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The Real “Iran Prize”: The Next Great Emerging Market

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“A journey of a thousand miles begins with a single step,” Chinese Philosopher Lao-tzu once said. When it comes to bringing Iran — the heir of the great Persian civilization — out of the cold, the recently announced Joint Comprehensive Plan of Action (JCPA) framework agreement, after days of grueling 11th-hour haggling in Lausanne, Switzerland, between Tehran and the major powers, may very well count as that proverbial “single step.”

A final, comprehensive agreement is yet to be drafted and signed before the June 30 deadline, but by all indications we may have finally achieved a breakthrough in the decade-and-a-half-long Iranian nuclear negotiations, paving the way for an end to the Iranian nuclear hysteria and a decisive rollback of punitive Western sanctions, which have collectively punished tens of millions of ordinary Iranian citizens.

Ending punitive Western sanctions against Iran, in exchange for substantial concessions on its nuclear program, will most likely have a dramatic impact on the global economy — unlocking the world’s hottest emerging-markets-in-waiting. Iran combines the consumer market and human capital potential of Turkey, with the hydrocarbon riches of Saudi Arabia and Russia, and the mineral resources of Australia. As the BRICS (Brazil, Russia, India, China, and South Africa) struggle with various manifestations of the notorious ‘middle income trap,’ Iran represents the next great destination for foreign investors. In the near future, we may end up talking about a new, cooler acronym: The “i-BRICS”, with Iran, of course, as the “i.”

Withstanding Stagflation

While the war-weary American people can rejoice in preventing another conflict in the Middle East, the Iranian people have wasted no chance at celebrating the promise of economic recovery and reintegration into the global community. Horns, chants and cheers have filled the air across Tehran, echoing the country’s celebrations during the 2014 World Cup.

The historic Nixon-Mao opening in the early-1970s cemented the foundations of a decades-long economically symbiotic relationship between Washington and Beijing, allowing one of the world’s most sophisticated civilizations to rejoin the community of nations — and transform the global economy along the way. The Obama-Rouhani negotiations could produce a similar outcome, allowing the Persian civilization to retake its pride of place on the global stage, unleashing the talents and potentials of 75 million Iranians, who have been besieged and isolated for years under unimaginable external pressure.

The unilateral Western sanctions against Iran were particularly devastating, since they combined targeted sanctions against Iran’s financial and oil sector with an intense diplomatic effort to convince/pressure Iran’s major Asian trade partners — namely, South Korea, Japan, China, Turkey and India — to dramatically reduce their oil imports from Iran. Washington rallied the support of major Arab oil-producing countries, such as Saudi Arabia and the United Arab Emirates (UAE), to supplant any potential shortfall in oil supply when Iran’s oil would be squeezed out of international markets.

Meanwhile, by pressuring Iran’s Asian oil partners, the West limited Iran’s pool of customers, therefore giving immense leverage to Tehran’s narrowing circle of buyers to demand heavy discounts and unfavorable terms. South Korea and Japan agreed to cut their Iranian oil imports, while India and China began exploiting the situation by forcing Iran to offer discounts and settle for barter trade.

Under growing American pressure, Iran’s most important regional trade partner, the UAE, progressively severed financial ties with Tehran, undermining Iran’s ability to import essential primary products, especially food. To up the ante, EU also imposed sanctions on Iran’s most important port operator, Tidewater Middle East Co., which has been responsible for handling much of Iran’s external trade. These moves were clearly designed to strangle the Iranian economy, going well beyond the scope of the nuclear issue — causing tremendous difficulty for ordinary Iranians.

As a result of the concerted punitive measures, Iran fell into “stagflation,” with a spike in inflation coinciding with a dip in GDP growth. Its oil exports, the chief source of foreign currency earnings, halved, while sanctions on Iran’s financial sector, including the Banke-e-Markazi (Central Bank), meant that Tehran struggled to collect its payments in international currency. Up to $100 billion of Iranian overseas assets were virtually frozen. Inflation reached as high as 40 percent, and Iran’s currency (rial) lost 60 percent of its value. Iran suffered two years of economic contraction, in 2012 and 2013. Iran’s economy would have been 15-20 percent larger today if it were not for the sanctions.

The Next Hot Destination

The expected removal of Western sanctions, particularly the targeted measures against Iran’s oil and financial sector, could pave the way for a huge and much-needed inflow of foreign investors and recovery of Iran’s oil sector and heavily-battered currency.

