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The Race for Iran

EGYPT, IRAN, AND THE SHIFTING BALANCE OF POWER IN THE MIDDLE EAST

Photo by Peter Macdiarnid / Getty Images

America’s international standing is under mounting strain on multiple fronts.  Nowhere is this more glaring than in the Middle East, where the balance of influence (and hence, power) is shifting away from the United States and toward Iran, Turkey and their allies.  This trend may, in fact, accelerate as a consequence of ongoing unrest in Egypt and several other Arab states.

As our colleague Seyed Mohammad Marandi wrote here presciently a few weeks ago:

“In Tehran, there is a strong belief that the region is changing dramatically in favor of Hezbollah, the Palestinians, and the Resistance. The rise of an independent Turkey, whose government has a worldview very different from that of the U.S., German, British, and French governments, along with the relative decline of Saudi and Egyptian regional influence, signals a major shift in the regional balance of power. Saudi military incompetence during the fighting with Yemeni tribes along the border between the two countries, the general decline of the Egyptian regime in all respects, and the almost universal contempt among Arabs as a whole for the leaders of these two countries and other pro-western Arab regimes and their corrupt elites, are seen as signs that the center cannot hold. The fact that the Iranian president and the Turkish prime minister are so popular in Arab countries, while most Arab leaders are deeply unpopular, is a sign that the region is changing.”

U.S. officials are treading very carefully with their words, especially regarding Egypt.   We have previously pointed out that the United States and Israel have accrued enormous strategic benefits that from their alliance with Egypt—this is a statement of fact, not a moral judgment and, therefore, should not be characterized as “glowing” support.  This strategic reality shapes the dilemma which U.S. policymakers believe they are facing.   For, while they don’t want to be seen as turning away from or otherwise undermining an ally, they also feel compelled to express at least ritual support for the rights and “aspirations” of the Egyptian people. 

Today, Secretary of State Hillary Clinton has taken the lead for the Obama Administration (President Obama ducked the issue during his State of the Union address earlier this week) in calling on Egyptian President Hosni Mubarak and his government to pursue sweeping political, economic, and social reforms as the key to restoring Egypt’s stability.  Like her predecessor, Condoleeza Rice, and many contemporary commentators, Secretary Clinton seems to think that popular movements for political change in Arab countries are ultimately good news for the United States.  The unspoken (and, we suspect, unexamined) assumption is that, by prompting “liberalization” or even “democratization”, such movements not only affirm values Americans hold dear, but also help to stabilize and ensure the longevity of America’s key strategic partnerships in the Middle East.   The flip side of this assumption, which is also reflected in much current commentary, is that political change in the Arab world is inevitably bad news for the Islamic Republic. 

It remains to be seen, of course, how much change actually takes place in Egypt and other Arab countries.  But, to us, it seems clear that, to the extent that political orders in Egypt, Tunisia, or some other “pro-Western” Arab countries becomes more “authentic” and reflective of popular interests, preferences, and sentiments, those countries will become less enthusiastic about strategic cooperation with the United States and more inclined toward closer relations with the Islamic Republic

During her tenure as Secretary of State, Condoleeza Rice egregiously miscalculated the results of genuinely democratic Palestinian elections in 2006, which produced a Hamas victory.  (Rice famously challenged, in retrospect, that no one could have foreseen such an outcome.  No one, that is, except anyone who knew anything about the Palestinian street.)  She and her colleagues also blew it in their efforts to create a pro-Western “democracy” in Lebanon following former Prime Minister Rafiq al Hariri’s assassination in 2005. 

In this regard, we are struck that many of those who think that what is happening in Tunisia, Egypt, and Yemen represents an authentic push for fundamental political change in these societies seem disinclined to think about recent developments in Lebanon in the same way.  We consider what is happening in Lebanon is very important, and will write about it in greater detail in a separate piece.  For now, we would note that, in the view of many American commentators, what is happening in Lebanon is a thoroughly negative turn of events, quite the opposite of the “hopeful” and “promising” manifestations of popular sentiment displayed in some other Arab states.  Hizballah is routinely discussed as if it were some foreign actor, imposed on an otherwise happy Lebanese society by nefarious outside forces and now, by some descriptions, holding Lebanon “hostage”. 

