Iran’s Upper Hand

By EWI BLOG | by Rachel Ehrenfeld
Monday, February 25th, 2013 @ 5:18PM

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Meeting with Iran in Kazakhstan next week, as part of the P5+1 (five permanent members of the United Nations Security Council: China, France, Russia, the United Kingdom, and Germany) shows the Obama administration’s determination to end the United States’ role as the super power it once was. Nothing seems to deter the administration’s determination to negotiate with the Ayatollahs. Not the IAEA report that Tehran has already begun toinstall advanced centrifuges at its nuclear plant at Natanz to increase the pace of uranium enrichment, or Iran’s “skyjacking” of American drones, cyber attacks on American financial institutions, or support of the Assad regime, Hizballah and other jihadist groups.

All are responded to with half-hearted sanctions and empty warnings, such as, “The installation of new advanced centrifuges would be a further escalation, and a continuing violation of Iran’s obligations under the relevant UN Security Council resolutions and IAEA board resolutions.” Ever hopeful, the State Department insisted that Iran will have “the opportunity to allay the international community’s concerns during talks in Kazakhstan next week.”

Clearly, Iran’s rejection of Joe Biden’s recent offer to engage in bi-lateral talks offer has done little to reduce the State Department’s enthusiasm. “We have said from the beginning of this [negotiations with Iran] in 2009 that we would be open, if the Iranians wanted to, in the context of being together for the P-5 plus one, to meet bilaterally with the Iranian side.”

But Iran’s Foreign Minister Ali Akbar Salehi continues to ignore the administration’s pleadings. The meeting in Almaty “will be dedicated to reconciling Russian and European proposals” with the five-point plan, based on Russian Foreign Minister Sergei Lavrov’s proposal in 2011. Declining to react to the IAEA’s alarming report, Russia’s Deputy Foreign Minister Sergei Ryabkov conceded that “Progress is slow and expectations are not very high”, but urged that the Almaty meeting be approached with “hope.” Not a negligible consideration is Moscow’s $3.4 billion bilateral trade with a Iran.

Less circumspect was Iran’s Supreme Leader Ayatollah Ali Khamenei, who belittled the U.S. offers. “They say, ‘Let us negotiate to force Iran to accept what we tell them… Such talks would be worthless. Such talks will lead nowhere,” he’s quoted saying.

It would have been comforting to say that Iran has been duping the U.S., the IAEA, and the rest of world regarding its nuclear ambitions. Alas, instead of calling the Ayatollahs’ bluffs from the get go, the U.S. played along, giving Iran the time to build up its nuclear capabilities as well as its global influence and terrorist activities, threatening U.S. interests at home and abroad.

Inasmuch as keeping the international community off balance regarding its nuclear intentions, while impressive, it was relatively easy to do. Far more impressive is the government’s ability to stave off revolution in the face of self-inflicted economic hardship. Iran’s economy is in the tank, not because the economic sanctions but, rather, because of that old bugbear of Middle Eastern tyrants, the need to subsidize food and fuel.

In the first ten months of 2012, the Iranian rial, lost more than 80% of its exchange value. On October 1, 2012, alone it dropped by 15%, and its been headed downward since then.

On December 18, 2012, the Iranian government eliminated food and energy subsidies (including for electricity). To prevent public revolt, the regime attempted another trick.  It granted to almost all consumers in Iran a cash grant to offset the loss in public purchasing power, while promising to create new targeted subsidies. “Close to 80% of Iran’s population was granted unrestricted access to compensatory payments that had been deposited in specially created bank accounts. 7000 Iranian corporations also received the ‘targeted subsidy.’”

Meir Litvak, director of the Center for Iranian Studies at Tel Aviv University offered this clarification: “Until two years ago, the Iranians spent $90 billion a year on subsidies for food and fuel. Today, they spend a similar sum on monthly compensation payments to low-income families. This compensation cancels out the savings achieved by the abolition of the subsidies.”

Smoke and mirrors is the best way to describe how the regime handles the public, while, of course, it otherwise ruthlessly oppresses opposition by more violent means.  If the regime can’t afford the subsidies, it can’t afford the grants either, that is, unless it can distribute them in such a way as to separate elements of the opposition from one another.

Needless to say, the run on the rial has been going on since last year.  Iranians have, you might say, gone for gold. According to the Guardian UK, “In the wake of the currency crisis, many Iranians who have lost faith in the rial are now contributing to its instability by rushing to convert their assets and properties to foreign currency and gold. The government has repeatedly attempted to bring the currency under control, but with no success. Last week it launched an exchange centre aimed at stabilising the rates, but the rial’s fall has since increased.”

According to the Financial Times, the Iranian government had made large gold purchases in 2011, but these were being rapidly lost in 2012in the speculative attack by the Iranian public against the rial.

In September 2012, Bloomberg reported that the Central Bank of Iran tried to stabilize the price of gold by auctioning gold reserves. After two weeks the CBI had to abandon this as the price of gold was still going up. Accordingly, the Iranian regime came up with Plan B for stopping the run on the rial: “”As the exchange rate for dollars skyrocketed from 29,000 Iranian rials to nearly 35,000, police used tear gas and batons to disperse money changers and traders outside the Central Bank demonstrating against president Mahmoud Ahmadinejad’s mishandling of the economy.”

Some would speculate that the Iranian government can’t go on like this, and that the country may share the same fate as Egypt, i.e., eventual revolt and/or collapse.  But such speculations ignore the substantial shadow economy that thrives under Iran’s charitable foundations. Known as Bonyads, using front and shell companies and often changing identities, these entities, as well as ‘private sector’ Iranian businesses, have largely succeeded to circumvent sanctions.

Wahied Wahdat-Hagh, a Fellow at the European Foundation for Democracy, explained recently how the Majlis (the Iranian pseudo-Parliament) recommends to use the private sector to circumvent sanctions and to import prohibited goods to Iran:
“The easiest way to circumvent the sanctions is when a businessman changes name and address of the company, which is affected by the sanctions. Thus, foreign agents may be used for the import of products and advanced technologies…. The growth of the private sector can be effective to a certain extent in case of circumventing the sanctions, because sanctions are usually attacking the state and the private sector can continue to enjoy the benefits of trade.”

Considering Iran’s expansion of its nuclear program, the foreign agents proved as incompetent as the Majlis anticipated, and then some.

Further Reading:

1. Shoshana Bryen: A Hard Reckoning
2. YNET NEWS: Iran crushing new enemy: Huge rats. London’s Times newspaper says Tehran’s environmental agency using sniper teams against rodents running rampant in 26 districts
3. REUTERS: Iran denies allegations of organizing spy cell in Nigeria
4. Hizbullah and the Assassination of the Iran General in Syria5. Freddy Eytan: Will Europe Define Hizbullah as a Terrorist Organization?
5. Claudia Rosett: Meet Iran’s Ambassador to the UN
6. Rachel Ehrenfeld: Clinton’s Iranian Connection


Categories: ACD/EWI Blog, Cyber

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