The new government has stabilized the economy in the face of sanctions and plunging oil prices. Foreign analysts see the economy (GDP) growing 1.5 percent in the next year after falling more than ten percent since 2012. Inflation has been brought down (to under 20 percent) but there is still high unemployment (especially for young people, where it is 22 percent). There have been shortages and less of everything since the sanctions began in 2012 and especially since the oil price began to fall in 2013. The new government budget is based on oil selling for $40 a barrel. It might go lower and Iran has been publicly begging Saudi Arabia (the world’s largest producer) to cut their production so the price would go up. The Saudis refuse as long as Iran hangs onto its nuclear weapons and ballistic missiles programs, not to mention threats against its Arab neighbors. Iran refuses to give up that much and believes it can survive several more years of sanctions and cheap oil. Iran believes, with some historical justification, that they can negotiate their way out of the sanctions and that soon the oil price will begin to rise. The religious dictatorship in Iran has survived on its wits for decades and believes it will keep its people under control and survive this economic crises as well. Of course the historical record also shows that sometimes it doesn’t work out the way the Iranian rulers want it to. Many of Iran’s religious leaders believe they are on a mission from God so the growing odds of them being overthrown are not a problem. The religious leadership also believes that the new economic policies will make the economy more productive without threatening the control the religious leadership has exercised over the economy since the 1980s.
The economic problems have led the government it be more creative, and to loosen up a lot of the rules imposed since the 1980s. New firms are now producing goods that used to be imported and clever ways have been found to get around the sanctions (that make it more difficult, and sometimes impossible, to export oil). Barter deals enabled India to import 42 percent more Iranian oil (276,800 barrels a day). India, Russia and Iran have created an unofficial currency union and barter network to facilitate trade that gets around the sanctions. The government has also heavily promoted an option (introduced in 2010) for young men to buy their way out of being conscripted for two years. Many young men from wealthy families already used bribes to avoid service but now you can do it legally and the government, rather than a corrupt official, gets the money. The government is raising this fee, again to increase government revenues.
Iranian leaders can also point to some victories. Most Iranians agree that Iran is winning the conflict with the rest of the world over their nuclear program. The sanctions are being reduced and the next round of talks on the Iranian nuclear program are January 18 while the next deadline is in mid-2015. The countries (China, France, Germany, Russia, the Great Britain and the United States) handling the anti-nuclear negotiations with Iran cannot agree on a strategy and are unable to get stronger sanctions imposed.
Iran is trying to use Westerners it has arrested (usually on false charges) as trading material to get sanctions lifted. So far this has not drawn any interest. Iran also has its growing influence in Iraq and ongoing support for the Assads in Syria, Hezbollah in Lebanon, Hamas in Gaza, Shia rebels in Yemen and so on to offer in trade. Again, no one is interested. That’s how much the rest of the world wants Iranian nukes gone, and how far Iran is willing to go to eliminate the sanctions.
Keeping the nuclear weapons program may be an empty victory for Iran because what hurts Iran the most is the plunging price of oil. It’s down by half (from $110 to $55 a barrel) since 2013. Iran had long depended on $100 a barrel oil for their budget planning. In late 2014 that was cut to $70 and some officials admit that planners are now looking at what will happen if it gets down to $40 or less. Such an event would be disastrous and every Iranian would feel the loss personally. At $100 a barrel nearly half the government income comes from oil (which normally accounts for 25 percent of GDP). Iran is facing serious (ten percent or more) GDP shrinkage if low oil prices continue. The government says it has halted the GDP slide but that is mostly spin, gimmicks and temporary. Naturally the government accuses Israel, the U.S. and the West in general of orchestrating the falling oil price.
Most countries benefit from cheaper oil and if anyone is “responsible” for the falling oil price it is the major OPEC (the producer cartel) producers who have not cut production. The main player here is Saudi Arabia, who produces a third of OPEC oil (the Arab Gulf oil states account for over half). Despite their temporary alliance against ISIL, Iran still considers itself at war with Saudi Arabia over who should be the leader of the Islamic world and the custodian of the most holy sites (Mecca and Medina) for all Moslems. Many Iranian leaders see Saudi Arabia as the major force behind the plunging oil price, but have moderated criticism of the Arabs and more loudly blamed Israel and the West. The Saudis are not officially using their ability to manipulate the price of oil, but unofficially the Saudis are quite pleased with how their success at keeping the price of oil low is causing much pain to their long-time rival across the Gulf. It’s rare for the Iranians to suffer a defeat at the hands of Arabs and Arabs in general are enjoying it while they can.
