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     Dec 23, '13

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The nuclear deal and the future of Iran
By Hossein Askari

Noting the above, it would appear that the only way sanctions would change Iran's nuclear enrichment policies is if: (i) regime insiders were financially threatened because of economic losses and the collapse of the rial, and (ii) the economic pain in Iran were so extreme that the citizenry rose up in protest. Could this have happened? I can say that a financial panic could have been set in motion as outlined above, but I cannot say if it would have led to either of these two outcomes.

The Iranian economy, sanctions and the nuclear deal
The dire state of the Iranian economy became belatedly and widely recognized only as recently as in 2012 - high unemployment (around 20-25%), high inflation (exceeding 30% for basic commodities), slow per capita economic growth (averaging less than 1% per year during 2007-2012), falling oil output, increasing capital outflows, falling foreign exchange reserves and

pressure on the rial's exchange rate, and ever growing and glaring income and wealth disparity between the haves and have-nots inside Iran.

The late recognition of the dire state of the Iranian economy should not be surprising to anyone familiar with how Washington operates. In a private gathering of so-called Iran "experts" at a major Washington think tank some three to four years ago, a presumed expert on Iran quoted an International Monetary Fund report touting some of Iran's economic policies and achievements under then president Mahmud Ahmadinejad!

This individual, who had not visited Iran in over 30 years and could only quote the nonsense put out by the IMF (based on data supplied by the Iranian government and assembled after a couple of short IMF staff visits to Iran during a year), currently commands Washington's respect as an Iran economic expert.

Similarly, reporters who visit Iran a few times a year are hailed as intimately familiar with Iranian policies and practices - a notion that some in Iran's intelligence services find laughable - because they are shepherded around Iran and shown and told what the regime carefully orchestrates. But in Washington, if nonsense is oft repeated, it quickly becomes fact.

The miserable performance of the Iranian economy (caused by many factors, including the Iran-Iraq War, high population growth during the first decade after the revolution, low oil prices between 1982 and 2000, economic sanctions and terrible economic management) is undeniable. Annual per capita income growth was close to zero during the period between 1980 and 2010. This economy still relies heavily on oil.

Oil and gas fields require investments exceeding US$200 billion in the next five years just to maintain output at about the 2010 level. High unemployment and inflation rule, but, most importantly, there is little hope for a turnaround. The reason is simple. Economic performance in Iran has been miserable because of ineffective institutions, rampant corruption and terrible economic policies and management, and there is no reason to believe that the clerics and their backers will do anything different in the future.

What has the role of sanctions been in Iran? Well, the US has made mistakes in the implementation of its sanctions against Iran as mentioned above - focusing on the nuclear and not on human rights and general freedoms, adopting some silly measures such as sanctioning spare parts for passenger planes, and not taking a firm stand against US citizens and residents who continue to violate OFAC regulations and US tax laws - but to say that sanctions have been "ineffective" in damaging the economy and in motivating the mullahs to come to the table is a gross misrepresentation of facts.

Yes, sanctions have not changed the regime's nuclear policies, but they have played their part in the deterioration of the Iranian economy since about 2006. But even after acknowledging the role of sanctions - and to deny that sanctions have played a part is just plain wrong - we should add that the major reason for Iran's dismal performance has been economic mismanagement and not sanctions, with more on economic mismanagement below.

With this background, let me now turn to the interim deal and what it means.

The nuclear deal, the economy, the mullahs and the welfare of Iranians
It is the dire state of the economy that has brought Iran to the table. Sanctions have played a part, though not the overriding part, in Iran's dismal economic performance. The root cause of Iran's economic failures is ineffective institutions and dismal economic mismanagement.

The US and the Iranian regime have focused on the "surprising" election of the "reformist" Hassan Rouhani as the opportunity for an agreement, when in fact it is Iran's economic failures and the real threat for the regime's survival that have created this opening. Rouhani's election was a foregone conclusion and predicted after the Guardian Council in Iran determined the list of eligible presidential candidates. Rouhani is no reformer and is not a person who can give Iranians political rights, including free elections, social freedoms and a just society.

He indeed has the backing of the supreme leader for now and has devoted allies in Iran's intelligence services, but even these may not be enough to give him a free rein to do as he wishes. While many outside of Iran claim that the supreme leader is in total control, they miss subtleties in the Iran of today - yes, he is above all others, but even he cannot do as he wishes in certain policy areas if opposed by the intelligence services and the Islamic Revolution Guards Corps. He needs their support.

First, we should not fool ourselves about where Iran finds itself on the nuclear fuel cycle. Iran has nothing to lose from this interim deal. Iran certainly has, or will have in a matter of months, the capabilities to develop one or two nuclear warheads if it chooses to do so; and it can, in secret, develop the capability to produce a warhead that could be delivered by any one of its increasingly accurate missiles.

Second, Iran will not accept the mothballing of its Arak heavy water nuclear power plant without serious compensation.

Third, what Iran will accept are intrusive United Nations inspections. This the US and others will hail as a big breakthrough and the standard to thwart nuclear proliferation in the future; all of which were predictable at least six or seven years ago as the only basis for a deal.

