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Economy & Trade

Recent Economic Unrest Unlikely to Alter Iran’s Nuclear Calculus

WASHINGTON, Oct 3 2012 (IPS) - As Iran faces economic unrest, discussion is intensifying over the impact sanctions are having on Iran’s economy.

But experts doubt that the current situation portends the end of the Iranian regime or Iranian capitulation to Israeli and Western-led demands that it change its nuclear stance.

“You have now a market that is under a lot of tension” which has “created a big economic crisis for the government”, said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech, during a meeting here Wednesday at the Wilson Center.

But Salehi-Isfahani added that there is a “lot of misunderstanding about the currency system in Iran”, noting that people are confusing it with huge devaluations that occurred in East Asian countries and Zimbabwe.

“Iran is nothing like that,” he said.

While expressing varying views about the severity of Iran’s economic problems, the Wilson Center’s panelists agreed that it’s still able to manage its ailing economy and the resulting unrest.

“Iran has a lot of experience with sanctions. In fact, what they did immediately is open up the books from the 1980s about how to deal with a currency crisis,” he said.

Demonstrators clashed with police outside Tehran’s central bazaar on Wednesday during protests about the Iranian currency’s declining value. The rial has lost an estimated 80 percent of its value against the U.S. dollar in the last year.

Ali Vaez, a senior Iran analyst at the International Crisis Group, told IPS that “the regime is likely to nip it in the bud to prevent (the protests) from snowballing.”

“Although it’s not clear if there will be more protests, one thing is certain: Iran will experience a much more securitised environment in the run-up to the 2013 presidential elections,” he said.

Iranians are also struggling with rising inflation and unemployment amid escalating U.S.-led sanctions linked to the Islamic Republic’s controversial nuclear programme.

Iran maintains that its nuclear programme is entirely peaceful but Western countries led by the U.S. claim that Iran is working towards achieving nuclear weapon-making capability.

Israel has been pushing the Barack Obama administration to move its previously stated “red line” on Iran, a nuclear weapon, to preventing Iran from obtaining nuclear weapons capability, something which Israel claims would seriously endanger its existence and the stability of the surrounding region.

“I’ve been speaking about the need to prevent Iran from developing nuclear weapons for over 15 years…I speak about it now because the hour is getting late, very late,” said Israeli Prime Minister Benjamin Netanyahu during his speech at the 67th annual U.N. General Assembly meeting last week.

Already under six rounds of sanctions imposed by the United Nations Security Council, Iran saw Western sanctions tighten markedly this year with an EU ban on Iranian crude oil purchases going into effect in July.

U.S. sanctions are also increasingly targeting banks that deal with Iran’s central bank, thereby seriously impeding Iran’s ability to conduct international transactions and trade.

Sanctions have not yielded tangible progress toward a diplomatic solution over Iran’s alleged nuclear ambitions, but the protests Wednesday and protests in July in the northeastern city of Nishapur over the rising price of chicken – a main food staple for the Iranian working class – indicate that segments of Iranian society will express their dissatisfaction when faced with serious pressure.

“The chicken prices got the government’s attention,” said Salehi-Isfahani, adding that the “government made a wise move in trying to stabilise the chicken market and not worry about the dollar.”

“The aim of sanctions is to raise pressure against the regime in order to solve the nuclear crisis in a peaceful manner,” Alireza Nader, a senior international policy analyst at the RAND Corporation, told IPS.

“But as we’ve seen, sanctions are also leading to major unrest in Iran and weakening the regime at home and abroad,” he said.

Bijan Khajehpour, an Iranian businessman and specialist on the Iranian economy, explained during the Wilson Center event that a number of factors have been harming Iran’s economy.

“It’s not just the sanctions…Iran’s economic developments have been undermined by sanctions, subsidy reforms, mismanagement and corruption,” he said.

“The degree of instability has reminded many citizens of the days of the Iraq-Iran war” and “public anger is reflecting itself in sporadic unrest, strikes, blogosphere protests and critical comments by artists,” he said.

But Khajehpour disagrees with reports suggesting that the Iranian economy is collapsing. “The current deterioration of the Iranian economy is less a period of economic collapse and more a period of economics adjustment,” he said.

“The citizens are suffering, but the macro economy could potentially benefit,” said Khajehpour, noting that sanctions which have impeded Iran’s ability to purchase the equipment it needs to develop key industries have forced it to produce them itself.

Khajepour added that, “The future story of Iran is in (its gas industry),” which is projected to grow over the next five years despite sanctions.

“The additional gas capacity will generate the potential of investments in gas-based industries with export potential,” said Khajehpour.

Suzanne Maloney, another panelist and Iran analyst at the Brookings Institute, said it’s “incredible and tragic” that “Iran’s economic horizons are more limited today than the last 50 years.

“There are huge constraints on Iran’s growth and development and that presents tremendous political vulnerabilities,” she said.

“Sanctions are working, but we’re not getting anywhere on the nuclear programme and that cannot be lost on anyone,” she said.

Michael Singh, the managing director of the Washington Institute, echoed the consensus among a number of well-known neoconservative analysts Wednesday by writing that more aggressive pressure and punitive measures are needed to change Iran’s nuclear calculus.

“Rather than hoping that giving current sanctions “time to work” will force Iran back to the negotiating table, the United States and our allies should add further pressure to the regime and the elites who comprise it, including through additional targeted economic sanctions, diplomatic isolation, bolstering the credibility of our military threat to the regime, and support for the Iranian opposition,” he wrote in an op-ed for Foreign Policy.

According to Trita Parsi, the president of the National Iranian American Council, more pressure alone will not bring about favourable results. “I don’t find it likely that the regime will capitulate due to the sanctions as long as sanctions relief is not part of the mix,” he said.

“The possibility that sanctions will lead to general regime change exists, but the question is what type of regime change would the devastation of the Iranian economy generate?” Parsi asked.

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