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Iran: Recapping the year 2018

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With the year 2018 according to the Christian calendar now out and 2019 now setting in, people traditionally sum up the results of the past year. Even though the Iranian new year of 1398 is still three months away, we will stick to the Russian tradition and look back on 2018, which is already history now.

For the Islamic Republic of Iran, the past “Christian” year was one of the most trying in its recent history with a series of negative factors affecting the country’s foreign and domestic policy, the economy and national security. The worst of them all was Washington’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA), commonly known as the Iran nuclear deal, resulting in a resumption of hard-hitting US sanctions and the exit of more than 100 big foreign companies, which had previously been doing business with Iran.

Socio-economic situation

The start of 2018 in Iran was marked by a series of mass-scale nationwide protests demanding better living conditions for the people and putting an end to the government’s policy of spending huge financial resources aimed at attaining military and political goals abroad.

The authorities managed to bring the situation under control, but the protests, though on a lesser scale, continued flaring up throughout the past year.

The situation was further exacerbated by President Donald Trump’s announcement in May of the US withdrawal from the Iran nuclear accord, and the subsequent introduction of anti-Iranian sanctions in August and November. Iran’s national currency, the rial, plunged to record lows hitting a dismal 190,000 rials to the US dollar in early September. Although it later stabilized somewhat at 100,000-110,000 to the greenback, the downfall led to an economic crisis: according to IMF estimates, inflation spiked to 30 percent, with Iran’s own Central Bank putting the figure at 40 percent. The country’s GDP slipped by more than 3 percent, many enterprises shut down, and unemployment reached 12 percent (18 percent among young people).

It should be noted that the hardest hit by the US sanctions was the Iranian economy, still reeling from the tough international sanctions imposed on the country between 2012 and 2015.

While blaming the economic problems on the country’s overdependence on oil exports, the Iranian President Hassan Rouhani also acknowledged the negative impact of the US sanctions on the living standards of ordinary Iranians. He still believes, however, that “the United States will fail, and the Iranian government, with the support of the parliament, the people and the country’s spiritual leader, will cope with difficulties.”

When unveiling the 2019 draft budget in parliament on December 25, President Rouhani promised that in the upcoming Iranian new year in March, civil servants and pensioners would see their incomes grow by 20 percent, and that state subsidies for the purchase of basic goods for the country’s poor would reach $14 billion.

Meanwhile, Russia, India and China are lending a helping hand to Iran, with Indian Ports Global Ltd (IPGL) taking over, in keeping with a bilateral agreement, the management of Iran’s Shahid Beheshti port for up to 18 months with the possibility of a 10-year renewal. The contract will facilitate the transit of goods between India and Afghanistan, bypassing the territory of Pakistan, and will significantly contribute to the region’s economic growth. Following the French oil company Total’s withdrawal from Iran, China’s CNPC Company has been moving in to fill the void.

Other countries are also offering their services in an effort to offset the negative impact of Washington’s sanctions on Tehran.

Domestic political situation

The outgoing year saw an increase in the activity of opposition forces, representing the radical, anti-Western segment of the Iranian establishment, including ex-President Mahmoud Ahmadinejad and the loser of the 2017 presidential election, hard-line Islamist Ibrahim Raisi.

Throughout the past year, the opposition was working hard, if not to remove Hassan Rouhani’s liberal reformers from power, than at least to target their individual representatives. In summer, they managed to force the resignation of the Minister of Economy and Finance Masood Karbasian and the Minister of Labor, Social Security and Cooperatives Ali Rabiyi. Earlier, the head of the Central Bank, Valiolla Safe, was equally dismissed, replaced by Abdnnacer Hemmati.

In 2018, divisions in the country’s ruling elite became increasingly visible, but it would still be premature to talk about any serious crisis, much hoped for by the US President Donald Trump. In fact, Trump has played right into the hands of Iran’s radicals and conservatives because instead of undermining Iran’s Islamic regime, the sanctions have hit President Rouhani and his team, who are looking for a dialogue with the West. With the Rouhani government losing its political clout in 2018, its radical and hard-line opponents have been strengthening their positions and their role in the country’s domestic and foreign policy.

