May 2, 2014: There has been little progress in getting around the sanctions on exporting oil and shipments are stuck at a million barrels a day and appear likely to stay there for the next six months. This puts the government under increasing financial and political pressure because oil accounts for 80 percent of exports (the source of foreign currency to buy foreign goods) and half the government budget. Before the new sanctions Iran allowed imports to climb from $39.1 billion to over $60 billion since 2006 in order to keep unrest (against the corrupt religious dictatorship) down.

After many delays caused by the potential for public unrest, the government began to eliminate fuel subsidies today by increasing the price of petroleum products as much as 75 percent. Many Iranians expect inflation to return because of this. Iran spends a third of its $300 billion GDP on subsidies for gasoline, natural gas, electricity and food. Paying for these subsidies restricts what the government can do, but getting rid of these subsidies angers most of the population. Eliminating the subsidies would give the government more flexibility in rewarding its supporters. Without the subsidies electricity will cost 25 percent more and water 20 percent more. The rules for who is eligible for welfare payments have also been changed and a lot of people will not get as much (or any at all) cash each month from the government. There could be violence because of the subsidy cuts but it is necessary to balance the budget in the wake of continued sanctions. As it is Iranians have become increasingly and openly hostile to their government over the last year as the increased sanctions hurt the economy and hit most Iranians directly.

The threat of U.S. sanctions has caused China to back out of participation in building a gas pipeline from Iran to Pakistan. China was to replace Iranian financing for the deal. In December 2013 Iran told Pakistan that it could not deliver on a pledge to loan Pakistan $500 million so that Pakistan could build its part of a $4 billion natural gas pipeline from Iran to Pakistan. This was disappointing to Pakistan, which has been an ally of Iran and was ignoring American threats of sanctions by agreeing to the pipeline deal. But Iran lost faith in Pakistani ability to get their portion of the pipeline built and feared that a loan would largely be stolen by infamously corrupt Pakistani officials. Each country was to pay for half of the pipeline. Pakistan believed that part of the deal was Iran providing loans so that Pakistan could build its half. Iran insisted that this was never agreed to and the sanctions have left Iran unable to loan Pakistan the cash needed. Iran has already invested quite a lot of cash on its portion of the pipeline so this loan decision is seen as a temporary setback. The natural gas pipeline between Pakistan and Iran would enable to Pakistan to get around the sanctions by importing Iranian natural gas and paying with goods (barter). But even without the sanctions Pakistan is a natural customer for Iranian gas.

Syria

Another major expense is Syria, where the government spends over a billion dollars a month to keep the pro-Iran Assad dictatorship in power. A key factor in the government ability to reverse rebel gains over the last year has been the appearance of thousands of Lebanese Hezbollah gunmen. Iran helped create Hezbollah in the 1980s and has financed the survival and growth of Hezbollah ever since. In addition to cash and weapons, Iran has provided military training. A lot of the training has been basic military stuff, but there’s been a lot of specialized instruction (terrorism, espionage, counter-espionage, planning and so on). Thus while the Hezbollah “army” only consists of about 2,000 full timers and 10,000 part timers, there is also a much larger force of trained reserves (trained personnel no longer on the payroll). Many of these reservists have been called on to “volunteer” to spend 3-6 months fighting in Syria. That has been very dangerous, with about 2,000 of the Hezbollah men serving in Syria in the last 18 months getting killed or wounded in action. Iranian cash and other resources have come in handy here because Hezbollah has been able to provide death benefits for those killed in Syria and free (and extensive) medical care for those wounded. More money is paid to Syria veterans recovering from wounds and pensions for those crippled by their wounds. All this cash comes from Iran.

For the Syrian government, which is also subsidized by Iran, these Hezbollah military efforts have been crucial because Hezbollah’s paramilitary force is one of the most effective in the region. Over the decades Hezbollah has developed effective tactics to fight Israeli troops and hostile militias and Islamic terrorist groups in Lebanon. Israel can still beat Hezbollah fighters, but with greater effort than against other Arab irregulars. In Syria this Hezbollah experience, training and professionalism has been a nasty shock to the rebels. Hezbollah fighters can operate as effectively (and often more so) than trained Syrian soldiers, but also fall back on many terrorist and commando techniques they have learned from the Iranians and decades of combat inside Lebanon and on the Israeli border. Inside Syria the Hezbollah fighters are feared by the rebels and respected by the Syrian soldiers.

