United States Institute of Peace

The Iran Primer

Iran Deepens Ties with India, Afghanistan

On May 23, Iran signed a trilateral agreement with India and Afghanistan to develop the strategic Chabahar port in southeastern Iran. India pledged to invest up to $500 million in the port, which will expand India’s trade with Iran and other Central Asian countries while bypassing land routes in Pakistan. 
 
Indian Prime Minister Narendra Modi and Afghan President Ashraf Ghani met with Iranian President Hassan Rouhani in Tehran to sign the deal. Both leaders also met with Supreme Leader Ayatollah Ali Khamenei.
 
Modi was the first Indian prime minister to visit Iran in 15 years. During his visit, he signed 12 cooperation documents with the Islamic Republic to strengthen bilateral ties in economics, trade, transportation, science, culture, and academia. Before sanctions were tightened in 2012, Iran had been India’s second largest supplier of crude oil. The following are quotes from officials on the Chabahar agreement and Iran’s relations with India and Afghanistan.
 
Iran
 
Supreme Leader Ayatollah Ali Khamenei
 
 
President Hassan Rouhani
 
On the Chabahar agreement:
 
“Today, this message is transferred to the region and the world from the side of Tehran, New Delhi and Kabul that progress and development of the countries of the region will gain momentum through joint cooperation and regional opportunities.”
 
“The symbol of this trilateral cooperation is the word ‘Chabahar’, a spring for the three countries, and by joint investment and activity, we can connect India to Afghanistan, Central Asia and the Caucasus through a safe path.”
 
“This document is not just an economic document, but rather a political and regional document and its message is that the countries of the region should use the regional opportunities for the region.”
 
“In this trilateral agreement, there is room for other countries of the region and they can join the document in the future.”
 – May 23, 2016, in a ceremony for signing the Chabahar agreement
 
 
On relations with India:
 
“From the viewpoint of the Islamic Republic of Iran, ties with India, as one of the most powerful counties in the region and an emerging economy in the world, is of special significance.”
 
“Today, in the post-JCPOA era and after the lift of sanctions, there are new opportunities that can be used to develop Iran-India ties that we should make the best use of.”
 
“A great deal of goods can be transferred from the countries of the region to Central Asia, the Caucasus and Eastern Europe through Chabahar port and Iran welcomes Indian companies’ investment in Chabahar port and Chabahar-Zahedan railway construction.”
 
“There are good opportunities for cooperation [between Iran and India] in different fields such as biotechnology, nanotechnology, IT and space.”
 
“Iran can be a trustable source of energy for satisfy India’s needs for oil and gas.”
 
“Iran’s exports to India should be diversified by planning and effort and the Islamic Republic of Iran is ready to participate in different fields of investment in India.”
 
“Iranian banks are ready to develop relations with major Indian banks at bilateral level and international monetary system.”
 
“Iran and India have very close cultures and can promote the peaceful Islam, which is based on peaceful coexistence, in the world.”
– May 23, 2016, in a meeting with Indian officials
 
“Iran’s relations with India has always been of significance and today, strengthening these ties will be beneficial to both nations, as well as the entire region.”
 
“Indian Prime Minister’s visit to Iran in post-JCPOA and post-sanctions era prepares the ground for further development of economic ties between the two countries.”
 
“Today, the executive officials of both countries decided to turn the commercial ties between Iran and India into comprehensive economic ties.”
 
“With regard to the energy capacity in Iran and the large number of mines in India, as well as strategic Chabahar port, we can have greater cooperation in different fields, such as aluminum and petrochemical industries.”
 
“Regarding the role of banks in the economic ties between the two countries, today we had very important discussions about the ways of organizing relations between banks and we hope that banking facilities can prepare the ground for further economic ties between the two countries."
 
“India’s advancements in modern technologies, especially ICT, biotechnology and nanotechnology, as well as aerospace, motivated us to agree to develop ties in modern technologies, academic issues and science and technology parks.”
– May 23, 2016, in a joint press conference with Prime Minister Modi
 
 
On relations with Afghanistan:
 
“Afghanistan’s stability, security and development is very important to the Islamic Republic of Iran and we are ready to cooperate in any area with our friend and neighboring country.”
 