While there were no signs last year of Hassan Rouhani being forced out as long as he enjoys the support, at least verbal, of the country’s spiritual leader, Ayatollah Khamenei, the president could still bend under the pressure from the opposition and change his domestic and foreign policy, and not necessarily in the direction of reforms and liberalization.

Foreign policy

In 2018, Iran continued its efforts to impact the situation in the Middle East, primarily in Syria, Yemen, Iraq, Lebanon and Afghanistan. President Trump’s decision to withdraw the US from the 2015 nuclear deal with Iran set forth a new, “offensive,” phase in Tehran’s foreign policy. On the one hand, this reflected the growing role of hardliners among those responsible for taking military and political decisions in Tehran. On the other, the US policy towards Iran has resulted in the moderates in Iran, including in the presidential administration and the government, toughening the country’s foreign policy.

In 2018, Iran ramped up the number of short- and medium-range missile tests, conducting seven test launches of medium-range missiles, five short-range missile launches, as well as a cruise missile launch. This was a significant jump from just four medium-range and a single short-range missile test carried out in 2017.

Russian-Iranian relations

The Russian-Iranian political dialogue in 2018 reflected the two countries’ shared view on some regional and global policy issues, above all the establishment of a multi-polar world order, strengthening the United Nations’ role in international affairs, countering new challenges and threats, on Syrian and Iraqi settlement as well as the situation in Afghanistan.

Moscow viewed cooperation with Tehran as an important condition for ensuring Russia’s national interests and strengthening stability in the South Caucasus, Central Asia and the Middle East.

In 2018, Russia maintained constant high-level contacts with Iran. Presidents Vladimir Putin and Hassan Rouhani have met 14 times since Rouhani’s election in 2013, and have on many occasions resolved important issues by telephone.

The Russian and Iranian foreign ministers met regularly in Moscow and Tehran, during UN General Assembly sessions, on the sidelines of other international events, and also communicated by phone.

In its relations with Tehran, Moscow proceeds from the assumption that cooperation with Iran is important for ensuring its national interests, strengthening stability in the region and elsewhere in the world. That is why throughout the past year Russia actively defended the Iran nuclear deal, which the US withdrawal threatens to unravel. There is a shared view in both Moscow and Tehran that the breakup of the Iran nuclear deal is fraught with the destabilization of the region and the whole world.

In 2018, Moscow and Tehran repeatedly reiterated their firm commitment to preserving the territorial integrity of Syria, and to a peaceful settlement of the Syrian crisis. They also voiced their concern about the continuing deterioration of the situation in Afghanistan and the growing threat of terrorist attacks by local extremist forces.

In August, as a result of efforts by Russian and Iranian diplomats, Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan signed an agreement of a truly historic significance – the Convention on the Legal Status of the Caspian Sea. The accord, the first of this kind in centuries, created real conditions that define and guarantee the signatories’ joint political, military, economic, and ecological activities in the Caspian.

Russian-Iranian relations were an important feature of the past year, the most notable being the decision to complete the creation of the 7,200 km North-South transport corridor to ensure faster and cheaper shipment of goods from China and India to Europe. Moscow and Tehran agreed to simplify customs procedures, remove existing barriers complicating the free flow of goods and services, and improve communications in the banking sector.

Not all problems existing in relations between Russia and Iran were resolved in 2018, of course. Russia and Iran are only “moving towards a strategic relationship.” Many problems still persist in trade and economic relations with a trade turnover of just $2 billion between two major powers looking nothing but negligible.

The two countries are working to change this, though. According to a memorandum on the “oil for goods” program signed in 2014, Russia planned to buy 5 million tons of Iranian oil each year (about 100,000 barrels a day), and supply it to other countries. In return, Russia would provide $45 billion worth of goods to the Islamic Republic. Tehran, for its part, committed to spend half of the revenue from oil sales to Russia as payment for Russian goods and services, such as aircraft, airfield and railway equipment, trucks and buses, pipes and construction services in Iran.