Why is Hizballah, which manifests its deep reserves of popular support every day, routinely depicted in this way?  At the same time, why do Western commentators persist in glorifying the March 14 movement—most of which opposes “one person, one vote” democracy in Lebanon and would not exist but for massive external support from the United States, France, Saudi Arabia—as the heroic embodiment of the aspirations of (some) Lebanese for a pro-Western, democratic (for some) political order? 

We think that what is happening in Lebanon—and, perhaps, what is happening in some other Arab states—will accelerate ongoing shifts in the Middle East’s balance of power.  On this point, we were also struck that Ayatollah Seyyed Ahmad Khatami, Tehran’s interim Friday prayer leader, today challenged “those who still do not want to see the realities”, arguing that “all these protests in Egypt, Tunisia, Jordan, and Yemen are inspired by Iran’s Islamic revolution” and that “an Islamic Middle East is being created based on Islam, religion, and democracy”; see here and here.  

–Flynt Leverett and Hillary Mann Leverett

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WITH “ENGAGEMENT” FAILING, WASHINGTON VOICES URGE OBAMA TO EMBRACE THE MEK AND REMOVE ITS TERRORIST DESIGNATION

(Photo from Iranian.com)

Predictably, the Istanbul talks have ended without positive results.  And, it seems clear that the discussion came to a dead end over two issues:

–the Islamic Republic wanted explicit recognition of its right to enrich uranium which the United States (at least) was not prepared to do; and

–the United States proposed a plan for refueling the Tehran Research Reactor that was more demanding on and less rewarding for Iran than the plan advanced last fall.    

As it is not clear when the P-5+1 might meet again with the Iranians and the Obama Administration’s efforts to “engage” Tehran are increasingly being written off as a failure, public discourse in the United States is already turning to a consideration of non-diplomatic “next steps”.  The Obama Administration will almost certainly push to expand U.S. and international sanctions against the Islamic Republic.  Beyond that, we also anticipate that there will be increasing calls for the Administration to embrace “regime change” as the declared goal of America’s Iran policy. 

On this front, one of the more noteworthy developments is an accelerating campaign to remove the mojahedin-e khalq, or MEK, from the U.S. Government’s list of foreign terrorist organizations.  Over the last few months, a number of prominent Republicans—including John Bolton, Newt Gingrich, Rudy Giuliani, former Attorney General Michael Mukasey, former White House homeland security and counterterrorism coordinator Fran Townsend, and new House Foreign Affairs Committee chair Rep. Ileana Ros-Lehtinen—have been publicly agitating to delist the MEK.  But this effort has now gone bipartisan and big time, including engaging the services of a Washington, DC consulting firm. 

To document this last point, we link here to the video of an event held in Washington last week, clearly designed to build public support for delisting the MEK as part of a U.S.-led campaign for regime change in Tehran.  The event was organized by Executive Action, LLC, which describes itself as “a McKinsey & Company with muscle, a private CIA and Defense Department available to address your most intractable problems and difficult challenges”.  (Exactly who engaged Executive Action’s services for this event is not clear.)  Featured speakers included not only Republican figures like Mukasey, but also retired U.S. Marine Corps General Anthony Zinni; former New Mexico Governor, Clinton Administration cabinet officer, and Democratic presidential candidate Bill Richardson; former Democratic New Jersey Senator Robert Torricelli; and retired Marine Corps General James Jones—who just stepped down, in November 2010, as President Obama’s first national security adviser.  All of the speakers argued for bringing down the Islamic Republic and forging a new political order in Iran—and for embracing the MEK as the foundation of a new Iranian “opposition” capable of bringing about both of these objectives. 

History, Mark Twain allegedly observed, doesn’t repeat itself—but it does sometimes rhyme.  We are struck by how much the ongoing campaign to rehabilitate the MEK in Washington, as part of a broader, regime-change-in-Iran strategy, “rhymes” with a similar campaign in the 1990s and early 2000s to promote Ahmad Chalabi’s expatriate Iraqi National Congress (INC) to overthrow the Iraqi government.  That campaign featured high-profile Washington lobbyists, lawyers, and public relations specialists, extensive use of media, and the recruitment of high-profile political figures and former U.S. Government officials to sell both the dangerous idea that coercive regime change was the optimal U.S. policy option and a completely detached-from-reality assessment that Chalabi and the INC could deliver on the ground in Iraq.  The United States will truly deserve what it gets if it falls for this again with regard to the MEK and Iran. 

