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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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Middle East

Saudi oil attacks put US commitments to the test

Dr. James M. Dorsey

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Neither Saudi Arabia nor the United States is rushing to retaliate for a brazen, allegedly Iranian attack that severely damaged two of the kingdom’s key oil facilities.

That is not to say that Saudi Arabia and/or the United States will not retaliate in what could prove to be a game changer in the geopolitics of the Middle East.

Yet, reading the tea leaves of various US and Saudi statements lifts the veil on the constituent elements that could change the region’s dynamics.

They also shine a spotlight on the pressures on both countries and shifts in the US-Saudi relationship that could have long lasting consequences.

With US Secretary of State Mike Pompeo visiting the kingdom to coordinate what his office described as efforts to combat “Iranian aggression in the region,” Saudi Arabia and the United States will be seeking to resolve multiple issues.

These include collecting sufficient evidence to convincingly apportion blame; calibrating a response that would be appropriate but not drag the United States and the Middle East into a war that few want; deciding who takes the lead in any military response and managing the long-term impact of that  decision on Saudi-US relations and the US commitment to the region.

A careful reading of Saudi and US responses to the attacks so far suggests subtle differences between the two. They mask fundamental issues that have emerged in the aftermath of the attacks.

For starters, Mr. Pompeo and President Donald J. Trump have explicitly pointed the finger at Iran as being directly responsible, while Saudi Arabia stopped short of blaming the Islamic republic, saying that its preliminary findings show that Iranian weapons were used in the attack. Iran has denied any involvement.

The discrepancy in the initial apportioning of blame raises the question whether Saudi Arabia is seeking to avoid being manoeuvred into a situation in which it would be forced to take the lead in retaliating against the Islamic republic with strikes against targets in Iran rather than Yemen.

Political scientist Austin Carson suggests that Saudi Arabia may have an interest in at least partially playing along with Iranian insistence that it was not responsible. “Allowing Iran’s role to remain ambiguous could reduce Saudi leaders’ need to appear strong… The Saudis are reportedly unconvinced by shared US intelligence that attempts to link the attacks to Iran’s territory. Some experts suggest this may reflect a more cautious approach to escalation,” Mr. Carson wrote in The Washington Post.

Saudi Arabia’s initial reluctance to unambiguously blame Iran may have a lot to do with Mr. Trump’s America First-driven response to the attacks that appeared to contradict the Carter Doctrine proclaimed in 1980 by President Jimmy Carter.

The doctrine, a cornerstone of the Saudi-US relationship, stated that the United States would use military force, if necessary, to defend its national interests in the Gulf.

Mr. Trump’s apparent weakening of the United States’ commitment to the defense of the kingdom, encapsuled in the doctrine, risks fundamentally altering the relationship, already troubled by Saudi conduct of the more than four-year long war in Yemen and last year’s killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.

Signalling a break with the Carter doctrine, Mr. Trump was quick to point out that the attacks were on Saudi Arabia, not on the United States, and suggested that it was for the Saudis to respond.

“I haven’t promised Saudis that. We have to sit down with the Saudis and work something out. That was an attack on Saudi Arabia, and that wasn’t an attack on us. But we would certainly help them,” Mr. Trump said without identifying what kind of support the US would be willing to provide.

Despite blustering that the United States was “locked and loaded,” Mr. Trump insisted that “we have a lot of options but I’m not looking at options right now.”

Mr. Trump’s response to a tweet by US Senator Lindsey Graham, a friend of the president who favours a US military strike against Iran, that “the measured response by President @realDonaldTrump…was clearly seen by the Iranian regime as a sign of weakness” was equally telling.

No Lindsey, it was a sign of strength that some people just don’t understand.” Mr. Trump said.

Mr. Trump further called into question the nature of the US-Saudi defense relationship by declaring that “If we decide to do something, they’ll be very much involved, and that includes payment. And they understand that fully.”

The Saudi foreign ministry maintained, with the attacks casting doubt on the Saudi military’s ability to defend the kingdom’s oil assets and Mr. Trump seemingly putting the onus of a response on Saudi Arabia, that “the kingdom is capable of defending its land and people and responding forcefully to those attacks.”  

Only indisputable evidence that the drones were launched from Iranian territory would incontrovertibly point the finger at Iran.

So far, the Saudis have stopped short of that while US officials have suggested that the drones were launched either from Iran or by pro-Iranian militias in southern Iraq.

Holding Iran responsible for the actions of a militia, whether in Iraq or Yemen, could prove more tricky given long-standing questions about the degree of control that Iran has over various groups that it supports, and particularly regarding the Houthis.

The argument could turn out to be a slippery slope given that by the same logic, the United States would be responsible for massive human casualties in the Yemen war resulting from Saudi use of American weaponry.

Military retaliation may not be immediate even if the United States and Saudi Arabia can produce convincing evidence that Iran was directly responsible.