In keeping with the program, in November 2017, Russia started importing limited amounts of Iranian oil. (Tehran, which was then emerging from sanctions, had no interest in selling more). With a new round of sanctions back in place, Iran may now have a greater deal of interest in implementing the terms of the 2014 plan.

In March 2018, the Russian and Iranian Agriculture Ministries reached a preliminary agreement for the supply of Russian wheat to the Iranian market.

Military-technical cooperation is another promising area of mutually-beneficial partnership between the two countries. A Russian military delegation visited Tehran in late-December to discuss pertinent contracts in this area.

Russia and Iran are implementing a number of large-scale energy projects, including the construction of the Sirik thermal power station and the electrification of the Garmsar-Inche Burun railway.

In 2018, Russia and Iran continued their cooperation also in the cultural, humanitarian, scientific and educational fields. A national competition in the Persian language and literature was held in Russia, and the program of student and teacher exchanges between Russian and Iranian universities continued unabated.

The “Orthodoxy-Islam” joint Russian-Iranian commission on dialogue is working equally well.

That being said, Moscow and Tehran still differ on certain global and regional issues. However, these differences can be sorted out on the basis of mutual confidence building, and this is probably the main goal Russia and Iran will be working to achieve in the new year of 2019.

First published in our partner International Affairs

Senior research assistant at RAS Institute of Oriental Studies, candidate of historical sciences

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Economic reform in the Gulf: Who benefits, really?

Dr. James M. Dorsey

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For Gulf leaders, long-overdue economic reforms were never going to be easy.

Leaders like the crown princes of Saudi Arabia and the United Arab Emirates, Mohammed bin Salman and Mohammed bin Zayed, quickly discovered that copying China’s model of economic growth while tightening political control was easier said than done. They realised that rewriting social contracts funded by oil wealth was more difficult because Gulf Arabs had far more to lose than the average Chinese. The Gulf states’ social contracts had worked in ways China’s welfare programmes had not. The Gulf’s rentier state’s bargain—surrender of political and social rights for cradle-to-grave welfare—had produced a win-win situation for the longest time.

Moreover, Gulf leaders, struggling with mounting criticism of the Saudi-UAE-led war in Yemen and the fall-out of the killing of journalist Jamal Khashoggi, also lacked the political and economic clout that allowed China to largely silence or marginalise critics of its crackdown on Turkic Muslims in the troubled northwestern province of Xinjiang.

The absence of a welfare-based social contract in China allowed the government to power economic growth, lift millions out of poverty, and provide public goods without forcing ordinary citizens to suffer pain. As a result, China was able to push through with economic reforms without having to worry that reduced welfare benefits would spark a public backlash and potentially threaten the regime.

Three years into Mohammed bin Salman’s Vision 2030 blueprint for diversification of the economy, Saudi businesses and consumers complain that they are feeling the pinch of utility price hikes and a recently introduced five per cent value-added tax with little confidence that the government will stay the course to ensure promised long-term benefit.

The government’s commitment to cutting costs has been further called into question by annual handouts worth billions of dollars since the announcement of the reforms and rewriting of the social contract to cushion the impact of rising costs and quash criticism.

In contrast to China, investment in the Gulf, whether it is domestic or foreign, comes from financial, technology and other services sector, the arms industry or governments. It is focused on services, infrastructure or enhancing the state’s capacities rather than on manufacturing, industrial development and the nurturing of private sector.

With the exception of national oil companies, some state-run airlines and petrochemical companies, the bulk of Gulf investment is portfolios managed by sovereign wealth funds, trophies or investment designed to enhance a country’s prestige and soft power.

By contrast, Asian economies such as China and India have used investment fight poverty, foster a substantial middle class, and create an industrial base. To be sure, with small populations, Gulf states are more likely to ensure sustainability in services and oil and gas derivatives rather than in manufacturing and industry.

