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Sanctions on Iran Blind to Changing Times

Iran's President Mahmoud Ahmadinejad (2nd L) attends the unveiling ceremony of new nuclear projects in Tehran 15 February 2012. (Photo: REUTERS - President.ir - Handout)

By: Yazan al-Saadi

Published Thursday, February 16, 2012

The narrative of an isolated Iran on the cusp of economic disaster due to mounting sanctions may not hold water when read in light of Iran’s growing trade and political ties with global non-Western powers.

According to an exclusive report by Reuters, released earlier this month, Iranian buyers have defaulted on payments worth US$144 million for shipments of 200,000 tons of rice from India. This was followed up by a number of related reports by Reuters, one claiming that Asian traders have begun to cut ties with the Islamic republic, while another suggests that Pakistani traders are “shying away” from doing business with Iran. A third report highlighted Iran’s use of barter, especially gold and oil, to buy the necessary commodities as an illustration of the immense difficulty the country faces.

These series of reports came just days after American President Barack Obama ordered fresh, harsher sanctions, aimed at freezing Iranian government assets within the US and penalizing any transactions by Iranian banks and financial institutions. The move by Obama was coordinated with unilateral sanctions placed by the EU against the Iranian oil sector, which amounts to nearly 90 percent of the Islamic republic’s revenue. On Iran’s part, its officials dismissed these acts as merely “psychological warfare.”

For commentators and observers, particularly in Europe and North America, these occurrences highlighted by Reuters are indications that nations and businesses beyond the West are supportive of the desire to isolate Iran, hence allowing the sanctions to finally take their toll. The food trade disruptions and the depreciation of Iran’s rial, causing an exponential increase in the price of staple foods, are hailed as the start of a major squeeze to pressure Iran to halt its alleged drive to militarize nuclear technology.

Yet, this picture of an isolated Iran, gradually cracking under the weight of an economic war, may very well be wishful thinking.

A report by The New York Times published last week further buttresses Escobar’s points. The report revealed that India has “emerged as a major new irritant…in Western efforts to isolate Iran, announcing that it was sending a large trade delegation there within weeks to exploit opportunities created by the American and European antinuclear sanctions.”

Strikingly, India and Iran are finalizing an innovative and sophisticated payment method that includes substituting dollars for rupees to pay for oil and the use of an assortment of barter-trade in order to circumvent restrictions placed by sanctions.

For those in the West, particularly within the US, the switch away from dollars, a long-held standard currency in purchasing petroleum, is alarming. The shift by a major oil producer is disquieting as it may accelerate the process of dumping American dollars from various international reserves and encourage regular use of different currencies in purchasing oil. This is expected to further weaken the value and influence of the American dollar, as some have argued, due to its monopolization as a petro-currency.

In addition, the sanctions recently legislated by the EU that target the Iranian oil sector seem to have unintended negatives consequence towards the European economy itself, as highlighted by an article by Moammar Atwi for Al-Akhbar.

Atwi states that European countries, especially debt-ridden Spain, Italy, and Greece, who account for three quarters of the total Iranian oil imports to Europe, are “still unsure they will find suitable alternatives to Iran’s high-quality crude, and also question Riyadh’s capacity to sustain its proposed hike in production.” The dogged drive to sanction Iran is likely to “further damage battered Western economies” as world oil prices are expected to rise.

Is Iran Weak Internally?

When asked in an email if the new developments highlighted by Reuters altered his analysis in any way, Escobar responded, “There’s no question the clerical and military elites, the bonyads, and the business elites close to the regime can [handle] any sanctions – as they have done for years. And as always, the people who suffer are the middle class and – a bad omen for the Ahmadinejad faction and even for the top leadership – the working classes. Mega currency devaluation means high inflation, coupled with cuts in subsidies. That's a lethal recipe.”

The Iranians, with their long experiences dealing with various sanctions and embargoes since 1979, are unlikely to allow the sanctions to eat away on their economic development unchallenged.

Djavad Salehi-Isfahani, an Iranian-American economics professor at Virginia Tech University in the United States, highlighted in a blog post that sanctions have already “encourage[d] [a] more sound economic policy in Iran.” He points out that the Iranian Central Bank has forced a concession by Iranian President Mahmoud Ahmadinejad to sharply raise interest rates in order to increase bank deposits and quell inflation, a major policy reversal by the government.

Ahmadinejad, and his supporting faction, as Escobar and Salehi-Isfahani alluded, may be a major casualty from the stresses and difficulties faced by the working and middle class in Iran. Indeed, much of Ahmadinejad’s campaign had been directed to making promises towards the poor and worker class, emphasizing the continuation of subsidizes and government support and vowing to keep interest rates and exchanges low. The unprecedented decision by the Iranian parliament to summon and grill Ahmadinejad over his economic policy reflects a growing sign that he may face the brunt of domestic discontent rather than the entire state apparatus.