There are reasons for Arabs to remain concerned. Iran is also gaining power and influence in neighboring Iraq, a largely (80 percent) Arab state. A recent agreement gives Iran more influence in the Iraqi security services (by supplying a lot of training and advisors for combat and non-combat units). This has led to Iraq arming (with recently arrived American weapons) Shia militias organized by Iran. Iraq has also spent over $10 million in the last year on Iranian weapons. The Shia militias are basically very pro-Iran and believed to be more loyal to Iran than elected Iraqi leaders. These militias were recruited, trained and sometimes led by Iranian officers and have proved very useful in defeating ISIL. The U.S. supplied Iraq with $300 million worth of weapons in 2014 and only a few percent of that appears to have found its way to Iranian influenced Iraqi units.
Further south Sunni Arab Gulf states fear that the Shia rebels in Yemen plan to completely take over the government and then call on Iran to help protect the Shia government from internal enemies (the Sunni majority) and hostile Sunni neighbors (particularly Saudi Arabia and the other wealthy Gulf oil states). This is rather far-fetched, although Iranian ships and aircraft can reach Yemen by taking the long way (out over the Indian Ocean rather than over the Sunni Gulf states or via the Strait of Hormuz. What the Sunni Arab states are doing is responding to all the media and popular discussions inside Iran about how wonderful it is that the Shia are taking control of Yemen. More cynical Sunni Arabs note that Yemen is the poorest country in the Arabian Peninsula and an economic disaster zone. If you want to hurt Iran, let them “own” Yemen. The last thing Iran needs is more economic obligations in Yemen. Although a minority in Yemen, the Shia are more aggressive and face a divided Sunni community. Iran has always helped the Yemeni Shia, but never in a big way. This annoys Arabs a lot because admitting that the Yemeni Shia are simply tougher, better organized and more aggressive than the Sunni majority in Yemen is difficult to accept. Traditional thinking among Sunnis is that Shia are scum and a bunch of unreliable losers. Sunnis hate it when Shia win at anything, especially insurrection.
Things are not going so well in Syria and Lebanon. Syria is turning into a ruinous (for all of Syria) stalemate and anti-Shia and anti-Iran sentiment is growing in Lebanon. Sunni Islamic terrorists continue to attack Shia Moslems everywhere and anti-Shia attitudes continue to grow throughout the Islamic world.
Pro-Iran businessmen in Syria and their counterparts in Iran agree (usually off the record) that the plunging oil price threatens the generous and critical Iranian financial support for the beleaguered Assad dictatorship in Syria. Even with continued Iranian military support, Assad really, really depends on the financial support to maintain the loyalty of the few (less than a quarter) of Syrians that support him to one degree or another. Because of that, and the damage ISIL has done to the rebel alliance (which has been fighting a civil war with itself for the last year) the war has been going a little better for the Assads lately. In southern and central Syria (south and north of Damascus), pro Assad forces have actually been regaining some ground. Along the coast the army and pro-government militias have been able to expel rebels and form a continuous Assad controlled area reaching into central Syria and the capital (Damascus). Thanks to Iranian trainers, the pro-government militias are better trained and more effective as are the soldiers. All of these men are paid regularly and most see a better future than do many of the rebel fighters. The army is about half its pre-war strength of 300,000 but the remaining troops are loyal and most have combat experience. The army is trying to expand back to its pre-war strength. This is thanks to cash from Iran, because the Syrian economy is wrecked. But that Iranian cash has been reduced recently along with the plunging price of oil. This has forced Iran to cut its cash support for the Syrian economy. Thus while the Assad forces can provide some security, they are increasingly unable to provide much prosperity and even necessities are not arriving as frequently. Most of what remains of the Syrian economy is in Assad controlled areas where there is an unemployment rate of over 50 percent and the size of government handouts is a matter of life or death. Iran does not want its Syrian ally to be destroyed but subsidizing the Assad controlled population costs more than Iran can afford right now. Unless the price of oil moves sharply north and the economic sanctions on Iran (because of the Iranian nuclear program) are reduced the hard times will be getting harder in Syria for Assad supporters. Despite that living in Assad controlled territory is still a pretty good deal compared to what life is like in ISIL or al Nusra controlled areas. Yet life anywhere in Syria is pretty miserable and more and more Syrians would just like peace. More people are leaving the country and many experienced soldiers and rebels are giving up and leaving as well.