China’s $1 trillion Belt and Road initiative may be the Asian exception that would come closest to some of the Gulf’s soft-power investments. Yet, the BRI, designed to alleviate domestic overcapacity by state-owned firms that are not beholden to shareholders’ short-term demands and/or geo-political gain, contributes to China’s domestic growth.

Asian nations have been able to manage investors’ expectations in an environment of relative political stability. By contrast, Saudi Arabia damaged confidence in its ability to diversify its oil-based economy when after repeated delays it suspended plans to list five per cent of its national oil company, Saudi Arabian Oil Company, or Aramco, in what would have been the world’s largest initial public offering.

To be sure, China is no less autocratic than the Gulf states, while Hindu nationalism in India fits a global trend towards civilisationalism, populism and illiberal democracy. What differentiates much of Asia from the Gulf and accounts for its economic success are policies that ensure a relatively stable environment. These policies are focused on social and economic enhancement rather than primarily on regime survival. That may be Asia’s lesson for Gulf rulers.

Author’s note: first published in Firstpost

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Ratcheting up tension: US designation of Revolutionary Guards risks escalation

Dr. James M. Dorsey

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The stakes in the Middle East couldn’t be higher.

Suspicion that the United States’ intent is to change the regime in Tehran rather than its officially stated goal of forcing Iran to curb its ballistic missile program and support for militias in Lebanon, Gaza and Yemen was heightened with this week’s decision to designate the Iranian Revolutionary Guards Corps (IRGC) as a terrorist organization.

It was the first time that the United States labelled a branch of a foreign government as a terrorist entity, particularly one that effects millions of Iranian citizens who get conscripted into the military and for whom the IRGC is an option.

“Today’s unprecedented move to designate the IRGC as a Foreign Terrorist Organization demonstrates our commitment to maximize pressure on the Iranian regime until it ceases using terrorism as tool of statecraft,” tweeted Mr. Trump’s national security adviser, John Bolton..

The designation effectively blocks Mr. Trump’s potential successor from possibly returning to the 2015 international accord that curbed Iran’s nuclear program, complicates any diplomatic effort to resolve differences, and changes the rules of engagement in theatres like Syria where US and Iranian forces operate in close proximity to one another.

“Through this, some US allies are seeking to ensure a US-Iran war or to, at a minimum, trap them in a permanent state of enmity,” said Trita Parsi, head of the National Iranian American Council, referring to Saudi Arabia and Israel.

The designation was likely to embolden advocates in Washington, Saudi Arabia and Israel of a more aggressive covert war against Iran that would seek to stoke unrest among the Islamic republic’s ethnic minorities, including Baloch, Kurds and Iranians of Arab descent.

Both Saudi Arabia and Israel were quick to applaud the US move. Israeli prime minister Benyamin Netanyahu, on the eve of a hard-fought election, claimed credit for the suggestion to designate the IRGC. The official Saudi news agency asserted that the decision translates the Kingdom’s repeated demands to the international community of the necessity of confronting terrorism supported by Iran.”

The risk of an accident or unplanned incident spiralling out of control and leading to military confrontation has also been heightened by Iran’s response, declaring the US military in the greater Middle East a terrorist entity.

The US move and the Iranian response potentially put US military personnel in the Gulf as well as elsewhere in the region in harm’s way.

The designation also ruled out potential tacit US-Iranian cooperation on the ground as occurred in Iraq in the fight against the Islamic State and in Afghanistan. That cooperation inevitably involved the IRGC.

Beyond geopolitical and military risks, the designation increases economic pressure on Iran because the IRGC is not only an army but also a commercial conglomerate with vast interests in construction, engineering and manufacturing.

It remained however unclear to what degree the sanctions would affect the IRGC, which, already heavily sanctioned, does much of its business in cash and through front companies.

US policy, even before the IRGC designation, had already raised the spectre of a nuclear race in the Middle East. The designation increases the chances that Iran will walk away from the nuclear agreement.

Saudi Arabia has however already been putting in place the building blocks for its own nuclear program in anticipation of Iran abandoning the agreement and returning to its full-fledged, pre-2015 enrichment project.