Jones’ participation in the event is particularly appalling, and should unsettle those who reflexively defended the seriousness of President Obama’s commitment to “engage” Tehran, and kept insisting that Obama’s approach to Iran was fundamentally different from that of George W. Bush.  After listening to his remarks, we challenge anyone to make the case that, for the Obama Administration, “engagement” with the Islamic Republic was ever anything but a Dennis Ross-style, “check the box” exercise. 

–Flynt Leverett and Hillary Mann Leverett

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IRANI SUPREME NATIONAL SECURITY COUNCIL HEAD, DR. SAEED JALILI, ON NUCLEAR TALKS, IRAN’S INTERESTS, AND MORE

Photo from PressTV

Negotiations between the P-5+1 and Iran have resumed today, in Istanbul.  In advance of the talks, Der Spiegel conducted an interview with Saeed Jalili, secretary general of the Islamic Republic’s Supreme National Security Council, who is heading the Iranian delegation in Istanbul.  As is by now customary in Der Spiegel interviews with prominent Iranian officials, the journalists involved cannot resist the temptation to throw loaded questions—e.g., “Your self-assurance is breathtaking.  Do you really not worry that the external and internal pressure will become overwhelming, and that the days of Iran’s theocracy are numbered?”  But Jalili is sharp, and makes interesting points on a range of issues.  We post the interview below, a link is here.    

–Flynt Leverett and Hillary Mann Leverett

SPIEGEL: Mr. General Secretary, to what extent is Iran threatened by foreign powers?

Jalili: Threatened?  Are you serious?  Iran is more stable than ever before.  We have never been in a better political and economic position in the region.  We now have more opportunities than ever.

SPIEGEL: We find this statement very surprising, in light of a number of attacks on Iranian nuclear scientists.  Massoud Ali Mohammadi, a physicist, was murdered exactly a year ago.  In late November, two bombs, which were meant to kill your nuclear experts Majid Shahriari and Fereidoun Abbasi, exploded almost simultaneously.  All of this happened in the middle of Tehran.  Hasn’t a shadow war against Iran been underway for some time?

Jalili: When the enemy sees no other option, he resorts to the methods of terror.  This is not a sign of strength, but of weakness.

SPIEGEL: The fact that such assassinations are even possible mainly reveals one thing, namely that the Iranian security apparatus is no longer capable of protecting the nuclear program’s key experts.

Jalili: Terror exists all over the world.  Only last year, we managed to destroy a group in the eastern part of the country where, with US support, it had committed bomb attacks with many civilian casualties.  Compare that success with the situation of those who, for the last 10 years, have claimed to be fighting terrorism in Afghanistan.  They have achieved nothing.  We, on the other hand, dealt a serious blow against those enemies who killed our nuclear scientists—we destroyed a network of Zionist spies.

SPIEGEL: Do you have any proof of this?

Jalili: Yes.  We were able to arrest 10 people and we will put them on trial.  We possess photos, videos and statements that prove their guilt.  We have information about the locations where they were trained.  All of this took place within the Zionist regime.

SPIEGEL: Are you claiming that the Israeli intelligence service Mossad recruited Iranians and trained them in Israel?

Jalili: They were trained there for the attacks.  They then returned to Iran via a third country to conduct their cowardly operations.  We also expect our neighboring countries to be vigilant to prevent this sort of thing.  We have turned to international bodies and asked for their support.  This state-sponsored terrorism must be condemned.  The role of the United Nations Security Council also needs to be examined.

SPIEGEL: What do you mean by that?

Jalili: The UN’s sanction lists include the names of many of our leading scientists …

SPIEGEL: …because they hold important positions in Iran’s controversial nuclear program and are doing dangerous work…

Jalili: …who later became victims of terrorist attacks.  What are these names doing on such lists?  Fighting science in this perfidious manner is something from the Dark Ages.  We feel that the publication (of these names) is reckless.  It is an invitation to terrorists to implement the Security Council’s sanctions in their own way, and it strongly reminds me of fascist methods.

