IRAN – The Subdued Mastermind

Nov 09, 2013 1 Comment by

 

Iran, officially known as the Islamic Republic of Iran, is the 4th largest natural gas producer and oil producer in the world. It has one of the fastest growing urban populations, it is estimated that by 2030, 80% of the population in Iran will be urban. Tehran is the capital of Iran. It is Iran’s largest city. Iran accounts for 15.57% of world proven natural gas reserves. Iran has over one million foreign refugees, more than any other country in the world.

Iran has theocratic republic government. The Iranian Revolution or Islamic Revolution led to independence and in 1979 Iran officially became an Islamic Republic, constitution was also adopted in the same year by referendum.

According to International Monetary Fund, Iran’s economy is the second largest economy in terms of GDP (nominal), in the Middle East (after Saudi Arabia). It is driven by revenue from oil and natural gas. It is the second largest OPEC (Organization of the Petroleum Exporting Countries) oil producer. Oil export revenues enabled Iran to build up well over $100 billion in foreign exchange reserves, as of 2010.

Iran’s economy is in crisis. It’s Inflation (CPI) and unemployment is 39.0% (Aug 2013) and 15.5% (2012) respectively and its foreign exchange reserves have come down to $80 billion (by mid-2013),

Work on nuclear power has started long ago and was supported by US and Germany but after Islamic revolution, support was taken back and aids from US also stopped. Iran with all the equipments started to work on it on its own but it was asked to stop. Later it was found that Iran was working on nuclear energy again and had established new facilities with huge uranium reserves.  Iran is a party to the NPT but its activities were in non-compliance with its NPT safeguards agreement but Iran has consistently denied allegations of developing a bomb.

(Non-Proliferation Treaty or NPT is an international treaty to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy and to further the goal of achieving nuclear disarmament and general and complete disarmament. All the nations of the world have accepted the NTP except India, Israel, Pakistan, South Sudan, North Korea and Taiwan)

US feared that Iran would become a major energy power house. So, it took cover NPT and started issuing sanctions for going against the treaty. Later European Union also started issuing sanctions. Some of the sanctions Iran currently face-

Weapons development- The Iran-Iraq Arms Non Proliferation Act (October 23, 1992) calls for sanctioning any person or entity that assists Tehran in weapons development or acquisition of “chemical, biological, nuclear, or destabilizing numbers and types of advanced conventional weapons.”

Trade and investment- In March 2010, President Barack Obama, like George W. Bush, renewed Clinton’s executive order banning U.S. trade and investment with Iran. However, the sanctions on barred sales of consumer communications equipment and software to civilians to help them circumvent official controls were lifted by administration. The measures put pressure on heavy importers of Iranian oil such as South Korea, India, Turkey, China, and South Africa (Japan and several EU countries have been given exemptions) and many of the others have reduced their oil trade with Iran.

Nuclear materials-The Iran and Libya Sanctions Act of 1996 (ISA) was aimed at denying Iran access to materials to further its nuclear program by sanctioning non-U.S. business investment in Iran’s energy sector. In May 2013 the departments of State and Treasury imposed sanctions–including a visa ban on corporate officers–under the Iran Sanctions Act.

Financial dealings- In November 2011, the United States designated the entire Iranian banking regime as potentially aiding and abetting terrorist activities, but the measure fell short of sanctioning the country’s central bank. Us June 2013 steps was an executive order that seeks to devalue the rial even more by penalizing foreign banks that trade or hold the currency.

Refined gasoline- In July 2010, President Obama signed into law a measure aimed at penalizing domestic and foreign companies for selling refined gasoline to Iran, or for supplying equipment in Iran’s bid to increase its refining capacity

In June 2010, the European Union enacted measures similar to those approved by the U.S. Congress that ban investment and assistance to Iran’s energy sector, oil embargo and a series of prohibitions was placed on European firms doing business in the country

Iran’s main Export are: petroleum (80%), chemical and petrochemical products, fruits and nuts, carpets and its main export partners are: China 22.1%, India 11.9%, Turkey 10.6%, South Korea 7.6%, Japan 7.1% (2012 est.). India has cut some oil imports from Iran after sanctions imposed by the US and the EU.

Iran’s main import include: industrial raw materials and intermediate goods (46%), capital goods (35%), foodstuffs and other consumer goods (19%), technical services and its main import partners are: United Arab Emirates 32.2%, China 13.8%, Turkey 11.8%, South Korea 7.4% (2012 est.)

The Central Bank of the Islamic Republic of Iran (CBI) is the central bank of Iran. The Iranian rial is the official currency of Iran and 1 IRR= 0.0000402600 USD   (i.e., 24817.01 IRR= 1 UD$). It is the least valued currency unit in the world (2nd Vietnam). After Hassan Rouhani has been selected on 14 June 2013 as new president the Rial value fluctuations have reduced and is stable.

Iran ranks 25thin world military spending (1.8% of its GDP) which is very less compared to its enemy countries. Iran’s military follows doctrine of deterrence (discouraging actions or preventing occurrences by instilling fear or doubt or anxiety). It is mandatory for all the male citizens participate in its defense force for a period of 18 months. After Islamic revolution, due to weapon embargo and sanction, Israel’s arms imports were almost clogged. This is when it decided to become independent and started to rely on domestic arm industry. In 1992 it produced its own tank and other military equipments, since then Iran’s defense has grown multiple folds and now it is independent and sells military equipment to countries such as Sudan, Syria, North Korea etc. Iran is an importer of submarines.

Iran has very few allies in the world, where Syria being the only major Middle Eastern allies. India, china, South Korea, Japan are its Asian trade partners
There is continued trade relation between Iran and India. India supplies submarines but now the United States pressured India to reduce military cooperation with Iran. Despite sanctions, India continues to buy oil products from Iran. Recently in November 2013 Iran has agreed to ship oil to India free of cost.

Presently Israel is member country of many international Trade organizations like -ECO, OPEC (founder), GECF, WTO (observer) and others.

On the whole, sanctions have sharply cut back oil exports, isolated Iran from international banking systems and contributed to a big drop in the value of its currency. Washington hopes that squeezing Iran’s economy will pressure the country’s leadership to alter course on its nuclear program. If only all the sanctions were removed Iran could be the major energy provider in the world

 

Economy

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One Response to “IRAN – The Subdued Mastermind”

  1. Prakash says:

    Iran’s bilateral agreements with India are much under news these days especially, after our Oil minister, Veerapa Moily, issued statements of carrying out trade with Iran in Rupees (not in dollars), so as to stabilise and improve Ruppes value compared to dollar.
    Why are such ties not possible with other countries and whats stopping India from carrying such rupee denominated trade?
    Are there WTO agreements which prevent countries from trading in any other currency than dollar, (definitely, dollar based transactions are very stable)?
    Iran being a big trade partner of India, can definitely itself prosper from such a relation. Still, the debate hasn’t been conclusive.

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