The IRGC goes to the heart of the Iranian regime. It was formed to protect the regime immediately after the 1979 revolution at a time that Iran’s new rulers had reason to distrust the military of the toppled shah.

Some of the shah’s top military and security commanders discussed crushing the revolution at a dinner on new year’s eve 1978, some six weeks before the shah’s regime fell. It was the shah’s refusal to endorse their plan that foiled it. The shah feared that large-scale bloodshed would dim the chances of his exiled son ever returning to Iran as shah.

The IRGC has since developed into a key pillar of Iran’s defense strategy which seeks to counter perceived covert operations by the United States, Saudi Arabia and Israel by supporting proxies across the Middle East.

It is a strategy that has proven both effective and costly, Iran’s failure to address fears that the strategy is an effort to export its revolutions and topple the region’s conservative regimes, particularly in the Gulf, has raised the cost.

To be sure, the Iranian revolution constituted a serious threat to autocratic rulers. It was a popular revolt like those more than 30 years later in the Arab world. The Iranian revolt, however, toppled not only an icon of US power in the Middle East and a monarch, it also created an alternative form of Islamic governance that included a degree of popular sovereignty.

The revolution unleashed a vicious cycle that saw Gulf states fund the eight-year long Iran-Iraq war in the 1980s in which up to one million people died; Saudi Arabia wage a four-decade long US$100 billion campaign to globally propagate ultra-conservative, anti-Shiite, anti-Iranian strands of Islam; repeated attempts to stoke ethnic tensions among Iran’s disgruntled minorities, and Iranian counter measures including support for proxies across the Middle East and violent attacks against Americans, Israelis, Jews and regime opponents in various parts of the world.

“Given that the IRGC is already sanctioned by the US Treasury, this step is both gratuitous and provocative. It will also put countries such as Iraq and Lebanon in even more difficult situations as they have no alternative but to deal with the IRGC. It will strengthen calls by pro-Iran groups in Iraq to expel US troops,” said Barbara Slavin, an Iran expert at the Washington’s Atlantic Council

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Middle Eastern protests challenge debilitating Gulf counterrevolution

Dr. James M. Dorsey

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Much of the Middle East’s recent turmoil stems from internecine Middle Eastern rivalries spilling onto third country battlefields and Saudi and United Arab Emirates-led efforts to roll back the achievements of the 2011 popular Arab revolts and pre-empt further uprisings.

This week’s successful toppling of ailing Algerian president Abdelaziz Bouteflika and months of anti-government demonstrations that have put Sudanese leader Omar al-Bashir on the defensive suggest that the Saudi-UAE effort may be faltering.

So does the record of the past eight years. The counterrevolution’s one success, Egypt, has produced some of the harshest repression in the country’s history.

Saudi and UAE intervention in Yemen has sparked one of the world’s worst humanitarian crises, tarnished the image of the two Gulf states, and provided opportunity to Iran to expand its network of regional proxies.

In a twist of irony, Saudi Arabia, the UAE and Egypt, who justify the Yemen war by pointing to an invitation by the internationally recognized exile government of  president Abd Rabbuh Mansur Hadi, support the rebel forces of Field Marshal Khalifa Haftar in Libya.

Mr. Haftar’s forces are poised to march on Tripoli, the seat of the United Nations-recognized government of Libya, two weeks after the field marshal met with King Salman in Saudi Arabia. The fighting in Libya has turned into a proxy war between Gulf rivals with Qatar supporting the Islamist-dominated Tripoli government.

In Syria, rivals Saudi Arabia, the UAE and Qatar, who exasperated the country’s eight-year long devastating civil war by backing rival rebel forces, are back to square one: the man they wanted to remove from office, president Bashar al-Assad, has gained the upper hand with the support of Russia and Iran.

The protests in Algeria and Sudan suggest that the social, economic and political grievances that fuelled the 2011 protests continue to hover just below the surface in a swath of land that stretches from the Atlantic coast of Africa to the Gulf.