Within the region, Iran possesses the most sophisticated and expansive industrial base. It is among the world’s top 15 steel producers, top 5 cement producers, and has one of world’s biggest auto-manufacturing industries (ranked 13th in the world), churning out as many as 1.6 million cars annually in recent years, representing the second biggest source of employment-generation after the oil sector and accounting for 10 percent of the country’s Gross Domestic Product (GDP). With the removal of sanctions, Iran can tremendously benefit from cheaper and easier access to intermediate goods and technology for its manufacturing sector.

Despite suffering from decades of Western sanctions, Iran has astonishingly managed to stand as among the world’s leading countries in cutting-edge sciences such as nanotechnology and stem cell research. Its universities, particularly University of Tehran (Iran’s Harvard) and Sharif University of Technology (Iran’s MIT), have produced one of the best engineering, science and mathematics graduates, including Maryam Mirzakhani, who became the first woman to win the Fields Medal, the “Nobel Prize” of mathematics.

In 2012, Iran cemented its position as the leading Middle Eastern scientific power, ranking as the world’s 17th biggest producer of scientific papers, outshining Turkey and Israel. In terms of human development, Iran stands among the top countries in Asia, featuring in the “high” human development index category.

The combination of market size, natural resources, and human capital has made Iran a hugely attractive market prospect. And there hasn’t been a shortfall of interest from foreign investors, particularly from oil giants, which are considering huge investment in a post-sanctions Iran.

In recent years, Iran has hosted one of the biggest European business delegations in its modern history. Ending the sanctions, and reviving Iran’s economy, has been the key promise of the Rouhani administration, which aims to make Iran among the world’s top 10 biggest economies in the near future. With Iran’s Supreme Leader Ali Khamenei, who has the final say on Iran’s domestic and foreign affairs, repeatedly expressing his support for Iran’s negotiators, much of the Iranian establishment has rallied behind the Rouhani administration’s effort to resolve the nuclear crisis.

A final nuclear agreement will also provide Iran much-needed strategic space to diversify its external relations, allowing it to get out of the shadow of Eastern powers such as China and Russia, which have exploited Iran’s isolation in recent years. In light of sanctions against Tehran, China effectively gained privileged access to Iran’s vast energy and infrastructure sector. Meanwhile, Russia is yet to honor its earlier agreement to deliver advanced missile-defense-systems to Iran, which Tehran has desperately sought for years.

To protect its national economic welfare, Iran has reportedly agreed to significant concessions on its nuclear program: reduction of its installed centrifuges by two-thirds; halting uranium enrichment over 3.67 percent (only useful for power generation) for at least 15 years; reduction of its current stockpile of about 10,000 kg of low-enriched uranium (LEU) to 300 kg; and not building any new facilities for the purpose of enriching uranium for 15 years.

It has also agreed to subject itself to the history’s most robust inspection regime, under the auspices of the International Atomic Energy Agency (IAEA), which will even have access to uranium mines and exercise continuous surveillance at Iran’s uranium mills for 25 years. Facilities in Arak, Natanz, and Fordow will also be subject to significant inspection and reconfiguration.

As Iran open up to the world, the Obama administrations and its partners face an unprecedented opportunity to not only advance the cause of non-proliferation and avert an unnecessary and destructive conflict, but also to tap one of the world’s most promising economies. The stakes couldn’t be any higher.

 

This article first appeared in The Huffington Post. Reposted per author’s permission

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Where is the end of Iran Nuclear Crisis?

Sultana Yesmin

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Following the years of tension over Iran’s alleged efforts to develop a nuclear weapon, a long-term deal called Joint Comprehensive Plan of Action (JCPOA) between Iran and the five permanent members of the United Nations Security Council (UNSC)—the United States, the United Kingdom, France, China, Russia – plus Germany, known as P5+1— was reached on July 14, 2015. Based on these developments, the UNSC Resolution 2231 endorsed the nuclear deal among these parties, adopted on July 20, 2015.

As per the deal, the IAEA remains under the charge to verify Iran’s compliance with the nuclear-related provisions of the JCPOA set forth in the agreement. Iran started providing the IAEA with necessary information to complete its investigation on the past records of its nuclear activities. The IAEA inaugurated increased monitoring and confirmed Iran’s adoption of numerous actions and key steps towards the limitation of its nuclear program.

Under the 2015 accord, Iran was allowed to enrich uranium only up to a 3.67 percent concentration, to stockpile no more than 300kg of the material, and to operate no more than 5,060 centrifuges. Iran also agreed to limit the size of its stockpile of enriched uranium, used to make both reactor fuel and nuclear weapons for 15 years – until 2031 and the number of centrifuges installed to enrich uranium for 10 years -until 2026.