SPIEGEL: We don’t defend targeted killings, but we also don’t understand your comparisons.  This has nothing to do with the Dark Ages and fascism!

Jalili: I am taking the liberty of drawing these parallels.  It is our experts who were killed.  I’m sure that scientists all over the world, including those in Germany, condemn these assassinations of their fellow scientists and share my outrage.

SPIEGEL: Perhaps a few Iranian nuclear scientists don’t feel comfortable in their roles, either.  Intelligence agencies claim that some of them are prepared to defect to the enemy camp.  Both former Deputy Defense Minister Ali-Reza Asgari and the leading nuclear expert Shahram Amiri are believed to have defected.

Jalili: These are propaganda reports by the Western media.  If you were right, why are our scientists being terrorized?  Asgari was kidnapped.  We suspect that he was the victim of a terrorist operation by the Zionist regime.  We have heard that he was arrested in Israel and died there.  We are paying close attention to the case.

SPIEGEL: Did Amiri also not go to the West voluntarily, in your opinion?

Jalili: He was abducted during a foreign trip and spent one year abroad.  Then he returned, and now we are questioning him to find out what happened to him.

SPIEGEL: There have been reports in the international press that Amiri was arrested.  If he is a free man, we would like to speak with him.

Jalili: He gave a press conference in Tehran after his return.  Instead of interviewing him again, it would be better if you looked into what happened during the year Amiri spent in the United States.  And you should also look into a case of terrorism against our country that has its roots in your country.

SPIEGEL: You are referring to an official with the Iranian branch of the Kurdish party PJAK who is living in Cologne?

Jalili: This group kills innocent people in Iran.  And this person locates himself in Germany and assumes responsibility for these acts.  Why can such people move about freely in your country?  I demand that Berlin take action against this man. Or does Germany consider this group’s actions to be legitimate?  Is terrorism not a crime in Germany?

SPIEGEL: The man hasn’t committed any attacks in Germany.  If you have evidence against this official, you should present it.  If you do, there will certainly be an investigation in Germany, which is a state based on the rule of law.

Jalili: We have presented plenty of evidence.  We call upon your judiciary to take our accusations seriously.  This is an important touchstone for our relations with Germany.

SPIEGEL: We are concerned about the fate of two of our German colleagues who were doing their jobs as reporters and tried to conduct an interview in the Iranian city of Tabriz.  They were thrown in jail for a visa violation and have now been in Iranian custody for more than three months.

Jalili: The two issues are unrelated.  I already mentioned the case of the PJAK terrorist to you during our last conversation in Tehran almost a year and a half ago.  There were no German prisoners at the time.

SPIEGEL: Even more than terrorism, a form of cyber warfare is threatening your nuclear program.  The Stuxnet computer worm which infected Iranian systems apparently shut down a significant portion of the centrifuges at the Natanz nuclear plant.  Do you know who is behind this?

Jalili: Our desperate, weakened enemies…

SPIEGEL: …by which you mean Israel and the United States…

Jalili: …will resort to any means.  An enemy who kills our scientists has no qualms about infecting the Internet with worms.  But our experts already warded off this attack a long time ago.

SPIEGEL: Western experts estimate that of 10,000 centrifuges, about 1,000 have been destroyed, and that your nuclear program has suffered a serious setback.

Jalili: That information doesn’t come from us.  The International Atomic Energy Agency in Vienna inspects our facilities regularly.  We have no reason to give numbers.  You needn’t worry about our centrifuges.  Thankfully we have had great success with the peaceful use of nuclear technology.  We are even capable of producing fuel rods now.  Our nuclear program is for peaceful purposes only.  Everything takes place under the supervision of the UN weapons inspectors from the IAEA.

SPIEGEL: Only a few days ago, its director general, Yukiya Amano, told SPIEGEL that he expects better cooperation from Iran, and said that “we still don’t have answers to all of our questions.”

Jalili: We respond to the agency’s questions within the framework of the Nuclear Nonproliferation Treaty, which we have signed.  We are fulfilling our obligations, and the inspectors are able to pursue their work without obstruction in Iran.