Fourth, the peeling away of sanctions will bring some economic relief to Iran, but it will not by itself bring long-term and widespread prosperity to Iran and Iranians. But the peeling away of sanctions will become unstoppable unless the mullahs make a glaring faux pas, something that is highly unlikely. The relaxation of sanctions will give Iran the foreign exchange it desperately needs and more importantly it will motivate US and European companies and banks to lobby for ever-increasing access to the Iranian market.

The Iranian rulers and their cronies will offer oil companies contracts that they have not offered in over 30 years, lucrative production-sharing agreements that no Persian Gulf country today has on the table. They will give away Iran's birthright while enriching themselves and giving US oil companies the incentive to lobby on their behalf. Major corporations in other fields, commercial jet manufacturers, automobile makers, producers of heavy machinery, among others will join in the lobbying. Corporations will couch their lobbying in the name of stability, which in turn translates into the US embracing yet another Persian Gulf dictatorship.

The lobbying will overwhelm any respect for human rights and the rights of common Iranians. Business greed will trump human rights. The peeling off of sanctions will enrich the mullahs, the senior members of the intelligence services, the Revolutionary Guards and middlemen in Iran as well as in the US with continuing business and political dealings in Iran.

But there will be little progress in addressing Iran's fundamental economic needs. Yes, there may be big pronouncements of economic reforms, such as the appointment of an economic advisory board of Iranian economists in the US and in Europe (with limited knowledge of the corruption and economic injustice inside Iran) to recommend economic reforms and programs, but only cosmetic changes will be made.

Iran needs drastic reforms to eliminate consumer subsidies, and institutional reforms that embrace the rule of law, a rejuvenated private sector with a reduced role for foundations, the Revolutionary Guard and the intelligence services, efficient markets, an equitable and enforced tax system, reduction of corrupt practices, provision of high quality education and healthcare, and a viable social safety net for the needy. There is no reason to believe that the clerics will do anything different than they have in the past.

The Tehran regime's motivation is basically no different from the motivation of rulers in Riyadh or for that matter in any other oppressive oil (gas)-rich state of the region. They do whatever it takes to hold on to power and enrich themselves and their backers.

And yes, the US can be helpful in supporting their oppressive policies. Fundamental reforms that would, in turn, threaten, weaken and undermine their hold on power are simply out of the question and they misrepresent Islamic teachings for cover and legitimacy, using the word "Islamic" to embrace the country's name in the case of Iran or adopting titles such as "the Custodian of the Two Holy Places" in the case of Al-Saud rulers in Saudi Arabia across the waters of the Persian Gulf.

Some of the important attributes of a Muslim state that upholds Islamic values are undoubtedly:
  • The absence of oppression with freely selected leaders serving at the pleasure of their community,
  • The rule of law and equal justice for all,
  • Inclusive governance in recognition of the unity of Allah's Creation,
  • The absence of opulence and poverty eradication,
  • equality of opportunity for all to develop,
  • Reasonable equality of wealth and income,
  • Adequate safety net for the less fortunate,
  • The provision of good jobs for all those who can work,
  • The absence of corruption, and
  • The management of depletable resources (oil, gas, etcera) for the equal benefit of all, including future generations. These Islamic values are alien to the Persian Gulf!

    The mullahs in Tehran will simply not undertake reforms. In fact, because of short-term expediency to garner domestic backing, they have adopted institutions and practices that do exactly the opposite. After the revolution, the mullahs created foundations to benefit their supporters from the confiscated assets of the Shah, his family and foundations controlled by them and the vast holdings of businesses connected to the Pahlavi regime.

    These foundations represent a significant percentage of the Iranian economy today and are answerable only to the unelected supreme leader. In a similar economic grab, the intelligence services became partners in a number of key business interests by lending their "protective services". Most recently, and increasingly, the Revolutionary Guards have come brazenly to control a number of key sectors in the Iranian economy.

    By controlling possibly over 50% of the economy, these three broad business interests - foundations, intelligence services and the IRGC - reduce the Ministry of Finance's ability to bring economic prosperity to average Iranians. The regime is unlikely to adopt reforms that might threaten its short-run survival.

    The interim nuclear deal will cost the Tehran regime little, if anything, while affording the ruling mullahs more opportunities to solidify their hold on power, and in turn, deprive Iranians the chance of a better life - a truly representative government, the rule of law, respect for human rights and freedom, institutional reforms, social justice and economic prosperity.

    The US appears to be even looking beyond the interim Geneva deal. It looks as if Washington is willing to accept a permanent nuclear deal along the lines suggested above - freezing the status quo (permitting enrichment and the completion of the Arak plant but with intrusive inspection) - and making other concessions to the mullahs (the return of significant frozen Iranian assets under the Foreign Military Sales program), and implicitly supporting the clerical regime, in return for cooperation on Syria, Iraq, Afghanistan and Lebanon, and with Hamas and Hezbollah in order to broker a deal between the Palestinians and Israel.

    While the Obama administration may appear at first to have scored great diplomatic victories, it will be at the long-term expense of the Iranian people and US Muslim relations. In time, cooperation with the mullahs will be seen for what it is - US support for another dictatorship, alongside other Arab kleptocracies, and the alienation of even more Muslims in the future.

    Hossein Askari is a professor of Business and International Affairs at the George Washington University, and author and co-author of twenty books on the Middle East, including two books on economic sanctions.

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