“Without a doubt, despair is one of the factors and root causes of formation and strengthening of terrorism and if the society is hopeful of the future, we can significantly stop terrorism from developing and spreading, as well as production and distribution of narcotics.”
 
“The document that is going to be signed today by Iran, India and Afghanistan, will be the ground for development of all three countries, as well as the region.”
– May 23, 2016, in a meeting with President Ghani
 
India
 
Prime Minister Narendra Modi
 
 
“Today the world is witnessing a historic event not only for the three countries, but also for the nations of the region.”
– May 23, 2016, in a ceremony for signing the Chabahar agreement
 
“We seek comprehensive ties with Iran in all fields.”
 
“Indian companies willing to invest in Chabahar, can have good cooperation with the young population of Iran in the fields of technology, information and nanotechnology.”
 
“New Delhi is ready to cooperate with Iran in promoting the true Islam and combating terrorism.”
– May 23, 2016, in a meeting with President Rouhani
 
“The achievements of this meeting and the agreements signed, start a new chapter in strategic cooperation between the two countries and, without a doubt, welfare of the two nations depends on extensive economic cooperation between Iran and India.”
 
“We will spare no effort for bright Tehran-New Delhi ties.”
– May 23, 2016, in a joint press conference with President Rouhani
 
"We have agreed to consult closely and regularly on combating threats of terrorism, radicalism, drug trafficking and cyber crime. We have also agreed to enhance interaction between our defense and security institutions on regional and maritime security.”
– May 23, 2016, according to the press
 
“Connection is a human need and today, we express our deep gratitude for President Rouhani to hosting this great event; economic cooperation is a priority for New Delhi. We all stand with other two countries for the single objective of bringing new ways of success.”
 
“Iran and India have a record of historical trade and have shared culture and rituals thank to cultural exchanges of the past centuries.”
 
“We have not cut the ties even in the harshest time of history and today’s meeting will be a new chapter in bilateral cooperation.”
 
“Chabahar corridor, with participation of three countries, would transform the region in terms of economy and trade routes, setting new trends and eliminating huge barriers to regional trade.”
– May 23, 2016, in a meeting after the signing of the Chabahar agreement
 
Afghanistan
 
President Ashraf Ghani
 
 
“Some countries in the region export terrorism and our three countries’ export is belief, joint cooperation and using regional opportunities for people’s welfare and stability for the region.”
– May 23, 2016, in a ceremony for signing the Chabahar agreement
 
“Kabul seeks regional cooperation with Iran, in bilateral and multilateral context.”
 
“Today a significant step in the relations and bilateral and regional cooperation among the three countries will be taken and this transit line will significantly affect regional cooperation.”
– May 23, 2016, in a meeting with President Rouhani
 
“The Asian continent has been growing in the way to become a great economic pole and to meet the demands of welfare of nations entails regional cooperation; geography is not destiny, but human resolution does change this destiny; today, our wills are strong in Chabahar, with economic, cultural and political development in the horizon.”
– May 23, 2016, in a meeting after the signing of the Chabahar agreement
 

US, EU Encourage Investment in Iran

On May 19, Britain, France, Germany, the European Union and the United States released a joint statement encouraging European banks and businesses to invest in Iran. “We will not stand in the way of permitted business activity with Iran,” they said. As part of the nuclear deal that was implemented in January 2016, Iran received sanctions relief in return for significantly limiting its nuclear program. But many banks and businesses still have reservations about doing business with Iran, due to the lack of clarity on sanctions and also due to Iran’s need for banking and economic reform.  
 
Iranian officials have argued that the United States, in particular, has fallen short of its obligations under the nuclear deal. “The United States needs to do way more. They have to send a message that doing business with Iran will not cost them [European banks],” Foreign Minister Mohammad Javad Zarif told The New Yorker in April. Secretary of State John Kerry and Zarif met on May 17 in Vienna to discuss implementation issues. 
 