SPIEGEL: The UN inspectors see things differently.  And don’t you feel constantly threatened by a new, even more sophisticated Stuxnet-style attack, against which you would have no defenses?

Jalili: It’s true that we do have to be prepared and constantly on guard.

SPIEGEL: Does that also apply to a conventional military strike?  There are some people in the government of Israeli Prime Minister Benjamin Netanyahu and among Republicans in the United States who support a massive attack on Iranian nuclear plants.  Do you believe this is a realistic threat?

Jalili: No, I don’t.  Would the world tolerate such an attack?  Would anything legitimize such an attack?  Does the law of the jungle apply?  One cannot take military action against a nation that chose its own social order with the Islamic Revolution.  Anyone who tries nevertheless will be making a serious miscalculation.  The international community must take a stance against such intentions.

SPIEGEL: But not even your Arab neighbors are taking a stance against that.  They are afraid of your nuclear program.  As we know from the cables published by WikiLeaks, Saudi Arabia’s King Abdullah, for example, called for “cutting off the head of the snake” in a reference to Iran.

Jalili: That’s what the Americans claim—I think it’s absurd.  The fact that (US Secretary of State Hillary) Clinton is traveling from capital to capital to apologize shows just how weak the United States is.  We have very good relations with our neighbors and are in a strong position.  You cannot draw conclusions about our relationship with other countries from two or three documents from the US State Department.  Incidentally, there are also a few things about (German Chancellor Angela) Merkel (in the documents).  Do you take that just as seriously?

SPIEGEL: You’ve apparently studied the US embassy cables.

Jalili: Yes, we have.  Very carefully, in fact.

SPIEGEL: Then you can’t simply dismiss the risk of an attack on Iran.  Some experts believe that there is an over 50 percent chance that Israel will carry out a missile strike by the summer.

Jalili: We believe that the days of hardware, of an attack with weapons, even with nuclear weapons, are over.  They are not just illegitimate, but also cannot lead to victory.  Countries will no longer allow systems and ideologies to be imposed upon them by force.

SPIEGEL: In your speeches, you repeatedly advocate peaceful competition and speak in pacifist tones.  But Iran would strike back with full force if there were an attack on its territory.

Jalili: We withstood the attacks of Iraqi dictator Saddam Hussein for eight years, even though many countries supported him.  Your own courts have it on record that German companies provided him with technology for the production of poison gas.  More than 100,000 of our fellow citizens became the victims of chemical weapons.  Nevertheless, we never obtained such weapons of mass destruction or used them.  Of course, we defended ourselves and will do so again.  Our armed forces haven’t exactly been furloughed.

SPIEGEL: Many believe that Iran will stop at nothing to achieve its goals.  Will your fellow Shiites in the Hezbollah militia in Lebanon stand by your side and attack Israel?

Jalili: That’s their business.  We are grateful to anyone in the world who defends us.

SPIEGEL: Your country always sees itself in the role of the victim.  No one would hit upon the idea of attacking Iran if your government would back down in the nuclear conflict.  In a few days’ time, you will meet with representatives of the five permanent members of the UN Security Council and Germany in Istanbul.  What offer to resolve the conflict do you plan to present in Turkey?

Jalili: We want to talk about fundamental problems in world politics.  That includes nuclear issues.  Why hasn’t global disarmament been achieved? Why are 200 American nuclear weapons stationed in Europe?  I know that the German population is also concerned about this.

SPIEGEL: Isn’t there a serious misunderstanding here?  You want a general discussion about global issues, while the other side wants to talk specifically about uranium enrichment and guarantees that Iran is not building a nuclear weapon.

Jalili: At our last meeting with this group in Geneva in December, we agreed on a sentence: negotiations in Istanbul on cooperation in areas of common concern.  Period.  Uranium enrichment for peaceful purposes is not up for discussion.  It’s a basic right to which we are entitled under the nonproliferation agreement, and one that we will never give up.

SPIEGEL: The West is suspicious of your claims because it feels it has been disappointed by Iran so many times before …

Jalili: …and we are suspicious of the West.

SPIEGEL: And it’s carried on like this for years.  There has been no significant progress.  You continue to enrich uranium, in spite of all the UN sanctions, and the international community decides on measures to deter you from doing so.  It’s mainly the Iranian people that suffer as a result.  The fifth round of international punitive measures is in the works.