These developments triggered the relief of sanctions imposed by the United States, the European Union (EU), and the United Nations (UN) on Iran. The former US President, Barack Obama, referred to the deal as the significant step towards building “more hopeful world” and “opportunity to move in a new direction”.

However, the first crisis over landmark nuclear deal arose soon after the announcement of the US President Donald Trump’s withdrawal from the JCPOA on May 8, 2018. In light of Trump’s decision, the US took actions to re-impose all sanctions on August 6, 2018 that were lifted in connection with the JCPOA.

President Trump denounced the Obama-era nuclear agreement with Iran as “defective, decaying, and rotten” as well as “one-sided deal”. He also accused that the accord only restricted Iran’s nuclear activities for a fixed period that failed to stop Iran from the development of its ballistic missiles and to facilitate real, comprehensive, and lasting solution of the nuclear crisis.

President Trump also raised the concern of the continuation of Iran’s aggression and malign activities under the cover of the JCPOA to threaten the US and its allies as well as to exploit the international financial system and support terrorism and foreign proxies in favor of its withdrawal from the deal. Iran responded the US withdrawal from the JCPOA with its further preparation for the restoration of uranium enrichment required for both nuclear energy and weapons on an industrial level without any limitations.

The second tension over Iranian nuclear crisis emerged from Donald Trump’s signing of an executive order imposing “hard-hitting” new sanctions on Iran on June 24, 2019 in response to the downing of an unmanned U.S. surveillance drone in international airspace by Iranian surface-to-air missile one week ago of the same month. Donald Trump also reaffirmed Washington’s stand of continuing pressure on Tehran until latter’s complete abandonment from nuclear activities.

It elevated tensions and worsened relations between the US and Iran. The confrontation was about to turn into military dimension though finally it did not happen thanks to Trump’s swift repeal of its decision of launching military strikes against Iran.

The third and most recent crisis generated from Iran’s announcement on boosting its uranium enrichment above the limit set by 2015 nuclear deal has drawn attention to international community in general and the involved global powers in particular, mostly the US, UK, and France. In the first week of July 2019, Iran declared to resume enriching uranium to higher levels, up to 5 percent concentration, to provide fuel required for its Bushehr nuclear power plant.

Iran also threatened to abandon more commitments under 2015 nuclear deal unless practical and tangible steps from the European powers are taken to implement European mechanism, known as, Instrument In Support of Trade Exchanges (INSTEX) in order to facilitate trade and circumvent US sanctions on Iran.

Iran argued for the decision of its uranium enrichment as a step against the Trump administration’s unilateral exit from the 2015 nuclear deal and the re-imposition of multilateral sanctions in Iranian regime. Iran also accused that the world powers had failed to abide by their commitments. Since the beginning, Iran has been averring the development of its missile program as entirely peaceful and defensive in nature with the compliance of the principles verified by the IAEA.

In response, the US confirmed its policy of “maximum pressure” on Tehran acknowledged by the Trump administration referring to Iran’s infringement to the limit as “playing with fire”. The rest world powers such as the UK and Germany urged Iran for reversing its decision. France, Germany, and Britain expressed concerns over Iran’s new announcement in the wake of heightening tensions certainly condemning Iran’s decision as a “violation” of the nuclear pact.

The IAEA arranged an urgent nuclear agency meeting on July 10, 2019 requested by the US soon after Iran’s confirmation of exceeding the stockpile of enriched uranium permitted under JCPOA. The rest concerned powers, Germany, France and the UK confirmed their supports for the JCPOA only after Iran’s full compliance with its commitments. The closed-door meeting however ended without any unified stance.

However, China mentioned the US “unilateral bullying”, e.g. the maximum pressure exerted by the US on Iran, as the major cause behind Tehran’s announcement of breaching its uranium enrichment cap and the escalating Iranian nuclear crisis. China also expressed “regret” on Tehran’s decision for further enrichment of its nuclear activities.

The re-imposition of the US sanctions and Iran’s announcement of uranium enrichment have already generated high tension not only in US-Iran relations but also for global security. Iran’s threat to enrich uranium beyond the limit has become a major issue of concern for the proliferation of nuclear weapons in Middle Eastern region. The peaceful solution of Iran nuclear crisis has thus become uncertain. The strategic rivalry among great powers, lack of mutual trust between the US and Iran, and absence of the fulfillment of commitments under the nuclear deal have been posing severe challenges to the durable solution of the nuclear crisis.