In their joint statement, the United States and its European partners said they are committed to providing clarity on sanctions-related issues. They also noted, however, that ultimately “businesses will make their own decisions about commercial activity with Iran.” They encouraged Iran to follow recommendations of the Financial Action Task Force, which in February 2016 expressed “concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.” The following is the full text of the joint European and U.S. statement
 
Statement by France, Germany, United Kingdom, United States and the High Representative of the European Union for Foreign Affairs and Security Policy on Post-JCPOA Business with Iran
 
Under the Joint Comprehensive Plan of Action (JCPOA), the European Union and the United States have lifted economic and financial nuclear-related sanctions on Iran in exchange for Iran’s significant curtailment of its nuclear program. This commitment to lift sanctions was fulfilled on Implementation Day, January 16, 2016, and, as a result, there are now extensive economic opportunities for companies and financial institutions in Europe and around the world to do business in Iran.
 
The interest of European and other global firms in Iran is high, and it is in our interest and the interest of the international community to ensure that the JCPOA works for all participants, including by delivering benefit to the Iranian people. This includes the reengagement of European banks and businesses in Iran.
 
We will not stand in the way of permitted business activity with Iran, and we will not stand in the way of international firms or financial institutions' engaging with Iran, as long as they follow all applicable laws. In the JCPOA, all parties pledged to take steps to ensure Iran’s access in areas of trade, technology, finance and energy. In this context, the EU and its Member States are exploring possible areas of cooperation with Iran, including the use of export credits to facilitate trade, project financing, and investment in Iran. Importantly, the due diligence required for sanctions compliance is by no means unique to business opportunities in Iran.
 

Our governments have provided extensive guidance on the scope of sanctions lifted and those that remain in place and will continue to do so including through additional guidance. We understand that firms may continue to have specific sanctions-related questions or concerns about doing business in Iran, and we stand ready to provide expeditious clarifications.  We encourage firms to approach our governments to address remaining questions, rather than forgo opportunities due to misperceptions or lack of information.  

While we are committed to providing clarity on sanctions-related issues, businesses will make their own decisions about commercial activity with Iran. There are factors within Iran’s control that have influenced companies’ decision-making and hindered Iran’s economic progress. For Iran to realize the economic improvement it desires, it will also have to take steps to create an environment conducive to international investment particularly regarding the compliance with FATF recommendations. We are ready to fully support Iran's efforts in this process.
 
On our part, we are committed to continue actively engaging with the private sector in order to clarify all sanctions-related matters and ensure that permissible business is not prevented by the lack of information. It is in our interest and the interest of the international community to ensure that the JCPOA works for all participants.
 
 

Parliament Seeks Damages from US

On May 17, Iran’s Parliament approved a bill obligating the government to seek compensation from the United States for 63 years of “spiritual and material damage.” The bill passed with 174 votes in favor, seven votes against and four abstentions. The outgoing Parliament (Majles), which is dominated by hardliners, blamed Washington for several actions against Iran:
 
·  CIA-led 1953 coup that overthrew Prime Minister Mohammad Mossadegh’s government and restored the monarchy
·   Death of 223,600 soldiers in the Iran-Iraq War (implicating the Washington for supporting Saddam Hussein)
·   Destruction of oil platforms in the late 1980s
·   Assassination of 17,000 people by U.S.-backed groups
·   Blocking , confiscating or seizing of Iranian assets

With a new Majles due to convene on May 27, outgoing hardliners are running out of time to challenge the president’s foreign policy. Hassan Rouhani’s supporters— a loose group of reformists, centrists and moderate conservatives —will outnumber hardliners in the new Majles.
 
Hardliner lawmaker Hamid Rasaee proposed an amendment to have Iran seize U.S. assets passing through the Strait of Hormuz. “If the US should seek to misappropriate the Iranian nation’s assets, the strait must be turned into an insecure place for them and US vessels banned from passing through it,” he said, according to Press TV.
 
The bill is a response to a recent ruling by the U.S. Supreme Court. On April 20, it upheld a judgment that held Iran financially responsible for terrorist attacks dating back to the 1983 Marine Corps barracks bombing in Beirut. The lead plaintiff, Deborah Peterson, is the sister of Lance Cpl. James C. Knipple, who was killed in Beirut. The court ruled 6-2 in favor of more than 1,300 relatives of the 241 service members who were killed in Lebanon as well as other victims of attacks that courts have linked to Iran, such as the 1996 Khobar Towers bombing in Saudi Arabia.
 