Jalili: This is not a threat for us.  We see it as a great opportunity to expand our economic independence.  Sanctions help us achieve this goal.  We are positively happy about them.  For example, we had to import gasoline before the sanctions, and now we’re exporting it.

SPIEGEL: You want us to believe that, at a time when the price of gasoline has just shot up?

Jalili: Yes, because this price increase is not a result of the UN resolutions, but of the targeted, comprehensive elimination of subsidies.  We could afford to do this because the population supports us completely.  This move, which is the biggest intervention in our economy since the establishment of the Islamic Republic, is proof of our self-confidence in political and economic matters.

SPIEGEL: Your self-assurance is breathtaking.  Do you really not worry that the external and internal pressure will become overwhelming, and that the days of Iran’s theocracy are numbered?

Jalili: I can only laugh in response.  For the last 30 years, our enemies have predicted our demise every six months.  Anyone betting on those predictions has lost.  The Islamic Republic cannot be shaken by anything or anyone.

SPIEGEL: Mr. General Secretary, thank you for this interview.

Interview conducted by Dieter Bednarz and Erich Follath

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THE STRATEGIC CONSEQUENCES OF ECONOMIC REFORM IN IRAN

With the collapse of the Green Movement—a reality that even some of its more ardent partisans in the West have had to acknowledge—America’s Iran watchers have searched hard for some new Achilles heel that would provide the key to the Islamic Republic’s eventual implosion.  Over the past few months, many of them focused on the Iranian economy and, in particular, the prospect of cuts in domestic subsidies, highlighting the potential for domestic political blowback against Iranian President Mahmoud Ahmadinejad over the reforms.  Some even went so far as to suggest that negative domestic reaction to subsidy cuts might even bring down the Islamic Republic’s established political order.    

Earlier this week, William Yong published an article in The New York Times, entitled “Iran Cuts Subsidies on Fuel and Other Consumer Goods”, see here.  The piece has its share of strained analysis, to be sure.  But, in comparison with much of the intellectually ungrounded to-ing and fro-ing in Western media coverage—not to mention commentary—about Iran’s economy, Mr. Yong’s article is relatively straightforward, at least in its reporting on subsidy reform.  After a factually accurate headline, Mr. Yong writes,

“Iran has embarked on a sweeping program of cuts in its costly and inefficient system of subsidies on fuel and other essential goods that has put a strain on state finances and held back economic progress for years.  The government’s success in overcoming political obstacles to make the cuts and its willingness to risk social upheaval suggest that President Mahmoud Ahmadinejad may have consolidated power after the internal fractures that followed his bitterly disputed re-election in 2000…

Tehran has long sought to cut the subsidies—even under the reformist administration of President Mohammad Khatami—and particularly for oil.  The logic is compelling:  artificially low prices encourage greater consumption, leaving less oil to export for cash.  And the higher oil prices rise, the greater the ‘opportunity costs’ in lost exports.  But the timing, whether for political or economic reasons, was never right to cut the subsidies…

While the government may be feeling economic pressure now, analysts say, the current program of cuts is principally a sign of its political strength…The subsidy cuts, which the International Monetary Fund says have amounted to $4,000 a year for the average Iranian family, began in earnest last month when the rationed price of gasoline jumped to about $1.44 a gallon from just 38 cents.  With a ration of only 16 gallons a month at the subsidized rate, most motorists buy the bulk of their fuel now at the even higher market rate of $2.64 per gallon, significantly more than the $1.80 that people pay in nearby Dubai.

In recent weeks, subsidies have also been reduced on flour, water and diesel.  But the spike in prices has not provoked the angry protests that followed the introduction of fuel rationing in 2007.  The price of bread has tripled, on average, the government says; water, which used to be practically free, now costs between 10 cents and 85 cents per cubic meter, based on a sliding scale under which consumers pay a higher rate the more they use.