The religious leadership of Iran is overruling the elected government and ordering more restrictions on Internet and cell phone use. The government understands that a lot of anti-government material gets in via the Internet but also believes economic competitiveness requires free access to the Internet. The religious leadership is more concerned with the fact that most of the anti-government material is directed at the clerics who have the final say on anything the government does. The religious leaders are not complete reactionaries as they recently refused to approve a new law, pushed by Islamic conservatives, that would have given the police and civilian volunteers more authority to decide which clothing styles were “un-Islamic” and worthy of arrest and punishment. The “fashion police” are increasingly unpopular with all Iranians and not just the young ones.
January 13, 2015: The government announced that work has begun in the southwest (Bushehr Province) on building two new nuclear power plants. These will be near the first nuclear power plant that went online in 2012. Russia is supplying supervision and equipment for all three plants.
January 8, 2015: The government has banned the export or import of low quality products. The government wants Iranian firms to concentrate on high quality (and high price) items for export. This brings in more foreign cash to replace what has been lost because of sanctions and lower oil prices. At the same time the government wants more imports replaced with locally made goods. That only works if the locally made stuff can compete on quality as well as price.
January 5, 2015: The government publicized a new policy that makes an area between the Iraqi border and 40 kilometers inside Iraq a kill zone as far as ISIL members are concerned. Iran didn’t say it had its own forces in this zone but it is known that many Iranian created, supplied and sometimes led Iraqi Shia militia operate near the Iranian border, as do Iraqi police and army units that are believed under Iranian influence. This is not the first such warning to ISIL and so far ISIL appears to have kept its distance from the Iranian border.
January 4, 2015: In a recent interview an overly enthusiastic Revolutionary Guard officer confirmed that Iran had helped build and run missile factories in Syria. The general also boasted that Iran had helped Syria with nuclear weapons research. One such facility has long been suspected and is located in central Syria outside the much-fought-over city of Homs. Iranians have frequently been spotted in the area.
January 3, 2015: In the northwest border guards caught three armed Afghans trying to cross into Iraq to, as the captured men later admitted, join ISIL.
December 31, 2014: Iran and Iraq signed a military cooperation agreement that will lead to more Iranian training operations in Iraq and expanded use of Iranian advisors for Iraqi military and police commanders.
December 30, 2014: The U.S. has expanded its economic sanctions on Iran by applying restrictions on nine more Iranian officials and organizations. Most of these new sanctions have to do with crippling Iranian access to the international banking system.
December 28, 2014: In the southeast, on the Pakistani border, three members of the Revolutionary Guard, sent to reinforce the border police, were killed when their border post was attacked. Tribal (Sunni Baluchi) rebels were believed responsible. The next day, in retaliation, Iranian troops fired 42 rockets into Pakistan at a village believed to harbor Baluchi rebels from Iran. The rockets wounded seven Pakistanis. The Iranian Baluchis are a persistent and growing problem in this area, despite frequent arrests.
December 27, 2014: North of Baghdad (Samara) an ISIL sniper killed one of the Iranian officers (brigadier general Hamid Taqavi) advising, training and sometimes commanding Iraqi forces. Taqavi was a veteran of the Iran-Iraq war in the 1980s.
December 25, 2014: The military launched six days of troop exercises involving ground, and air and naval forces. Only 13,000 personnel are involved but the operations take place over an area of more than two million square kilometers. These exercises were heavily covered by the media, to show the Iranian people that their poorly armed and decrepit armed forces were really powerful and ready for anything. Another victory of style over substance.
December 23, 2014: Yet another pro-reform newspaper was shut down.