No knee jerk reactions to this – it’s very systematic – what happens with patience is it prevents stupid moves,” a US official said.

The United States is likely to attempt to first leverage that evidence in meetings on the sidelines of next week’s United Nations General Assembly to convince the international community, and particularly the Europeans, to drop opposition to last year’s US withdrawal from the international nuclear accord with Iran and the harsh economic sanctions that the Trump administration has since imposed on Iran.

Both the United States and Saudi Arabia will also want to use the opportunity of the UN gathering to try to ensure that the fallout of any military response is limited and does not escalate into a full-fledged war that could change the geopolitical map of the Middle East.

Said foreign policy analyst Steven A. Cook: “How the Trump administration responds will indicate whether U.S. elites still consider energy resources a core national interest and whether the United States truly is on its way out of the Middle East entirely, as so many in the region suspect.”

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Growing Tensions on the Road to Persian Gulf Security

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The 14 September 2019 drone attacks on oil installations in eastern Saudi Arabia have dimmed hope for U.S. – Iranian discussions aimed to reduce tensions and potentially end the armed conflict in Yemen.  Tensions have increased, and oil prices have risen. Certain hopes created by the initiatives of the French President during the G7 meeting in Biarritz, France and the forced departure of John Bolton as U.S. National Security Advisor have lessened.  In fact, the aim of the attacks may have been to lessen the possibility of Iran – U.S. discussions which might have taken place during the start of the U.N. General Assembly in New York later in September.

There is a good deal of speculation as to who fired the drones and from where.  The Ansar Allah Movement (often called the Houthis) has taken credit, but some specialists doubt that they have  the technical knowhow to send drones from Yemen to the targets in Saudi Arabia.  Some speculate that the drones were sent from southern Iraq, possibly by Iranian-backed militias such as the Popular Mobilization Forces or by units of the Iranian Revolutionary Guards stationed in Iraq.  The Revolutionary Guards are nearly “a state within the state” and could take initiatives without orders from the Iranian President or the Foreign Minister.  The Revolutionary Guards could have motivations to prevent fruitful U.S. – Iranian talks at the U.N.  There is also speculation that the drone attacks could be linked to increased tensions between Saudi Arabia and the United Arab Emirates concerning the future of south Yemen where the two countries support different factions.

Whatever the locations from which the drones were launched and whomever pulled the switch, the consequences are clear.  At a time when governments were speaking of a possible path to reduce tensions a “No Exit” sign has been put up near the start of the road.  The road leads to ever-greater tensions which may slip out of the control of governments.  Thus, in addition to the French proposal at the G7, there was an earlier Russian government proposal.

On 23 July 2019, the Russian Government’s “Collective Security for the Persian Gulf Region” was presented in Moscow by the Deputy Foreign Minister, Mikhail Bogdanov.  The Russian proposal for Collective Security for the Persian Gulf follows closely the procedures which led to the 1975 Helsinki Final Act and the creation of the Conference on Security and Cooperation in Europe.  Bogdanov stressed multilateral ism as a mechanism for all involved in the assessment of situations, the decision-making process, and  the implementation of decisions.

It is not clear how the Russian proposal for a Helsinki-type conference will progress.  Russia does not play a leading role in the Middle East today as the USSR did in Europe in the 1970s.  In the lead up to the Helsinki Accords of 1975, non-governmental organizations had played an active role in informal East-West discussions to see what issues were open to negotiations and on what issues progress might be made.  There is a need for such non-governmental efforts today as the Persian Gulf and the wider Middle East are growing ever-more tense.

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Algeria’s political impasse: What is next?

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Seven months after a wave of protests began in Algeria; people are still pilling onto the streets of the Algerian capital “Algiers” and other cities nationwide every Friday, reiterating their main demands: the departure of the regime and its symbols and the application of Articles 7 and 8 of the Constitution stating that the constituent power belongs to the people.

The demonstrations have gained a familiar rhythm and worldwide admiration since tens of thousands of Algerians first took, peacefully, to the streets on 22 February. Thousands of students turn out on Tuesdays and there are larger protests each Friday revolting against former opaque group of power-brokers that have run the country for decades.
After weeks of mass demonstrations, President of the Republic Abdelaziz Bouteflika stepped down, ceding power after 20 years of rule and abandoning his re-election bid. The protesters pressured the authorities, again, to cancel presidential elections originally scheduled for April.
Despite the postponement of the election, the public anger continued to mount. Thus, Army chief Gaid Salah emerged as the key powerbroker positioning himself in favor of El Hirak “Popular movement”. He publicly disavowed the former leader and called for his impeachment, winning legitimacy in the streets.

Purging Corruption

Gaid Salah responded favorably to protesters’ demands, launching a sweeping anti-graft campaign targeting high-ranked officials that have served the Bouteflika government as well as influential tycoons and businessman.