Iran refused to comply with past judgments, which led lawyers to search for Iranian assets held in the United States. This case, Bank Markazi (Iran’s central bank) v. Peterson, involved some $1.75 billion in bonds, plus accumulating interest, held by Citibank in New York.
 
Iranian officials have condemned the judgment. On April 21, Iranian foreign ministry spokesman Hossein Jaberi Ansari said the ruling “amounts to appropriation of the Islamic Republic of Iran’s property.” He warned that it “increases the distrust between Tehran and Washington.” In an April interview with The New Yorker, Iranian Foreign Minister Mohammad Javad Zarif said it is “highway robbery” and vowed to get the assets back.
 
Ibrahim Karkhaneh, the head of parliament’s nuclear committee, blamed Rouhani’s administration for recent U.S. court decisions. “The Islamic Republic of Iran until now has not taken significant action against these unjust actions, and day by day these sentences in America are increasing,” he said.
 

Rouhani, however, did appoint a working group headed by Minister of Economic Affairs and Finance Ali Tayebnia to review the Supreme Court case. In a statement on May 16, it concluded, “America’s judicial system violated the principle of state immunity,” and called on the executive branch to take further action. The Supreme National Security Council voted on May 17 to file a complaint with the International Court of Justice against the United States about the Supreme Court ruling. 

 

Photo credit: Mohammad Javad Zarif by Robin Wright 

IMF: More Economic Reforms Needed

On May 15, International Monetary Fund (IMF) First Deputy Managing Director David Lipton arrived in Tehran to discuss economic developments and policy initiatives following the lifting of sanctions. He told Iranians that “your ultimate success depends on what you do at home” in a speech at the Central Bank on May 17. Lipton highlighted areas for improvement in the banking sector that could help attract more foreign investment. He also emphasized the need to build a strong and flexible economy that will be less dependent on the oil sector.
 
 
During the two day visit, Lipton met with senior government officials, private sector representatives, bankers, academics, and students. “With an improved economic outlook in prospect, there is a unique opportunity to begin implementing reforms to entrench macroeconomic stability and promote higher sustainable and inclusive growth,” he said at the end of his trip. The following are excerpts from his speech and concluding statement. 
 
I speak here today at a pivotal moment for Iran’s economy. With important sanctions lifted, your country has a new opportunity to deepen its integration into the global economy. That process has the potential over time to support faster growth and rising living standards for Iranians.
 
But positive results depend on overcoming two major obstacles as well. The first is navigating a difficult global economic situation. And the second is building a competitive and flexible domestic economy that will serve as a suitably strong platform for growth. I want to talk about those challenges today.
 
But first, let me say a few words about the IMF and how we have been helping Iran for several decades. The Fund’s membership of 189 countries has given us the responsibility—among our many mandates—of analyzing and advising members on economic trends at the global, regional and country levels. This has placed the Fund in a unique position to assess and compare country experiences, and by sharing those assessments and experiences to help countries chart their strategies, particularly at times of momentous change and opportunity. We have used these experiences in our policy dialogue with Iran for many years and I believe our perspectives now, at a historic time for the country, could be especially helpful in thinking about future prospects.

The Global Outlook
 
First, the global growth outlook is for continued recovery, but one that is weak, and holds formidable economic and political downside risks. The bottom line for Iran is that in the near future the global economy is unlikely to be the driving force to lift up emerging economies that it was in the past.
 
Our most recent forecast has global growth remaining largely unchanged this year at a subdued 3.2 percent rate, with only a slight increase to 3.5 percent in 2017. Overall, the outlook has weakened a bit over the past half year.
 
Emerging and developing economies will still account for the lion’s share of world growth. But their prospects remain subdued, particularly for two reasons that are important to Iran: the sharp fall in commodity prices led by oil, and China’s economic rebalancing.
Meanwhile, the modest recovery in advanced economies is expected to continue. But unresolved crisis legacies continue to weigh on growth. In many parts of Europe, for instance, sovereign and private sector balance sheets remain highly leveraged, and some banks are facing high nonperforming loans.
 