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Is Iran safe for Americans to visit?

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The matter of security in Iran is essentially considered as a complex question for any U.S. citizen willing to visit the Islamic Republic.

In this regard, Skift Inc., a New York City headquartered media company that provides news, research, and marketing services for the travel industry, has tried to answer the question from two different points of view; one from the U.S. government and the other by U.S. travel agents and tour operators.

On a Monday article, the media outlet noticed a hint of a “perception problem” deemed to be fueled by the Trump administration’s rhetoric toward Iran.

Official answers to the query comes from the U.S. State Department, which has had a travel advisory against Iran since 1979, citing “the risk of kidnapping, arrest and detention of U.S. citizens.” On the other hand, tour operators who spoke with Skift strongly disagree, maintaining that Iran has proven to be a safe and remarkably hospitable place for travelers, including Americans.

The dilemma arises when an antagonism intensifies between the Trump administration and Iran that makes some American tourists rethinking plans to visit the country though nearly all tour operators say Iran is a safe and hospitable destination even for U.S. visitors.

“It is a country that is often portrayed as unwelcoming, but the reality is quite the opposite,” said Jenny Gray, the global product and operations manager of the Australia-based Intrepid Travel.

“Iranians are warm, friendly and eager to show off their country to foreigners. The feedback from our travelers is a testament to this.”

“Once they [Iranian authorities] have been approved for entry [issuing visas], people are welcomed warmly—we’ve never encountered a problem or even a cold shoulder,” said Robin Pollak, the president of Journeys International, which is offering Iran tours since 2015.

 “People in Iran are very curious about visitors from a culture that is off-limits to them. They understand that American visitors do not reflect the way America is portrayed to them by their government,” she added.

Janet Moore, owner of Distant Horizons, which has offered customized tours to Iran for over 20 years, says “We’re used to getting questions on politics and safety, but this time frame seems more serious than what we’ve been through before.”

“People are worried about the rhetoric from (President) Trump and (national security advisor John) Bolton. They don’t want to be anywhere where there’s military activity.”

With an Iran tour scheduled for September, Moore said she’s uncertain whether the trip will actually go forward.

“People have really started to get skittish,” she said. “We’re not getting new sign-ups and most of our American travelers have pulled out and are making alternative plans. While people feel Iran is probably still safe, they also feel it’s something they can do later when things calm down.”

Reverting to foreign arrivals, Skift reports that Journeys International has seen interest fall off sharply among its clientele, which is primarily from the U.S., during the past month.

G Adventures, which offers a 14-day Iran itinerary, says that bookings among American travelers has fallen by 14 percent this year, said communications director Kim McCabe. At the same time, she noted that bookings from non-U.S. travelers increased by about that same amount.

“Global visitor interest in Iran seems to be modestly growing,” Kim said.

“Demand for Iran has been a real up and down situation,” Moore said. “Four years ago it was at a high point. Then we ran into problems in 2017 when Trump announced the travel ban on Muslims. Some people cancelled travel plans to Iran because they feared Iran would stop issuing visas or that they would be met with antagonism.”

Skift concludes that despite setbacks, the tour operators are optimistic about long-term growth in tourism to Iran, which in recent years has stepped up efforts to increase international visitation and has the stated goal of attracting 20 million annual visitors by 2025.

Last December, Ashely Duncan, an American fashion psychologist who accidentally landed in Iran, announced that her perception of the country was “totally different” from what mainstream Western media outlets portray.

Duncan told IRNA in an interview that “As an American, I did have a pleasant experience. I did not allow the politics and the diplomatic relationship to taint my view of Iran’s people.”

Iran hosts some of the world’s oldest cultural monuments including bazaars, museums, mosques, bridges, bathhouses, madrasas, gardens, rich natural, rural landscapes as well as 22 UNESCO World Heritage sites.

From our partner Tehran Times

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UAE withdraws from Yemen: Managing alliances and reputational threats

Dr. James M. Dorsey

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A United Arab Emirates decision to withdraw the bulk of its forces from Yemen shines a spotlight on hard realities underlying Middle Eastern geopolitics.

The pullback suggests that the UAE is preparing for the possibility of a US military confrontation with Iran in which the UAE and Saudi Arabia could emerge as prime battlegrounds.

It also reflects long-standing subtle differences in the approaches of Saudi Arabia and the UAE towards Yemen.

It further highlights the UAE’s long-standing concern for its international standing amid mounting criticism of the civilian toll of the war as well as a recognition that the Trump administration’s unquestioning support may not be enough to shield its allies from significant reputational damage.

