United States Institute of Peace

The Iran Primer

Report: Is Iran a Cyber Power?

            Iran could pose a challenge to the United States despite its limited cyber warfare capabilities, according to a new report by the Atlantic Council. Given Tehran’s weak conventional forces, cyber attacks could be an attractive alternative. “Iran does not need the equivalent of a Ferrari to inflict damage on U.S. infrastructure: A Fiat may do,” warns the report. More than a dozen U.S. financial institutions may have already been hit by hackers linked to Iran in 2012, it says. Tehran has denied involvement in cyber attacks on SunTrust, JP Morgan Chase, CitiGroup and several others, which cost the financial industry millions of dollars. The following are excerpts from the report.

            When most people think of the “military option” against Iran, they imagine a US attack that takes out Iran’s most important known nuclear facilities at Natanz, Fordow, Arak, and Isfahan. They expect Iran to retaliate by closing the Strait of Hormuz, sending missiles into Israel, and/or supporting terrorist attacks on US personnel in Iraq and
Afghanistan.
            But what if the response came in the form of an anonymous cyber attack that shut down the New York Stock Exchange for a few hours? Or an assault that cut off electrical power in a major US city, froze civilian air traffic, or interfered with further military strikes on Iran by conveying incorrect information to American military commanders?
            Many US officials and experts on cyberspace say Iran is probably not yet in a position to mount such a damaging assault against the United States. Iran, they say, is a “third tier” cyber power compared to the United States, its Western allies, or Russia and China. Yet this overlooks an important factor. In the history of cyber conflict, few attacks have themselves been devastating. For example, the Russian-encouraged attacks which hit Estonia in 2007—overwhelming government web sites, Estonia’s largest bank, and several newspapers—were neither technically significant nor very effective.They were disruptive, but for only short periods and with little or no long-term impact to Estonia’s GDP. The primary impact was political, not military, serving as a wake-up call on cyber vulnerabilities and leading to NATO establishing a Cyber Center of Excellence in the capital, Tallinn. In this way, a significant Iranian cyber attack against the United States would take on outsized importance regardless of its technical sophistication.
            Moreover, technological edges in warfare tend to be ephemeral. There is no assurance that Iran’s growing cyber forces—or a skilled foreign or nonstate actor hired by Iran—will not be capable of significantly disruptive activities in the next few years, especially as the United States continues to extend its already deep dependence on a very vulnerable cyberspace.
            In fact, there has already been an ongoing tit-for-tat of clandestine cyber conflict between Iran and the United States (and probably also Israel), though so far it has not passed into open cyber warfare. Concerns about Iran’s cyber abilities rose in 2012 in connection with so-called distributed denial of service (DDoS) attacks on American financial institutions that briefly cut off access to online accounts and required expensive countermeasures. The attacks appear to have come in retaliation for US-led banking sanctions on Iranian financial institutions and the Stuxnet worm that set back Iran’s nuclear program in 2010. Iran is also believed to have been behind an even more destructive assault in August 2012 on the Saudi Aramco oil company that wiped out data on more than 30,000 computers.
 
Iran’s Place in the Cyber Arms Race
             According to Dmitri Alperovich, cofounder and chief technical officer of the cyber-security firm CrowdStrike and a senior fellow at the Atlantic Council, the most effective cyber warriors—what he terms the “tier one actors”—are the United States, Russia, and US allies such as Great Britain. Alperovitch puts China a step behind at tier two and says that Iran is tier three.
            But this categorization should not give the United States false confidence that it can defeat any Iranian cyber threat. Iran does not need the equivalent of a Ferrari to inflict damage on US infrastructure: a Fiat may do.
             As the Atlantic Council has pointed out, the blowback for US government-approved attacks has come largely against the US private sector. Already, distributed denial of service (DDoS) attacks attributed to Iran have cost the US financial industry millions of dollars. The attacks, starting in 2012, hit more than a dozen major institutions including SunTrust, JPMorgan Chase, CitiGroup, Wells Fargo, U.S. Bancorp, Capital One, PNC, HSBC, and BB&T; at least five websites crashed in the face of traffic 10 times higher than any previously recorded assaults.Just one bank estimated spending least $10 million mitigating the attacks. Another hacking episode in April 2013 claimed by a group that may have ties to Iran—the so-called Syrian Electronic Army—caused the Dow Jones Industrial average to drop 150 points, briefly wiping out $136 billion in value. The damage was done by hacking the Twitter account of the Associated Press to report bogus explosions at the White House that were said to have injured President Barack Obama. In May 2013, there were allegations that Iran was behind new attacks on US energy firms.
            US allies have also been targeted. An individual with access to employees’ desktop computers at Saudi Aramco infected them last year with a virus that destroyed data on three quarters of the machines and displayed a picture of a burning US flag. These computers became paperweights, entirely useless with all their data destroyed—a significant escalation from attacks that entail only stealing information
or causing short-term disruption.
            Beyond the private sector, there have been reports of Iranian targeting of US government facilities. Diplomats from Iran and Venezuela were secretly filmed discussing plans for cyber attacks against US targets including nuclear facilities. Given Iranian terrorist attacks in Europe, the Middle East and Europe—and a foiled plot in 2011 to kill the Saudi ambassador in Washington—it is fair to draw a straight line to some potentially very bad scenarios.
            Indeed, given Iran’s conventional weakness, cyber is an attractive alternative—the ultimate asymmetric weapon. Attacks can be mounted from outside the country—say by hackers in Russia or Lebanon—and difficult to trace. An assault in March 2013 on South Korea that paralyzed ATMs and three television networks has been blamed on North Korea. There is no reason to believe that Iran’s growing cyber army is any less capable than that of an isolated Asian rogue state with few IT graduates, limited Internet access, and a paucity of computers.
 