We are also witnessing increasing downside risks:
• The global slowdown is hurting bank balance sheets, and financing conditions have tightened considerably.
• Emerging markets face excess capacity in some sectors, capital spending is declining, and private debt—often denominated in foreign currency—is rising.
• We have witnessed an increase in financial market volatility Emerging market currencies have weakened—and some equity markets have fallen sharply.
• There has been a retrenchment of global capital and trade flows. Emerging markets last year experienced about $200 billion in net capital outflows, compared with $125 billion in net inflows in 2014.
• Inflation has fallen to historical lows, too low in fact. With headline inflation in advanced economies last year at its lowest level since the financial crisis, emerging markets’ core inflation well below central bank targets, the world risks a debilitating disinflation.
 
The Outlook for the Iranian Economy
 
So, what does all this mean for Iran? I suggest that while Iran will gain from pursuing integration with the global economy, your ultimate success depends on what you do at home: strengthening macroeconomic policies in the short run and forging ahead now with deep structural reforms for the long run. It is time for a plan of action on the economy. Let me talk about the short run and long run components in turn.
 
Iran has already taken important measures to secure macroeconomic stability, including an important decline in the rate of inflation. That was done despite an episode of increased costs of trade and financial transactions, and limited access to foreign exchange assets that caused inflation to jump and the rial to depreciate significantly. That achievement will serve Iran well as its implementation the Joint Comprehensive Plan of Action continues.
With the oil sector regaining access to export markets, with businesses and banks facing lower transaction costs as they reintegrate into global trade and financial systems, both the oil and non-oil economy will gain.
 
But the global economy poses challenges that could eat into those gains.
 
• Like other oil exporters, Iran has to manage the transition to lower oil prices. Although the impact of lower prices will be partly mitigated by higher oil export volumes, there are limited prospects for a large increase in Iran’s oil revenue because of high global output and weak demand.
• Second, Iran’s non-oil exports also are feeling the effects of weak global demand—something that all exporting countries are experiencing. Some of that comes from slower growth in China.  
• And third, global lenders and investors have become more exacting and cautious, differentiating among countries according to how sound and reliable their policies are and how stable their fiscal, monetary and financial systems are.
So this is a time for convincing macro policies and clear communications:
• To sustain the recent success in the battle against inflation, liquidity growth needs to be contained. This can anchor inflation in single digits, reduce potential pressure on the exchange rate, and help maintain the competitiveness of the non-oil sector. In addition, Iran’s commitment to exchange rate unification will be critical to entrenching economic stability.
• The banking system needs to be able to effectively channel credit to the private sector. This will require addressing the high levels of nonperforming loans, bolstering bank capital, restructuring weak institutions, dealing with unlicensed financial institutions, and strengthening risk management systems and bank supervision.
• And fiscal policy also has an important role to play. Iran’s fiscal policy would be most effective by focusing on a gradual reduction of the non-oil deficit. But instead of cutting spending, it might be better to mobilize more non-oil tax revenue. That would create space for increased public investment in infrastructure and human capital.
 
Global Experiences: How to Build a Strong and Flexible Economy
 
The second topic I promised to address is building a competitive and flexible domestic economy that will serve as a suitably strong platform for future growth.
 
Future sustainable growth will depend increasingly on the performance of the non-oil sector, which is where almost all job creation will have to come. That, in turn, points to the need for a reorientation of the Iranian economy—both to take advantage of the opening to international trade and investment and to unleash entrepreneurial forces that can spur investment, lift productivity, provide jobs, and raise living standards.
 
I spoke earlier about the perspective on economic trends that the IMF brings to bear across countries and regions. I would add that we also can draw upon decades of experience with economic transformations. This global and historical frame of reference is very useful in assessing where Iran now stands and where it might go in the coming years.
 
There are several important examples in recent years of economies that have emerged into the global economy after periods of relative isolation—or even closed doors. We have witnessed Latin America successfully abandon years of import substitution policies after experiencing hyperinflation and a debt crisis that brought their economies to a standstill.
 