Furthermore, the World Bank Global Economic Prospects for 2012 forecasted that despite the sanctions placed on Iran, the country is expected to actually carry on with its economic growth throughout the year and the next. According to the World Bank (WB), this assessment was made because of “a revision to the system of subsidies and cash transfers to better balance reimbursements and fiscal accounts has been looked upon favorably by outside analysts.” Yet, the report did acknowledge that “severe difficulties in the non-oil sector (manufacturing and services) persist.”

More surprisingly, the Iranian state news agency reported that the International Monetary Fund (IMF) has ranked Iran the “17th largest economy in the world,” apparently surpassing Australia, Saudi Arabia, Poland, and Argentina.

In terms of economic data and its interpretation by the major Western financial institutions, the Iranian state does not seem to be decaying regardless of decades of sanctions and embargoes. Still, such an apparently positive image does not take into account the genuine difficulties and discontent simmering on the ground by the vast majority of the Iranian public.

But does the growing public disgruntlement play into the aims of the sanctions?

Escobar also says that the “the lethal cocktail destabilizing the regime...won't work because Iranians are very well informed about Western machinations. Working class Iranians who until recently were praising Obama, for instance, now blame him directly for the sanctions and their increasing penury. The nuclear program is indeed a source of national pride – even the Green movement defends it. It's true that the Ahmadinejad administration is an economic/financial disaster – but the confrontational approach by the US/EU won't captivate a single heart and mind in Iran. This proves once again that these lousy [politicians] don't know anything about Persian culture and [the Persian] mindset.”

What is the purpose of sanctions?

"The purpose of sanctions is to put pressure on Iran to come back to the negotiating table," said Catherine Ashton, the EU’s High Representative of the Union for Foreign Affairs and Security Policy, after the latest round of sanctions were imposed.

This justification presented by Ashton is easily scrutinized when considering how both the US and the EU ignored a diplomatic ground-breaking nuclear fuel-swap deal designed by Turkey and Brazil on May 2010.

Added to this, Vali Nasr, former policy advisor to the Obama State Department, noted in an interview with Foreign Affairs that in fact it was the Americans who have taken a strict anti-negotiation policy, stubbornly pushing forward escalation that could easily stumble into a destructive regional war.

Indeed, Glenn Greenwald, writing for Salon, has gathered evidence that the American political and media sectors have intentionally distorted Iran’s image, presenting it as “the root of all evil” and a major threat militarily to the US in order to maintain an aura of hysteria.

On the surface, both the US and EU pays lip-service on the importance of diplomacy, while in actuality they have followed a policy that exceedingly flirts with “regime change.” Throughout the last two years, this policy has becoming exceedingly belligerent, involving cyber-attacks, sending drones to penetrate into Iran’s skies, and allowing Israel to finance and arm the Mujahedin-e Khalq (MEK) to assassinate a number of Iranian scientists. On top of all this, Israel has unceasingly threatened to conduct an airstrike on Iran, an act that would only delay nuclear enrichment and plunge the region into war.

Next month, the International Atomic Energy Agency (IAEA) is expected by some analysts to release a harsher report on Iran regardless of the outcome of its meeting with Iran on February 20. Much of the IAEA’s stances, chiefly its Director General Yukiya Amano, have been called into question with the release of a US diplomatic cable document by WikiLeaks. In this diplomatic cable, Amano tells the American officials in Geneva that he “was solidly in the US court on every key strategic decision, from high-level personnel appointments to the handling of Iran’s alleged nuclear program.”

So far, these acts and the sanctions have only entrenched the Iranian position on its nuclear energy program. During the 33rd anniversary celebration of the Islamic revolution, Ahmadinejad declared in his speech to the Iranian public, “In the coming days the world will witness Iran's announcement of its very important and very major nuclear achievements.”

The sanctions are ultimately counter-intuitive for the Americans and the Europeans, suggesting a lack of creative political will to exhaust all diplomatic avenues to solve the stalemate. More so, it can be viewed as a sign of mounting weakness in their ability to successfully project their power, and signifies their own disconnection from the sentiments of the rest of the world. However, the narrative of a weak isolated Iran within the capitals of North America and Western Europe still churns along, leading to the potential of disaster for all. 


Is Iran Isolated Internationally?

Pepe Escobar’s article, The Myth of “Isolating” Iran, reprinted in several news sites, offers a counter-narrative that calls into question the prevalent “myth” that Iran is truly isolated.

According to Escobar, Iran is strengthening its economic relations with its immediate neighbors, has successfully developed closer ties with South America, and is still maintaining, even deepening, its massive oil and commercial ties with Asian economic powerhouses like Japan, South Korea, and most importantly China. Also, Iran’s relations with Russia have continued unobstructed. In a nut shell, Iran is doing business mainly with the non-Western world, which accounts for the majority of the international community. Iran is, as phrased by Escobar, “more connected than Google.”