 

Iran Angry Over New US Bill

             On August 1, Tehran warned that new U.S. legislation calling for tighter sanctions would “further complicate” negotiations on its controversial nuclear program. “Imposing sanctions against Iran is a failed policy,” said Foreign Ministry spokesman Abbas Araqchi. On July 31, the U.S. House voted 400-20 to coerce buyers of Iranian oil to find alternative suppliers — or risk heavy penalties in business dealings with the United States. The bill, if passed by the Senate, would also blacklist Tehran’s automobile and mining industries. The following are excerpted remarks by Araqchi.

 
Abbas Araqchi, Foreign Ministry spokesman
            “Imposing sanctions against Iran is a failed policy and will definitely not help find a logical solution to the existing problems, especially with regard to negotiations on the nuclear issue.
            “This measure has been taken without paying attention to the political development and the use of experts, and is a blatant example of unjust measures in an unjust time.
            “The only impact the imposition of sanctions will have is to further complicate the settlement of the existing issues, and will certainly offer no solution to any problem.
            “[The bill] simply indicates that neoconservative unilateralism dominates multilateral sovereignty in the American administration.” August 1 comment to the press
 

Ahmadinejad’s Legacy: Top 10 (Mis)Hits

Robin Wright

            President Mahmoud Ahmadinejad leaves office with little to show for his eight years in power. Iran’s toxic economy is often blamed on his mismanagement as much as on international sanctions. Politically, his reelection in 2009 ignited the largest protests since the 1979 revolution. By 2013, even his peers charged that he was aligned with a “deviant current.” All eight candidates campaigned on anti-Ahmadinejad tickets in the mid-June election to replace him. Even the supreme leader, who once put his own credibility on the line to support Ahmadinejad, openly criticized him.
      But Ahmadinejad may best be remembered for his utterances, which ranged from grandiose to history-defying. Even his humor was puzzling.
      "I have traveled to all the continents except for one, and I know what is going on out there. Everybody is eager to hear the Iranian people’s message. The world is rapidly becoming Ahmadinejad-ized, if I’m allowed to make a joke," he said in 2006.
      Throughout his two terms, Iran’s sixth president never seemed troubled by the furious, frustrated or mocking backlash. The following top 10 quotes represent Ahmadinejad’s rhetorical legacy.

 
#1 The U.S. orchestrated the 9/11 attacks
            "Some segments within the American government orchestrated the attack to reverse the declining American economy and its grips on the Middle East in order to save the Zionist regime… The majority of the American people, as well as most nations and politicians around the world, agree with this view."           
            Speech to the United Nations, September 2010
 
#2 Osama bin Laden was in Washington D.C.
            "Our position is quite clear. Some journalists have said bin Laden is in Iran. These words don't have legal value. Our position towards Afghanistan and against terrorism is quite clear... I heard that Osama bin Laden is in Washington, D.C…Yes, I did. He's there. Because he was a previous partner of Mr. Bush. They were colleagues in fact in the old days. You know that. They were in the oil business together. They worked together."
            Interview with ABC’s George Stephanopoulos, May 2010

 
#3 The Holocaust did not happen
            "They [Western governments] launched the myth of the Holocaust. They lied, they put on a show and then they support the Jews. The pretext for establishing the Zionist regime is a lie … a lie which relies on an unreliable claim, a mythical claim, and the occupation of Palestine has nothing to do with the Holocaust."
            Speech in Tehran, September 2009
 
