July 17, 2015


Iran comes out of the cold : A momentous day for Iran as it signs a nuclear deal with America that may yet transform the Middle East (The Economist, Jul 18th 2015)

 The normally perfunctory state television and radio gave live coverage to the closing days of the arduous negotiation in Vienna. And when the deal was signed, it broadcast not only the comments of the suave, ever-smiling foreign minister, Mohamad Javad Zarif, but also those of Barack Obama, the American president. The message was clear: sanctions and diplomatic isolation were coming to an end.

The interior ministry, usually suspicious of uncontrolled crowds, declared the streets open for celebrations. Revellers danced past midnight. Even outside the old American embassy, the "den of spies" that had been taken over by students after the Iranian revolution in 1979, people sounded their horns. "This is the end of 'death to America', and the start of a rapprochement," said a Tehran-based analyst, Ramin Mostaghim, who joined the crowds.

All sides in the negotiation insist that the accord is limited to resolving the crisis over Iran's nuclear programme, at least temporarily. But all believe it is about much more than uranium-enrichment centrifuges and the modalities of inspections, important as these may be (see article). The potential to normalise relations between Iran and America, embittered since the revolution, could change the balance of power in the Middle East, transform America's role and, perhaps, change the course of Iran's politics. [...]

The most obvious consequence will be economic. Unlike its richer Gulf neighbours, Iran is not an oil-soaked rentier state, but a regional power with an industrial economy and lots of educated people who work.

Alone in the Gulf, it manufactures (and even exports) its own cars. For all its petrodollars, Saudi Arabia could not match Iran's nuclear programme without outside help. Mismanagement under the hardline former president, Mahmoud Ahmadinejad, as well as corruption, sanctions and the collapse in oil prices, have shrunk economic output from $248 billion in 2011 to $231 billion in 2014 (in constant 2005 dollars); export revenues have fallen by a third in the same period. Yet isolation has also fostered self-reliance. When Peugeot, a French carmaker, withdrew as a result of sanctions Iran engineered its own (cheap but substandard) parts. Iran's largest petrochemicals manufacturer boasts 44,000 employees, all of them Iranian.

For most Iranians, the nuclear deal offers the promise of prosperity. Under its terms, the world would unfreeze over $100 billion in assets and let Iran sell its oil worldwide. Iran predicts it will be able to double its oil exports within six months. The harshest sanctions will not be eased until early next year, after the international inspectors verify Iran's compliance. The supreme leader, Ayatollah Ali Khamenei, has set a target of 8% average annual growth for the next five years, up from its current 2.5% (see chart). Some Western diplomats and financiers in Tehran reckon that, within a decade, Iran's GDP might surpass that of Saudi Arabia and Turkey, the regional economic powerhouses.

Posted by at July 17, 2015 1:03 PM

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