The government says these are just the first steps in what it calls an ‘economic transformation plan’ that will also include banking reform, sweeping changes in Iran’s tax and customs system, and ever more privatization of state-owned industries.  And with officials already reporting drops in the consumption of gasoline, flour, diesel and electricity, even before the prices were raised, Mr. Ahmadinejad has been exultant…

Depending on how well Iran’s government can stave off the worst effects of the price shocks, the subsidy reforms could be a political victory for Iran’s new right win—a success for Mr. Ahmadinejad where liberals, now almost entirely excluded from Iran’s political scene, had failed.” 

So, at the beginning of last year, Western analysts were predicting en masse that the Green Movement would bring down the Islamic Republic during 2010.  By the end of 2010, some of the same analysts were predicting that economic distress exacerbated by subsidy reform would accomplish the same objective.   

In his New York Times article, Mr. Yong does not escape the temptation of wasting a few paragraphs on speculation about how the government’s success in launching subsidy reform might lead it to take a more “confident”—and, hence, from an American perspective, “tougher”—stance in the next round of nuclear talks in Istanbul.  Alternatively, as Mr. Yong also speculates, a “confident” government might be better positioned to reach an agreement with the United States and its international partners.  (Or—as we would suggest—perhaps Iran has a well-developed and internally coherent set of positions regarding international nuclear issues.)  Additionally, Mr. Yong parrots claims made about Ahmadinejad in some of the U.S. diplomatic cables published online by Wikileaks, seemingly without scrutinizing the sources of the claims to evaluate their credibility. 

Still, Mr. Yong’s reporting on subsidy reform is, as we said, relatively straightforward—and, for that reason, welcome.  However, his article does not address what we believe is a critically important dimension of the story—the strategic impact of economic reformAs the International Monetary Fund noted in September 2010, subsidy reform “could transform the way the country’s economy works”.  For an informative interview with two IMF economists who work on Iran, see here.  For the IMF’s last major assessment of Iran’s economy, see here.  What will be the strategic impact if subsidy cuts and other elements of the Ahmadinejad administration’s “economic transformation plan”, such as the restructuring of large, state-owned economic enterprises, result in substantially higher levels of economic growth, productivity, and economic dynamism in Iran?    

To produce such results, the Iranian government will need to “stay the course” with its reform initiatives.  It will also need to avoid mistakes in monetary and fiscal policy which, as has been shown in other countries, can undermine the positive impact of reform.  But the potential payoff for Iran is huge.  As one of the IMF economists referenced above describes the Islamic Republic’s present economic situation,   

“Iran is the 17th largest economy in the world.  Holding little foreign debt—less than seven percent of GDP—the country has sizeable energy reserves, with underground hydrocarbon resources estimated at $10 trillion in oil alone (at $75 a barrel) and natural gas reserves at between $3 ½ – 4 ½ trillion…Inflation has declined dramatically—from close to 30 percent two years ago to less than 10 percent since September 2009 as the central bank withdrew liquidity.” 

But, the IMF economist also notes that “Real GDP growth is estimated to have been about 1-2 percent [in 2010].  This relatively low GDP growth is due mainly to weak domestic demand…” 

If economic reform—not just subsidy reform, though that is critical, but also banking and enterprise reform—ends up boosting domestic demand and productivity (as it ultimately should), Iran has the potential to emerge in coming years as a regional economic superpower.  Ahmadinejad has said recently that he wants Iran to be ranked as the world’s 12th largest economy by 2015—not that far away.  In such a scenario, among other things, sanctions would become increasingly irrelevant, as more and more people around the world decide that appeasing Stuart Levey’s blatantly illegal extraterritorial application of U.S. national law does not make sense anymore. 

–Flynt Leverett and Hillary Mann Leverett

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THANK YOU FOR YOUR ONGOING SUPPORT

We want to provide an update on our appeal to readers for financial support to help keep www.RaceForIran.com operating.  Since we posted our first appeal, in December, we have received a total of 64 donations, from countries around the world, for a total of $7,978.  We are very grateful for all of the donations.  One of the things that we believe is unique about www.RaceForIran.com is the high quality and serious engagement of its readership—something that one can readily observe just perusing the comments that come in regarding virtually any individual post.  And our readership keeps growing—we now average well over 10,000 unique visitors each month, from literally all over the world.  So we thank those of our readers who made financial contributions, those who contribute their comments, and those who contribute their ongoing attention.   

–Flynt Leverett and Hillary Mann Leverett

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