The withdrawal constitutes a finetuning rather than a reversal of the UAE’s determination to contain Iran and thwart political Islam witness the Emirates’ involvement in the Libyan civil war and support for renegade field marshal Khalifa Belqasim Haftar as well as its support for the embattled Sudanese military and autocrats like Egyptian general-turned-president Abdel Fattah al-Sisi.

While the UAE may have withdrawn the bulk of its troops from key regions of Yemen, it leaves behind Emirati-trained local forces that will continue to do its bidding. The withdrawal, moreover, is not 100 percent with the UAE maintaining its Al-Mukalla base for counterterrorism operations.

The UAE’s commitment to assertive policies designed to ensure that the small state can continue to punch above its weight are also evident in its maintenance of a string of military and commercial port facilities in Yemen, on the African shore of the Red Sea, and in the Horn of Africa as well its hard-line towards Qatar and rivalry with Turkey.

As part of its regional and international projection, the UAE is keen to maintain its status as a model for Arab youth and preferred country of residence.

The UAE’s image contrasts starkly with that of Saudi Arabia, the custodian of Mecca and Medina, Islam’s two holiest cities.

Crown Prince Mohammed bin Salman’s policies, including the clampdown on domestic critics and the Yemen war, have prompted embarrassing calls by prominent Islamic scholars for a boycott of the pilgrimage to Mecca, one of the five pillars of Islam.

Wittingly or unwittingly, the withdrawal leaves Saudi Arabia and Prince Mohammed, the instigator of the more than four-year long war that has sparked one of the world’s worst humanitarian crises, exposed.

Nonetheless, despite differing objectives in Yemen, the UAE too suffered from the reputational fallout of bombings of civilian targets that were largely carried out by the Saudi rather than the Emirati air force.

Operating primarily in the north, Saudi Arabia focussed on countering Iranian-backed Houthi rebels whose stronghold borders on the kingdom while the UAE backed South Yemeni separatists and targeted Muslim-Brotherhood related groups.

With the withdrawal, the UAE may allow differences with Saudi Arabia to become more visible but will not put its alliance with the kingdom at risk.

If past differences are anything to go by, Saudi Arabia and the UAE are able to manage them.

The differences were evident in recent weeks with the UAE, unlike Saudi Arabia, refraining from blaming Iran for attacks on tankers in the Gulf of Oman.

Leaked emails written by Yousef al-Otaiba, the UAE’s influential ambassador in Washington, laid bare the Emirates’ strategy of working through the Saudi court to achieve its regional objectives despite viewing the kingdom as “coo coo.”

Similarly, differences in the two countries’ concept of Islam failed to rock their alliance despite the effective excommunication in 2016 of Saudi-backed ultra-conservatism at a UAE-sponsored conference in the Chechen capital of Grozny.

The alliance is key to the two countries’ counterrevolution aimed at maintaining the region’s autocratic status quo in the face of almost a decade of popular revolts, public protests and civil wars.

The UAE-Saudi-led counterrevolution is driven by Prince Mohammed and his UAE counterpart, crown prince Mohammed bin Zayed’s desire to shape the Middle East in their mould.

The UAE rather than the kingdom was the driver behind the Qatar boycott with Saudi King Mohammed and Prince Mohammed initially reaching out to the Qatar-backed Muslim Brotherhood when they came to power in 2015.

Four years later Saudi Arabia, is unlikely to radically shift gears but could prove less intransigent towards the group than the UAE.

While preparing for possible conflict with Iran may be the main driver for the withdrawal, it is unlikely to protect the UAE from damage to its reputation as a result of its involvement in Libya and Sudan as well as its draconic clampdown on dissent at home.

Mr. Haftar’s UAE-armed forces are believed to be responsible for this week’s bombing of a detention center for African migrants in the Libyan capital Tripoli that killed 40 people and wounded 80 others.

The bombing came of the heels of a discovery of US-made missiles on one of Mr. Haftar’s military bases packed in shipping containers stating they belonged to the “UAE Armed Forces.” The UAE has denied ownership.

The UAE’s withdrawal from Yemen will likely help it evade calls for Yemen-related arms embargoes.

Libya, however, could prove to be the UAE’s Achilles heel.

Said Robert Menendez, the top Democrat on the Senate Foreign Relations Committee, in a letter to US Secretary of State Mike Pompeo: “You are surely aware that if these allegations prove true you may be obligated by law to terminate all arms sales to the UAE.”

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