#4 Israel will be wiped off the map
            "Anybody who recognizes Israel will burn in the fire of the Islamic nation's fury."
            Speech to World Without Zionism student conference in Tehran, October 2005
 
            "We say that this fake regime [Israel] cannot logically continue to live… Open the doors (of Europe) and let the Jews go back to their own countries."
            Comments to reporters in Tehran, April 2006
 
            "Those who think they can revive the stinking corpse of the usurping and fake Israeli regime by throwing a birthday party are seriously mistaken."
            Comments on Israel’s 60th anniversary celebration, May 2008
 
#5 Iran has no gays
            "In Iran, we don't have homosexuals like in your country … In Iran we do not have this phenomenon. I don't know who's told you that we have this."
            Speech at Columbia University in New York, September 2007
 
#6 Suicide bombers are the supreme weapon
            "Iran can recruit hundreds of suicide bombers a day. Suicide is an invincible weapon. Suicide bombers in this land showed us the way, and they enlighten our future."
            Comment during visit to training camp, April 2007

#7 Iran's enemies are idiots
            "We thank God that our enemies are idiots. We don’t need you. It is you who need the Iranian people. This is the funniest decision I’ve seen."
            Comment after the International Atomic Energy Agency reported Iran to the United Nations for failure to cooperate on nuclear inspections, February 2006
 
#8 The West created HIV to plunder Africa
            "Today there is this outstanding question about why so many killer viruses, including the HIV virus, have spread all over the world. Many so-called experts say the spread has come as a result of vices and immoralities… Then how is it that at the same time they find these viruses in some African countries? It is obvious that the African countries must be plundered of their wealth and resources. The major powers and despots are behind the development of these diseases so they could then sell their drugs and medical equipment to the poor countries."
            Comments in Tehran, January 2012
 
#9 Iran should reverse family planning and double its population to triumph over the West
            "I am against saying that two children are enough. Our country has a lot of capacity. It has the capacity for many children to grow in it. It even has the capacity for 120 million people. Westerners have got problems. Because their population growth is negative, they are worried and fear that if our population increases, we will triumph over them."
            Comments on his goal of doubling Iran’s population, October 2006
 
#10 Jesus Christ will return with the Muslim Mahdi
           "All I want to say is that the age of hardship, threat and spite will come to an end someday and, God willing, Jesus would return to the world along with the emergence of the descendant of the Islam’s holy prophet, Imam Mahdi, and wipe away every tinge of oppression, pain and agony from the face of the world."
            New Year’s greeting to Christians, December 2006
 

Photo credit: President.ir

 

Robin Wright has traveled to Iran dozens of times since 1973. She has covered several elections, including the 2009 presidential vote. She is the author of several books on Iran, including “The Last Great Revolution: Turmoil and transformation in Iran” and “The Iran Primer: Power, Politics and US Policy.” She is a joint scholar at USIP and the Woodrow Wilson Center. See her chapter, “The Challenge of Iran” from "The Iran Primer."

 

Can Rouhani Resolve Iran's Economic Crisis?

Bijan Khajehpour

            After taking over the presidential office in early August, President-elect Hassan Rouhani will face a long host of economic challenges. He has made the economy—especially tackling unemployment—his highest priority, but it is clear that the process of reversing the negative trends of the past few years will be a medium-term process.
            Incidentally, the country’s key economic stakeholders, especially the business community, have reacted very positively to Rouhani’s election. The free market rate of the Iranian rial gained about 20 percent in value between June 14 and 22, and then it bounced back (see graph below). The reason for the rebound was the fact that a price of 32,000 rial to the U.S. dollar is quite realistic. Experts agree that Rouhani’s trump card will be to return the technocrats from the previous governments to the fore. However, the road to recovery will be long.

Economic and Petroleum Sector Challenges
            The Iranian economy has been battered by the poor performance of the Ahmadinejad government. Today the economy, especially the petroleum sector, which has been an engine for the Iranian economy, is facing major issues. The new president will have to deal with several serious challenges. The complete list would be very long, but the most significant challenges are:
 

