Sanctions are hurting Iran

Sunday, January 23, 2011

Here's some news that ought to warm the cockles of your heart: The international sanctions regime is hurting Iran (also here for those without Journal access). A report published by the Central Bank of Iran (CBI) last Oct. 20 offers a picture of an economy under growing pressure. Two figures suggest the magnitude of the problems. The first is a 7% drop in imports over the previous six months. Because almost all of Iran’s nontraditional industries (outside carpet-weaving and handicrafts) depend on imported raw material and parts, this indicates a significant economic slowdown. The second figure is a 45% drop in applications for building permits for commercial and industrial units.

There is also bad news for government finances. Oil exports, which account for 75% of government revenue, dropped by 13.3%, or more than 600,000 barrels a day, according to the CBI. That’s a projected loss of $16 billion in annual government income.

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Sanctions are also affecting the regime’s nuclear ambitions. At a September press conference in Tehran, Ali-Akbar Salehi, the MIT-educated head of Iran’s Atomic Energy Agency, admitted that sanctions would “significantly slow down” the nuclear program. A similar view is held by Aladin Borujerdi, who heads the security commission of Iran’s parliament. On Oct. 12 Mr. Borujerdi told IRNA that “sanctions will hurt” and that “there is no use turning our face the other way.”

To cope with falling revenues, President Mahmoud Ahmadinejad has unveiled a plan for ending government subsidies by March 2011, subsidies that Minister of Economy Shamsudddin Husseini said account for a third of government spending. The first subsidies to go concern 16 items of mass consumption including water, bread, electricity, gasoline and bus fares. Ending them would save the government around $12 billion a year.

However, it could also increase the cost of living for the poorest families by around 20%, according to critics. Fariborz Rais-Dana, a respected Tehran economist, asserted last month that the proposed cuts could force more than 10 million Iranians below the poverty line. (Mr. Rais-Dana was arrested shortly after making his remarks on subsidies at a seminar in Tehran.) Previous cuts have already provoked labor strikes.

To cope with sanctions on gasoline imports, the government announced in December that it is extending its rationing scheme, under which each vehicle gets a maximum of 60 liters per month at the subsidized price equal to 35 cents a gallon. The scheme is designed to last until March.

The government has also decided to increase gasoline production. However, according to Tehran Mayor Mohammad Baqer Qalibaf, the gasoline produced is of low quality and “full of polluting impurities.” The government claims it’s safe. But in December and earlier this month the government shut all schools and most offices for two separate three-day periods to reduce air pollution in Tehran. The headline in the government-owned daily newspaper Etelaat last Oct. 20: “Gasoline is Choking Tehranis.”

There is also dissension within the regime. Sources in Tehran tell me that one reason Mr. Ahmadinejad dismissed Foreign Minister Manouchehr Mottaki from his cabinet in December was his “persistent moaning” about Iran’s no-compromise strategy. Mr. Mottaki’s argument was that the strategy forced the U.N. to impose stricter sanctions. He’d asked that the issue be fully discussed by the cabinet but was rebuffed by Mr. Ahmadinejad.

One big question mark is whether countries that are supposed to obey the U.N. sanctions will follow through. Here the record is mixed. Thanks to its banking facilities and exports of dual-use machinery, China has become Iran’s biggest trading partner, with $30 billion of exports each year. That’s more than the European Union’s $22 billion of trade, little of which can be attributed to sanction-busting