Cyber War

Arab and Western oil companies are under pressure to improve their computer network security because of the growing number of Cyber War attacks coming out of Iran. This is part of a deliberate and much publicized Iranian effort to become a major player in Cyber Warfare. That means Iran continues to jam satellites. Iran has already been accused of jamming news service by BBC, France 24, Deutsche Welle. Iran is also accused of jamming American Iranian language programs delivered by satellite. Iran denies they were jamming but there is ample evidence that the jamming is coming from Iran. Since September 11, 2001 the U.S. has developed equipment and techniques for locating the source of jamming with considerable accuracy.

April 29, 2014: Iran has cancelled a 2009 oil field development deal with the Chinese state owned oil company. This contract would have eventually been worth $2.5 billion to the Chinese. Both sides accused the other of failure to cooperate as the main reason for the termination. China remains Iran’s biggest oil-export customer since China is willing to defy the international sanctions against Iran. That was behind the 2009 contract, which was to replace Western oil companies that had to back off because of more sanctions.

The U.S. has imposed sanctions on nine (eight Chinese and one Dubai) companies for helping Iran get around sanctions. Two Dubai men were also added to the sanctions list.

April 26, 2014: Today the government shut down the third reformist newspaper this year. This is part of a pattern of increased government repression of those who complain publically or simply call for change in the way Iran is run.

April 23, 2014: The head of Iranian prisons was removed from his post, and promoted. This was a polite way to handle an embarrassing situation where 30 political prisoners (pro-reform activists) were badly beaten by prison guards and Revolutionary Guards brought in to help. The government tried to cover this up but that effort failed. While the government selects which candidates can run for parliament (thus barring most of the pro-reform politicians) the reformers are a powerful constituency and incidents like this only cause more people to become pro-reform.

April 20, 2014: The army announced a lot of new equipment for the troops. On closer examination these are all older Russia, Chinese or American designs that are built under license (or pirated) or are simply older stuff that has been rebuilt.

Police seized 404 kg of opium and hashish in the last two days. These drugs were seized inside Iran, where the growing number of addicts gives Iran the largest addict population (by addicts as a percentage of the population) in the world. Nearly three percent of the population is addicted (mainly to opium, hashish and heroin, all of which come largely from Afghanistan).  

April 19, 2014: President Rouhani visited southeast Iran and tried to bolster morale among the Shias living there. That area is home to the Baluchi minority, which is Sunni and backing an increasingly violent opposition to the government.

April 17, 2014: UN inspectors (from the IAEA) agreed that Iran was complying with the January 20 agreement regarding their nuclear program. This agreement lasts six months and during that time Iran will receive over $5 billion in frozen assets if they comply. If no long-term agreement is reached at the end of six months then the sanctions will get worse.

April 15, 2014: Two Pakistani warships (a submarine and a patrol boat) returning from a visits to Arab states in the Persian Gulf stopped off in Iran for four days of joint training exercise. Pakistan tries to maintain good relations with Iran, despite close economic and diplomatic links with the Arab Gulf States (who see themselves threatened by Iran).

April 14, 2014: The government announced the cancellation of an Iranian Navy visit to waters off the U.S. east coast. Two months ago it was announced that an Iranian “destroyer” and “helicopter carrier” were traveling to the Atlantic Ocean. Iran described these two ships as the “Battle Group 29” and said the two ships would stay out there for three months protecting Iranian merchant ships from pirates. In reality the “destroyer” is a 1,500 ton frigate and the “helicopter carrier” is a 33,000 ton oil tanker modified to have a helicopter landing pad and capable of carrying three helicopters. The tanker was armed with a 76mm gun and two twin-23mm anti-aircraft guns. The main function of the helicopter carrier was to ensure that the frigate does not run out of fuel in the middle of the ocean. This frigate can travel 9,000 kilometers on internal fuel (at 28 kilometers an hour). In other words it has to refuel every two weeks if it keeps moving while at sea. The two ships were going to travel south around the southern tip of Africa and then to Venezuela and Cuba where they would recuperate and provide photo ops. The U.S. would be condemned and warned that the Iran Navy was close. This was all for domestic consumption, to reassure Iranians who believe, or want to believe that three decades of sanctions have not reduced their armed forces to impotence. While Iran has the largest armed forces (in terms of personnel) in the region its weapons and equipment are far less capable and for decades its military leaders have been chosen for their loyalty to the religious dictatorship that runs Iran rather than for skill in military matters. The government did not give a reason for cancelling the voyage to the Atlantic and simply reported that the two ships were returning to Iran.