Two Prime Ministers, namely; Ahmed Ouyahia and Abdelmalek Sellal, the deposed President’s brother Said Bouteflika, tens of ministers, leading industrialists, tycoons, key businessmen, Governors,  and two former Intelligence chiefs, have been remanded in custody for accusations ranging from money laundering, embezzlement, misuse of public money to using officials posts to influence industrial and commercial contracts and granting undue privileges, affiliation to suspicious parties that plot to destabilize the country, plotting against the army, and instigating the opposition to call for a transitional phase before holding any election.

Bouteflika’s resignation puts Abdelkader Bensalah, Speaker of the upper house of parliament, in charge as caretaker Head of State for 90 days until elections are held. However, elections (scheduled for July 4th) have been postponed for a second time and protesters are demanding his departure.

For his part, Bensalah, and in a bid to calm them, set a Panel of Dialogue and Mediation, composed of political actors, the civil society, the representatives of the trade union organizations and many citizens, with the aim to mediate between public authorities and people  and hold a “serious and responsible” dialogue to reach a national consensus which would help resolve the political crisis in Algeria, through the organization of a fair and transparent presidential election, as soon as possible.”

However, the Panel itself is facing rejection by protesters who are taking into the streets denouncing its formation, saying it does not represent them along other claims, such as the departure of Bensalah, a former head of the upper house of parliament, and Prime Minister Noureddine Bedoui, who are regarded by them as part of the old guard.

Despite all these arrangements, Algeria is still at an impasse, with two camps facing each other in seemingly irreconcilable positions.

To resolve this stalemate, Lieutenant General Ahmed Gaïd Salah, Deputy Minister of  National Defence, Chief of Staff of the People’s National Army (ANP), launched, last week, a call, saying that it would be “appropriate” to convene the electorate on the 15th of September, and that the elections could be held within the deadlines set by law.

In my previous speech, “I have spoken about the priority to seriously launch the preparation of the presidential elections within the coming weeks, and today, based on our missions, prerogatives and our compliance with the Constitution and the laws of the Republic as well, I confirm that we regard as appropriate to summon the Electorate on September 15th and the elections can be held within the deadlines provided for by the law. Reasonable and acceptable deadlines which respond to the insistent demand of the people,” said Lieutenant General.

Theoretically, if the head of state, Abdelkader Bensalah, summons the electorate on September 15, 2019, as desired by the head of the army, the presidential election should take place before the end of the current year (mid-December).  The Organic Law No. 12-01 2012 (Electoral Code) provides in article 25 that “Subject to the other provisions of this organic law, the electorate shall be convened by presidential decree within three (3) months preceding the date of the elections “.

As a response, Algerian street has expressed its rejection of elections in the current political conditions. According to demonstrators, no election should take place as long as Bouteflika-era officials remain in positions of power.

For their parts, the opposition parties and civil society groups have also demanded the resignation of the government which constitutes “a popular demand”, voicing rejection of the holding of the elections.

The people are determined to pursue the hirak until the establishment of a state of institutions, widening gap between them and the power constrained, for lack of serious candidates, to cancel the vote twice.

According to observers, these presidential elections are unachievable for the moment because the approach advocated by Ahmed Gaid Salah ” requires the revision of some texts of the electoral law to adapt to the requirements of the current situation, and not a total and profound revision that would affect all texts, as claimed by the demonstrators. The partial amendment means the holding of elections basing on the same mode of organization. This is likely to trigger the street again as the popular movement with its magnitude unparalleled in the contemporary history of the country will, likely, sabotage the preparations for this election. The political climate also does not allow the organization of such an election with the absence of total trust between voters and the political class.

However, it is imperative to go quickly to a presidential election provided that it is transparent, where the mediation initiatives of the Panel or other organizations, can lead to a consensual platform far from the occult practices of the past which saw the majority of the population sulking the ballot boxes, reflecting the state-citizen divorce, noting that an independent election monitoring commission and the departure of the Bedoui government are two prerequisites for a transparent presidential election.

This necessarily implies the cleaning up of the electoral file, the creation of an independent election supervision body where neither the executive (the government – especially the Ministry of the Interior and the Walis) nor the deputies/senators and representatives of the current APCs denounced by Al Hirak, will be stakeholders. 

Only a democratically elected legitimate president, elected on the basis of a transparent agenda, pledging to include the legitimate demands of Al Hirak including a new balance of power and the moralization of management (fight against corruption and embezzlement), can amend the constitution and carry out the profound political and economic reforms to bring Algeria to the new world and make it an emerging country: a pivotal country regionally and internationally.

Economically, it is imperative to quickly resolve the political crisis before the end of 2019 or at most the first quarter of 2020, to avoid towards a cessation of payments at the end of 2021 and beginning of 2022, and prevent Algeria the depletion of its foreign exchange reserves which would culminated in the economic, social, political insecurity.

From our partner Tehran Times

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