts from Iran as incentives to buy, despite sanctions. China, India, Japan, South Korea, and Turkey all received discounts, which might be eliminated if sanctions are lifted and Iran has a wider array of buyers. Their energy costs could go up, with a rippling economic effect at home.
 
Costs and Obstacles
 
A few major roadblocks are likely to prevent Iran’s oil and gas industry from reaching its full potential anytime soon. One challenge is cost. Iran’s oil and gas sector needs between $130 billion and $145 billion in investments by 2020; with current oil prices so low, the price tag may be unpalatable to oil companies.
 
An increase in Iranian oil production is unlikely to have immediate impact, since the global energy market is currently oversupplied. In November 2014, Zanganeh claimed that the Islamic Republic could increase oil exports to four million bpd within three months of lifting sanctions, but experts believe it could take up to five years to reach that goal.
 
New exports of natural gas would also require expensive new pipeline infrastructure or liquefaction facilities that make it easier to export. Building this infrastructure would cost billions of dollars and take years.
 
Even if sanctions are eased, relations between Tehran and Washington will continue to be strained. Some sanctions will remain on Iran because of the government’s support for terrorism and human rights abuses.
 
But the country is too big a player to be ignored in a world increasingly hungry for energy resources. It has the longest coast along the Persian Gulf, through which around 40% of the world’s oil is transported. Iran demands reconsideration. And it may well get it.
 
Photo credit: Bijan Zanganeh via Ministry of Petroleum
 

Cameron Glenn is a senior program assistant at the U.S. Institute of Peace. This article first appeared in Quartz.

Tags: Economy, Oil

Connect With Us

Our Partners

Woodrow Wilson International Center for Scholars Logo