August 16, 2013: President Hasan Rouhani formed a new government full of ministers who have had some good relations with Western officials. This led to conservatives in parliament denouncing him but the senior clerics who have the final say on everything were silent. The plan appears to be having Rouhani convincingly pretend to be “moderate” and get the tough economic sanctions lifted. This won’t be easy but there are still a lot of pro-Iran politicians and academics in the West, so there is a base of support to build on. Say the right things and make the right gestures and Rouhani could pull it off. Meanwhile, the senior clerics expect Rouhani to keep his promise to improve the economy. With oil income cut by more than half, that won’t be easy, especially since Rouhani is a known supporter of the expensive nuclear weapons program, which continues unabated.

Satellite photos show that Iran is building two more launch facilities for long range ballistic missiles or similar rockets used to launch satellites. One is in the north (Semnan province) while the other is in the southeast near Sharud. The Iranian ballistic missile program, which is now working on longer range missiles that could threaten Europe or North America, also continues to devour lots of scarce cash.

India and China are ignoring the economic sanctions against Iran, but even that is not sufficient to allow Iran complete trading freedom with its two largest economic partners. China and India cannot defy the West over this too much so both countries try to chat “legally” on the sanctions. For example, both countries buy the oil with their national currency (not dollars or euros, which is normal with international trade, especially oil). This means Iran has to use the Chinese and Indian currency to buy goods from the nation the currency came from, as there is not much of an international market for Chinese or Indian currency. This works. For example, Iran can more easily export oil if it uses Iranian tankers so it is buying many (over 15 so far) from China. The Iranian tanker fleet will soon be large enough to move all current Iranian oil exports. India can supply food and medicine and China has a large electronics industry. Neither China nor India are concerned about Iranian nukes, nor the fact that both nations are seen by Islamic radicals as “enemies of Islam.” Iran sees to it that no such anti-Indian or anti-Chinese talk comes out of Iranian Islamic radicals. Despite all this, Iranian oil exports are still half what they were before the 2012 sanctions and even the enthusiastic cooperation of India and China is no guarantee that the situation will turn around.

Israel and the United States appear to agree that the sanctions are damaging Iranian military capabilities. The Iranian smuggling network (for weapons and components) is more difficult and expensive to operate now. There is less money for training or buying new gear and Iranian combat capabilities are declining. Iran continues its nuclear weapons program, more desperate than ever because of the decline of its non-nuclear forces.

Even against its Arab neighbors Iran is in big trouble. Iranian defense spending is less than a tenth of its Arab neighbors (mainly Saudi Arabia and UAE). That's mainly because Iran is under several arms embargoes and is cash poor because the religious dictatorship in charge is financially inept and corrupt. But the Iranians have a long (over 3,000 years) reputation for aggressive behavior and dominating the region. Going retro on the neighbors is growing more popular with Iranians, especially if the neighbors are rich and Iran could use the money. At least that's how the Arabs on the other side of the Persian Gulf see it.

Another reason the Iranian armed forces are hurting is the Iranian need to pay for the creation and maintenance of a “foreign legion” (of Iran sponsored volunteers from Lebanon and Iraq) for service in Syria. Iran has been offering good pay to go off and support the Assad government in Syria and over 2,000 Iraqi Shia have gone in the last year. This has slowed the revival of the old (2005-8) Shia death squads. Sunni terrorists are also heading for Syria to join the rebels but there are four times as many Shia than Sunni Arabs in Iraq. What many nations in the region fear is that the Sunni/Shia violence in Syria and Iraq will merge and trigger a larger Sunni/Shia war involving Iraq and Saudi Arabia. This is a worst case that gets less implausible with each passing month.

The Iranian mercenaries have made all the difference for the government forces in Syria. Iran continues recruiting Shia gunmen in Iraq, Lebanon, and elsewhere and providing transportation to Syria, weapons when they arrive, and regular pay. The Iranians also encourage Shia men from around the world to come join the fight against Sunni radicalism (which often results in terror attacks on Shia civilians). More than 5,000 of these Iranian mercenaries have given the Assad forces armed fanatics to match the Islamic radicals among the rebels, who have often been a key element on the battlefield. Iranian cash also props up the ragged economy in parts of the country the Assad government still controls. The reinforced and reinvigorated Assad forces have recently made gains in the cities of Damascus, Homs, and Aleppo. Rebel victory is no longer imminent.

The Iranian mercenaries are not under any centralized authority, although Iran tries to exercise some control via threats to hold back on payments and supplies for groups that appear to be going rogue or simply not cooperating. The civil war, like most civil wars, has resulted in a lot of armed groups going freelance and operating like bandits and organized looters. Even the Syrian Army has allowed its troops to loot in pro-rebel villages and neighbor-hoods. It’s good for morale.

Iran is not happy with its ally Sudan selling Chinese and Sudanese made weapons to the Syrian rebels. This sort of thing should have been expected as the Sudanese leaders (including a president who is an indicted war criminal) are Sunni and the Shia (led by Iran)-Sunni (led by Saudi Arabia) conflict is heating up. Although Iranian aid has been appreciated over the years, and Sudan still helps smuggling Iranian weapons to local customers, the Sunni Arabs are more valuable allies. Nothing personal, it is just business.

August 14, 2013: Iranian Revolutionary Guards stopped an Indian tanker as it was leaving Iraq with a load of oil. Although the Indian ship was in international waters, the Iranian gunboat insisted that the Indian tanker come to an Iranian port to be inspected. Iran accused the Indian ship of discharging oily water that was polluting Iran. Witnesses could not see any oil leaks. The real reason for this boatnapping is the growing Indian purchase of Iraqi oil rather than Iranian oil. That is happening because of the severe 2012 sanctions against Iran, which made it extremely hard for countries to buy Iranian oil. There are ways around the sanctions but they are risky and many long-time Iranian customers are quietly moving to other suppliers. Many Iranian officials are angry about this and is apparently trying to remind India of that anger.

August 2, 2013: The U.S. enacted new regulations to make sanctions on Iran even stronger and further reduce Iranian oil exports.

August 1, 2013: Israel charged an Israeli Jew with spying for Iran. The accused is a member of the small (15,000 people) ultra-orthodox community that believes the state of Israel (for religious reasons) should not exist, and he approached the Iranians out of his hatred of the Israeli government and to make some money.