China opened its doors beginning in the 1970s to emerge a generation later as one of the two largest economies in the world. In Eastern Europe, the collapse of the Soviet Union sparked a profound restructuring of many economies that today have largely integrated into both the European Union and the global economy. And Korea dismantled close connections between companies, their banks and government that had led to a lack of competition as well as a borrowing binge that was disconnected from enduring profit prospects.
 
I am not suggesting that Iran is the same as these other countries. Far from it. The point is simply to say these are experiences that policymakers in this country can study and draw upon.
 
Let me list a few lessons that emerge from other countries’ experiences:
 
• One that has been heeded here, though it is important continually to bear in mind, is that a loss of monetary stability can undermine structural reforms and set back growth for a long time. Well intentioned reform plans have been undermined by attempts to use liquidity to address real and structural problems, ending in inflation and exchange rate depreciation.
• Another is that a lack of competition both limits growth and can breed corruption by sustaining economic rents to be fought over. Protection from global competition, through import tariffs and other restrictions, and domestic monopoly rights, created by law and regulation, deprive consumers of the benefits of better quality products at low prices. And they prevent the job growth that would come from vibrant competition among new enterprises, and which is badly needed in countries with a large and growing youth demographic.
• Ownership links between companies and banks eventually lead to conflicts of interest, excessive and irresponsible borrowing and lending and debt problems. When such relations involve state owned enterprises and banks, the debt problems often end up weakening or even crippling public finances with dire growth consequences. Reforms to privatize state enterprises, and to separate companies and banks lead to improvements in governance and more responsible decision making as each has to face a hard budget constraint.
 
We have seen these problems play out in many of our member countries. And we have seen how countries—from Peru to Poland, China to the Czech Republic—that have managed to stabilize, liberalize, privatize, and open up have seen those actions pay off over time in investment, productivity and trade. Through the process of liberalization, competition leads to more efficiency, less corruption, and higher productivity. Privatization and governance reforms prevent the misallocation of credit and thus allow the private sector to grow and create jobs for young people and room for the middle class to thrive.

The Challenges in Iran
 
How does this fit with the current situation facing Iran? If there is a consensus that Iran needs to become a more open and integrated economy, then this is a key moment to take a broad perspective and make the most of the opportunity.
 
In our advice to the Fund’s membership at last month’s IMF Spring Meetings, we highlighted structural reforms for all countries as a crucial element in the quest to boost growth and create jobs. Some of these structural reforms would likely benefit Iran. They are, in essence, built around the principles of liberalization and privatization,
 
• Opening up product and services markets can be particularly effective because they bring short-term gains. They can spur more competition, and increase integration with the world economy. They can help create high-quality jobs for the younger generation of Iranians.
• Labor market reforms can be particularly effective in drawing people into the workforce. This approach could be considered in Iran, where unemployment remains high, and demographic pressures will continue to bring large numbers of new entrants to the labor market in the coming years. But it is important that some measures—tax cuts and training programs—that have fiscal implications are able to fit within the broad fiscal framework.
• Another area of structural reform is the policy mix that can help to foster innovation. This can be achieved by removing barriers to competition and foreign investment, reducing the hold of monopolies and special interests, cutting red tape, and increasing investment in education and research. Countries are finding that increased openness to foreign investment can facilitate technology transfers and enhance access to foreign markets. They are trying to reduce the cost of doing business, address vulnerabilities in the corporate and banking sectors, advance privatization, and foster financial transparency and a level playing field for all investors and entrepreneurs.
Iran faces a unique set of issues related to the reintegration of its banks to the international financial system. The Iranian authorities have made recent progress in the establishing a framework aimed at combating money laundering and the financing of terrorism. This is a critical element for reconnecting with the international financial system. The IMF will continue to support the Iranian authorities’ efforts in this area.
 
Conclusion
 
Let me conclude with the big picture. The opportunity for Iran to deepen integration into global economy is coming. Development that builds on the economic stabilization already achieved, combined with new reforms, can unleash creativity and entrepreneurship that hold great promise. By continuing to strengthen its economy, Iran can change the lives of its own people, particularly the younger generation, and build a legacy for the future. That is a challenge befitting a country with a heritage like Iran’s.
 
