Reuters: Iran’s escalating nuclear dispute with the West and a plan to slash food and fuel subsidies will further test the nerve and authority of hardline leaders who dealt sternly with unrest after last year’s disputed election.
By Fredrik Dahl
DUBAI July 1 (Reuters) – Iran’s escalating nuclear dispute with the West and a plan to slash food and fuel subsidies will further test the nerve and authority of hardline leaders who dealt sternly with unrest after last year’s disputed election.
The Islamic Republic seems as determined as ever to press ahead with its atomic activities despite economic pain caused by a U.S.-led drive to isolate the major oil producer, including new U.N. measures targeting the powerful Revolutionary Guards.
President Mahmoud Ahmadinejad’s government may have largely re-asserted political control at home with a crackdown on the opposition which challenged his 2009 re-election in the streets.
But a plan to phase out subsidies costing the state up to $100 billion annually may spark renewed public anger.
The Oil Ministry faces the tough task of raising the $25 billion it says the energy sector needs in new investment each year to prevent crude exports from drying up.
Economic growth and foreign exchange earnings will largely depend on the oil price, which fell almost 10 percent in the three months to the end of June.
Below is an outline of the main political risks for Iran:
Major powers, particularly those in the West, are piling economic and political pressure on Iran to persuade it to suspend nuclear work they suspect is aimed at making bombs.
Iran, which says it is only seeking to generate electricity, is showing no sign of bowing to such demands and has dismissed the impact of new U.N. and Western sanctions.
Analysts say the latest punitive measures — a fourth round of U.N. sanctions followed by additional steps by the United States and the European Union targeting Iran’s energy sector — will cause further economic strain and deter foreign investors.
This was highlighted on June 28 when two large European oil companies announced they would halt key business with Iran, adding to a number of international firms that have stopped trading with the country this year.
But despite the prospect of growing economic costs, Iran’s conservative political, clerical and military establishment looks unlikely to back down over a nuclear programme it sees as a strategic priority and an “inalienable right.”
The director of the U.S. Central Intelligence Agency, Leon Panetta, said the new sanctions could create serious economic problems and help weaken the Tehran government.
But, “Will it deter them from their ambitions with regards to nuclear capability? Probably not,” he said.
President Mahmoud Ahmadinejad said Iran would return to long-frozen talks with world powers but on certain conditions only, and not before the end of August.
The West is likely to see his comments as another attempt to buy time while Iran presses ahead with uranium enrichment.
Reflecting such suspicions, Iranian concessions in May on a stalled nuclear fuel swap plan failed to derail the latest sanctions push, even though both sides may be willing to continue talks on the proposal.
The latest U.N. sanctions expand existing measures by further restricting Iran’s banking sector, bans the sale of more types of heavy weapons and calls for setting up a cargo inspection regime similar to one in place for North Korea.
In addition, the U.S. Congress on June 24 approved a bill to penalise firms supplying gasoline to Iran, which lacks enough refining capacity for its own fuel needs. EU leaders have agreed measures to block oil and gas investment in the country.
WHAT TO WATCH:
— More international firms withdrawing from Iran business
— Could pressure influence internal Iranian debate?
— Renewed talks on stalled nuclear fuel swap
GUARDS FEEL THE HEAT?
The U.N. resolution, naming the force as linked to Iran’s nuclear and missile programmes, blacklists 15 firms belonging to the elite Revolutionary Guards.
Branded a proliferator of weapons of mass destruction by Washington, the Guards’ influence appears to have increased since Ahmadinejad came to power in 2005, helping to quell last year’s huge opposition protests.
Its economic role is also on the rise, with ties to firms controlling billions of dollars in business, construction, finance and commerce, the U.S. Treasury has said.
This could make it potentially vulnerable to any effective international moves aimed at its business dealings abroad.
The force has a “pretty good network” of companies in the Gulf and elsewhere believed to be set up to buy components for Iran’s missile systems and other military purposes, said London- based defence analyst Paul Beaver.
“If you can neutralise the Revolutionary Guards economically the regime will wobble,” Beaver said.
But Nicole Stracke of the Gulf Research Center in Dubai said the Guards had prepared itself for possible strong sanctions and it would be difficult to track down its activities.
Measures targeting financial transactions are hard to enforce and may be easy to circumvent, argued Ian Anthony at the Stockholm International Peace Research Institute (SIPRI).
“The banks will know their own customers, but how to scrutinize the party on the other end of the transaction effectively? It is unlikely to be Iranian Bombmaker Ltd.”
WHAT TO WATCH:
— Guards reaction to latest wave of sanctions
— Further evidence of its growing economic role in Iran
The United States and Israel, Iran’s main foes, do not rule out military action if diplomacy fails to end the nuclear row.
Israel, which is assumed to have the Middle East’s only atomic arsenal, bombed an Iraqi nuclear reactor in 1981 and attacked an alleged Syrian nuclear facility in 2007.
But some analysts have questioned its ability to strike Iran, saying the potential targets are too distant, dispersed, and well-defended for Israeli warplanes to take on alone.
“It would be extremely difficult…to destroy all relevant facilities to stop a potential Iranian nuclear weapons programme,” said SIPRI researcher Pieter Wezeman.
Admiral Mike Mullen, chairman of the U.S. military’s Joint Chiefs of Staff, has said military options available to the United States could delay Iran’s nuclear progress but fail to set the country back long-term.
Iran threatens to hit back if attacked by targeting Israel and U.S. interests in the Gulf, and by closing the Strait of Hormuz. About 40 percent of the world’s traded oil leaves the Gulf region through the strategic waterway.
U.S. military firepower far exceeds that of Iran, but Tehran could retaliate by launching hit-and-run strikes in the Gulf and by using regional militant allies such as Hezbollah and Hamas.
WHAT TO WATCH:
— Israeli statements on how the Jewish state’s leadership sees the effectiveness of the latest sanctions, possibly influencing its thinking on possible military steps.
— U.S. and Israeli naval movements in region
— Signs of Saudi and other Gulf facilities offered for military action