Driving Iran's change: Economic threats, strategic opportunities

Driving Iran's change: Economic threats, strategic opportunities

DUBAI - Behind Iran's overtures to Washington lie pent-up pressures for change - from sanctions and internal dissent to regional turmoil - that are shaping a rare chance to end decades of hostility.

For new President Hassan Rouhani, speed is of the essence.

Sanctions are squeezing Iran's oil exports, economic misery is palpable, Arab Spring contagion poses a persistent threat and involvement in Syria's civil war is a drain on hard-pressed resources.

As well as addressing these pressures, Iran may be hoping its softer tone in nuclear talks with the West will bring longer term opportunities, diplomats say.

Ultimately Tehran desires Western recognition of what it sees as its legitimate interests in the wider region - in Syria and Lebanon where Shi'ite Muslim Iran supports the interests of its co-religionists and in its 'backyard' the oil-producing Gulf, where Iran seeks to expand its influence.

For now it is the threats that appear uppermost in the thinking of the Islamic Republic, as it surveys its diminished economy and regional upheaval.

Shaul Bakhash, professor at George Mason University, Virginia, said he believed Rouhani realised how seriously the economy had been hurt by the confrontational policies of his"disastrous" predecessor Mahmoud Ahmadinejad.


Rouhani's opening to Washington was 'not a bluff', he said.

"Adults are once again leading the Iranian government."

Iran is adept at surviving economic pressure, but sanctions have bitten deeply. Existing US and EU measures have reduced Iran's oil exports by more than half from pre-sanction levels of about 2.2 million barrels per day (bpd), costing Tehran billions of dollars in lost revenue a month.

The US Congress could soon pass a bill to squeeze Iran's oil exports further. Deeper cuts in oil sales, if accomplished, could worsen the damage Western sanctions have already done to Iran's economy, which suffered a loss of about $26 billion in petroleum revenue in 2012 from a total of $95 billion in 2011; soaring inflation; and a devaluation of its currency, the rial.

Iran had tbe ability to adjust to sanctions, a July 2013 research paper by the US Congressional Research Service (CRS) said. But it added: "The election of Rouhani ... suggests that sanctions are affecting political outcomes in Iran."

In April, the International Monetary Fund forecast gross domestic product would shrink 1.3 per cent in 2013 after contracting 1.9 per cent last year.

Mehrdad Emadi, an economist at Betamatrix consultancy, said knock on effects of sanctions on businesses included lack of investment and job losses. In the car and related components sector, about a third of workers had lost jobs in an industry that is Iran's largest after oil, he said.

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