High inflation: Subsidy reforms, mismanagement, and the collapse of the rial have generated an inflationary economy that is eating away the average citizen’s purchasing power;
Unemployment: With an overall unemployment rate of about 13 percent and a youth unemployment rate as high as 27 percent, Iran is facing a major socio-economic issue;
Lack of investor confidence: Mismanagement and corruption alongside political uncertainties and favoritism among semi-governmental organizations have all contributed to a business environment in which private sector investors are very hesitant to invest. The consequence is lack of capital formation and jobs in the economy;
Sanctions: Iran’s economy as a whole, and particularly the petroleum industry, has been undermined by external sanctions. This has created numerous problems for the country’s economy like declining oil revenues;
Subsidy reforms: The next government will have to find ways to make the ongoing subsidy reforms more efficient for the economy as a whole. So far the reforms have had major inflationary impacts and negative consequences for the local industry;
Lack of investment and technology in the petroleum sector: As a direct result of external sanctions, Iran has been deprived of the needed capital and technology in its petroleum sector;
Collapse of the domestic industry: Misplaced trade policies as well as subsidy reforms have put a lot of pressure on the domestic industry. Though the recent devaluation of the rial has made the Iranian industry more competitive again, it will take time for the local industry to regain their lost financial and technical strength;
Brain drain: The undesirable conditions of the past few years have led to a growing brain drain in the economy. This will be significant in specialized industries such as petroleum, but it will generally be an issue that the next government will have to attend to;
Lack of professionalism: The Ahmadinejad government’s policies in awarding projects to its own trusted circles has led to a disastrous level of unprofessional behaviors in project management and project quality and a weakening of the more professional subcontractors in the country. 

Rouhani’s Approach
            Hassan Rouhani has stated clearly that Iran’s economic issues are mainly caused by poor management and society’s lack of confidence in government institutions. He also believes that sanctions and international tensions have resulted in economic deterioration, inflation, and frustration. The consequence of all these shortcomings has been a loss in purchasing power of the average Iranian family and subsequent economic hardship.
            During his campaign and also in interviews after his victory, he has favored actions that can contribute to a sense of stability in the economy. He also wants to achieve higher living standards by: a) creation of national wealth and b) fair distribution of national wealth.
 
His other economic pledges are:
Giving more independence to the Central Bank of Iran;
Reviving the Management and Planning Organization that Ahmadinejad dissolved in 2005;
Offering short-term and long-term solutions to issues such as inflation, unemployment, housing, cash subsidies, and healthcare;
Empowering domestic production;
Improving the business and regulatory environment.
 
Potential Economic Policies
            Rouhani’s top economic advisor, Mohamad Baqer Nobakht, has provided some insight into the next government’s priorities in the field of economic management. These include:
 
Looking for initiatives to secure sanctions relief to reduce their negative impact on the economy of Iran. Rouhani was Iran’s nuclear negotiator between 2003 and 2005, and he is familiar with the complexities of the Iranian nuclear negotiations. His first goal will be to make sure that there are no new sanctions, followed by what he calls “increased transparency” in order to secure sanctions relief.
Redefining the redistribution of cash generated through subsidy reforms. The Rouhani government intends to discontinue cash handout payments to higher income groups in order to be able to increase cash payments to lower income classes. In the words of Nobakht: “The real need of the rich is not cash subsidies but they need protection for their investments.”
Supporting the local industry, not just manufacturing, but also investing in larger agricultural production, promotion of tourism, etc.
Immediately implementing the “Law for the Continuous Improvement of Business Climate,” which had been passed by the Majles but was then ignored by the Ahmadinejad government. The law foresees the lowering of the government’s role in the economy, the empowerment of the non-governmental sector, investment guarantees, etc., which will all be meant to restore some investor confidence in the economy.
 
Outlook and Conclusions
            Experts agree that the Iranian economy will initially benefit from the change of government and the associated positive momentum. However, restoring economic normalcy and a return to medium-growth scenarios will require time—potentially three to four years.
            High inflation is likely to persist in the following years due to subsidy reforms and the delayed impact of the rial devaluation. The average inflation rate will fall moderately to about 27 percent in 2013 and move toward 20 percent in 2014. The outlook for economic growth will depend on the outcome of the nuclear negotiations and the future of sanctions.
            The value of the rial against the U.S. dollar will consolidate around 32,000 rial to one USD in 2013, but will fall further due to inflationary effects. There will also be a positive impact on job creation due to the new government’s attention to private sector activity. However, unemployment figures will not drop significantly due to the negative impacts of demography, subsidy reforms, and privatization.
            All in all, the election of Rouhani has the potential of reversing the negative economic developments of the past few years. Iran is moving toward a more pragmatic set of policies, but it will take time to return the economy to a degree of normalcy.
            Rouhani’s main focus will be the economy and here the return of the old technocrats will generate a positive momentum. A more creative and de-escalating approach to the nuclear negotiations could pave the way for some degree of sanctions relief and also a growing presence of foreign companies in the market.
            One of the significant moves by Hassan Rouhani has been the inclusion of Mohammad Nahavandian, the president of the Iran Chamber of Commerce, in the new cabinet, which will facilitate the promotion of private sector activity. Nonetheless, the Iranian economy will have to continue to deal with high inflation, but a degree of sustainability in government policy as well as legal reforms could improve the overall business environment.