The experience of countries going through similar challenges shows that successful reforms require leadership and popular support. There inevitably will be costs and dislocations, but they ultimately will be outweighed by the long-term benefits.
 
A more prosperous Iran also can help to put the global economy on a sounder footing. The process of reintegrating with the global economy will not be without its challenges, but the potential rewards are worth the effort.
 
Iran has been a respected voice of economic cooperation at the IMF for many years. Its voice can only be enhanced by taking the steps now to build strong, sustainable and inclusive growth. The IMF looks forward to working with Iran on this endeavor.

 

Click here for more information on the IMF and Iran.   

 

Iran Boycotts Hajj in Saudi Arabia

On May 12, Iran announced that it will not send pilgrims to Saudi Arabia this year for the annual hajj ritual. The culture minister said he blamed Saudi Arabia for stonewalling talks on logistics for Iranian pilgrims. The boycott follows a stampede in Mina during the 2015 hajj that killed almost 2,500 people, including more than 460 Iranians. Tehran accused the Saudi government of mismanagement and incompetence. Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani said Riyadh was failing to expeditiously identify and return bodies to their mourning families. It took some two months to identify the body of a former Iranian ambassador to Lebanon.
 
 
Streamlining coordination for the 2016 hajj has proven especially difficult because the countries have not had diplomatic relations since January. Tensions between the regional rivals hit a boiling point after Saudi Arabia executed a prominent Shiite cleric on January 2. Sheikh Nimr al Nimr’s execution prompted protests in predominantly Shiite Iran. Riyadh cut diplomatic ties with Tehran after protestors attacked the Saudi Embassy in Tehran and Consulate in Mashhad.
 
In April, an Iranian delegation held four days of talks in Saudi Arabia over the hajj. But they did not resolve disputes. Culture Minister Ali Jannati said that the Saudis did not accept Iranian proposals about visas, transport, and security for the pilgrims. The Saudi attitude “was cold and inappropriate,” according to Jannati. The Saudis evidently wanted prospective Iranian pilgrims to go to other countries to fill out their visa applications. Tehran, however, offered to issue visas to Saudi visa officers to come to Iran to perform the procedure. Iran also wanted to evenly split pilgrims between Saudi and Iranian airlines.
 
 
Saudi Arabia’s Minister of Hajj and Umra Mohammed Bintin blamed the disagreement on Iran. “Iran is the only country that refused to sign the agreement on the Hajj. It insisted on a number of unacceptable demands,” he told Saudi state TV channel Ekhbariya. 
 
Iran has boycotted the hajj before. In 1987, Iranian pilgrims clashed with Saudi police during the pilgrimage, resulting in a stampede. At least 400 were killed. Saudi Arabia severed diplomatic ties with Iran and reduced the number of Iranian pilgrim visas. So Iran boycotted the hajj from 1988 through 1990. The following are comments on the hajj by Iranian Culture Minister Ali Jannati and Foreign Ministry Spokesman Hossein Jaberi Ansari.
 
Minister of Culture and Islamic Guidance Ali Jannati
 
“Conditions are not prepared for conducting Hajj; we have lost the time; we made our utmost effort but the sabotage is coming from the Saudis.”
 
“Their attitude was cold and inappropriate. They did not accept our proposals concerning the issuing of visas, the transport and security of the pilgrims.”
 
“Saudi officials say our pilgrims must travel to another country to make their visa applications.”
—May 11, 2016, according to the press
 
Foreign Minister Spokesman Hossein Jaberi Ansari
 
“If no agreement is reached on these issues, Saudi Arabia will be responsible for shutting the way to the dispatch of Iranian pilgrims.”
 
“Performing the pilgrimage is contingent upon the host government’s fulfillment of its obvious [relevant] obligations.”
 
The Saudi government has refused to act on “its recurrent assertions that it would not let political disputes get in the way of the issue of Hajj.”
 
“Performing the pilgrimage is contingent upon the host government’s fulfillment of its obvious [relevant] obligations.”
 
“It is obvious that a non-normal status is not acceptable to Iran.”
 
“There is still time. We hope Saudi Arabia changes its wrong policy.”

May 10, 2016, to the press 

 

Click here for a timeline of Iran-Saudi relations.  

 

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