Like in 2011, protests in the Middle East are not isolated incidents but the most dramatic part of a more global wave prompted by a loss of public confidence in leaders and political systems that has sparked anti-government demonstrations in countries as far flung as Zimbabwe and Haiti.

The Algerian and Sudanese protests come on the back of a wave of smaller, political and socio- economic protests since 2011 that suggested that the Middle Eastern counterrevolution amounted to putting a lid on a pot that could boil over at any moment. Protests have erupted in recent years in a host of countries, including Iraq, Morocco, Jordan, Lebanon and Tunisia.

The protests also suggest the fragility of hopes of Middle Eastern autocrats that China’s model of successfully growing the economy, creating jobs and opportunity, and delivering public goods coupled with increased political control and suppression of rights would prove to be a sustainable model in their own backyard.

The fragility of the model is enhanced by the tendency of autocrats to overreach in ways that either distract from their core goals or pursue objectives like the creation of a ‘new man’ that ultimately have failed in countries like Turkey.

Turkey’s Islamist Justice and Development Party (AKP) has been in power for the better part of two decades. Its success suggests that the effort to create a secular New Turk by Mustafa Kemal Ataturk, the visionary who carved modern Turkey out of the ruins of the Ottoman empire almost a century ago, has stumbled.

Egyptian general-turned president Abdel Fattah al-Sisi and Chinese leader Xi Jinping have taken control and civilisationalism to new extremes by seeking not only absolute political power but also the ability to shape culture and dictate personal behaviour.

Mr. Al-Sisi recently ordered his officials to dictate the themes and scripts of Egyptian soap operas, a popular regional staple, particularly during the holy month of Ramadan. A military-linked production company has taken charge of some of Egypt’s biggest and most successful shows.

Film directors have been instructed to focus on shows that praise the military and law enforcement and demonize the Muslim Brotherhood, a group that has been brutally targeted by Mr. Al-Sisi as well as the UAE that together with Saudi Arabia backed his 2013 military coup. The coup toppled Mohammed Morsi, a Brother and Egypt’s first and only democratically elected president.

Mr. Xi’s hopes to promote ‘core socialist values’ such as patriotism, harmony and civility amounts to an effort to counter individualism, materialism and hedonism. The campaign involves blurring piercings and jewellery worn by male pop stars during performances on television and the Internet, obliging soccer players to wear long sleeves to cover their tattoos, and ensuring that women conference hosts raise their necklines and rappers restrict their lyrics to promotion of peace and harmony.

Saudi Arabia has argued that journalist Jamal Khashoggi was killed in the Saudi consulate in Istanbul six months ago by rogue government operatives who are currently standing trial in a process that lacks transparency and has called into question the kingdom’s version of events.

The overreach suggests that Middle Eastern autocrats are unlikely to respond to the protests in Algeria and Sudan any differently than they did in 2011.

Analyst Giorgio Cafiero predicts that in the wake of Mr. Bouteflika’s resignation, Saudi Arabia is likely to support efforts to maintain control by what Algerians call Le Pouvoir (The Power) or the deep state, a cabal of military and security officials and business tycoons, The same is likely to be true for the UAE.

Similarly, Saudi Arabia and the UAE alongside Egypt continue to back Mr. Al-Bashir although he is on the defensive after months of protests that have rocked the East African state.

Whether Algeria’s ancien regime backed by Gulf states is able to retain power may well be dependent on what conclusions protesters draw from the experience of the 2011 revolts.

Like the protesters than, Algerian demonstrators need to decide whether Mr. Bouteflika’s resignation is a sufficient enough success to justify surrender of their street power and return to a structured political process.

Indications are that the protesters have learnt their lesson.

“Algerians are very realistic. This is a beautiful victory, a tangible first step but they know that more has to be done. They are not satisfied entirely … they want all of them to be gone,” said Algeria scholar Dalia Ghanem.

“Algerians are calling for radical change, a change in leadership. They didn’t want Bouteflika, they don’t want Bouteflika’s family, or Bouteflika’s clan — and they don’t want the old guard to stay in power,” Ms. Ghanem added.

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