This piece was first published as Viewpoints 33 by the Middle East Program at the Woodrow Wilson Center for International Scholars.
 
Bijan Khajehpour is a managing partner at Atieh International.
 

US Eases Rules on Export of Humanitarian Aid

            On July 25, the United States introduced new measures to ease the export of humanitarian goods, especially medical supplies, to Iran. Humanitarian supplies are technically not restricted by sanctions, but U.S. sanctions on key Iranian banks has affected the ability to pay for medical goods. The limited flow of medical supplies has produced shortages and a growing health crisis. The U.S. move comes 10 days before the inauguration of President-elect Hassan Rouhani.

TREASURY EXPANDS LIST OF BASIC MEDICAL SUPPLIES AUTHORIZED FOR EXPORT TO IRAN AND FURTHER CLARIFIES EXPORT AND FINANCING MECHANISMS AVAILABLE FOR HUMANITARIAN GOODS


            WASHINGTON – Today, the U.S. Department of the Treasury took actions to reinforce longstanding U.S. Government efforts to ensure that our extensive economic and financial sanctions on Iran – adopted to encourage Iran to comply with its international obligations – do not impede Iran’s humanitarian imports. Treasury’s Office of Foreign Assets Control (OFAC) expanded the list of basic medical supplies authorized for export or reexport to Iran under an existing general license by adding hundreds of items; OFAC had previously issued specific licenses authorizing the export or reexport of these items. OFAC also issued further clarifying guidance on existing broad authorizations and exceptions applicable to the sale of food, agricultural commodities, medicine, and medical devices by non-U.S. persons to Iran.
 
            “Today’s action to expand the general license for the export of medical devices to Iran reflects an important element of our sanctions policy. Even as we continue to implement and enforce our rigorous sanctions regime against Iran, we are committed to safeguarding legitimate humanitarian trade,” said Under Secretary for Terrorism and Financial Intelligence David S. Cohen.
 
            In today’s action, OFAC expanded the list of basic medical supplies authorized for export or reexport under an existing general license, originally issued in October 2012, to encompass a broad range of medical supplies and devices, including electrocardiography machines (EKGs), electroencephalography machines (EEGs), and dialysis machines, along with other types of equipment that are used by hospitals, clinics, and medical facilities in Iran. These items, which were previously eligible for specific licensing from OFAC, can now be exported without prior approval from OFAC. Exporters are also still encouraged to apply for specific licenses for medical devices that may not be included in today’s expanded list.
 
            Even as the U.S. and international sanctions have tightened, the Treasury and State Departments have had extensive discussions with foreign pharmaceutical and medical supply companies that sell, export, and get paid for exports to Iran, as well as the foreign financial institutions involved in those transactions, to ensure that the exemptions from our sanctions are understood. Medicine and medical supply exporters reporting barriers to trade have repeatedly pointed to obstacles placed by the Government of Iran, including the Central Bank of Iran’s failing to allocate sufficient foreign currency. The Central Bank of Iran has access to sufficient foreign currency funds outside of Iran – which are otherwise usable only to fund bilateral trade – to finance the import of medicines and medical equipment.
                  
            As OFAC has made clear in its Clarifying Guidance: Humanitarian Assistance and Related Exports to the Iranian People, issued on February 6, 2013, and in the Iranian Financial Sanctions Regulations (31 C.F.R. part 561) (IFSR) [*1], foreign financial institutions may process transactions for the purchase of humanitarian goods including, food, agricultural commodities, medicine, and medical devices, using funds in Central Bank of Iran accounts without being subject to U.S. sanctions. Today’s Guidance on Sales of Food, Agricultural Commodities, Medicine, and Medical Devices to Iran is meant to ensure that all parties to these transactions fully understand the broad humanitarian allowances embedded in our sanctions laws.

For a link to the expanded List of Basic Medical Supplies authorized for export or reexport to Iran issued today click here
 
For a link to OFAC’s Guidance on Sales of Food, Agricultural Commodities, Medicine, and Medical Devices to Iran click here
 
For a link to OFAC’s Clarifying Guidance: Humanitarian Assistance and Related Exports to the Iranian People click here
 
For a link to OFAC’s Iranian Financial Sanctions Regulations click here


 

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