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Iran: run by crazy madmen or great strategist?

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Iran continuously amazes even me. The patience and methodical review of policy and adjustments made to macro-economical, political, and strategic realities in Iran are done as an expert chess player would play the game. 

Neo-conservatives and radicals in Europe, Israel, and the US who claim Iran is a land lead by crazy people intent on nuking all as soon as the opportunity arises have zero understanding of realities and have no clue who their adversaries are. 

Yes sanctions can be painful, there is no question that when all normal means of commerce are closed there would be an effect. The question of course is, how long can sanctions be painful. This topic has been beaten like a dead horse by this site so I will leave it at that. 

Further articles: 
Trade sanctioning a nation of traders
Iran and sanctions - chess or checkers? 
Iran's own sanctions

The decision that Iran continues to make to date, that surprises me, is how each further sanctions move results in a movement towards reforming areas of the economy that have proved troublesome and too sensitive to alter in the past. Instead of an emotional and knee-jerk reaction of retaliation, Iran chooses to go the path of internal reform rather than external response. 

After the US congress blackmailed international firms from selling Iran gasoline, Iran quickly expanded local production to meet demand. This was no walk in the park as imports were 40% of internal requirements even though Iran has the second largest oil reserves in the world. Through finally lifting decades of subsidies that made Iran the cheapest place to pump, converting petrochemical plants to produce gasoline in the short-term, and creating a rationing smart card system, Iran was able to avoid the intended economic destruction hoped for by the US Congressmen.  

Examples are abundant of such reforms that successive administrations were not able to push through due to the public backlash or fear of change. The latest reform is something that has not only been a great wish of many presidents of the Islamic Republic but also something that the former Shah of Imperial Iran wanted to achieve but all had failed till now - converting crude oil sales to added-value exports.

Selling oil in its crude form means selling a commodity as it is. No work other than pumping it out of the ground is done and so very little in labor and synergy on the economy are achieved. But if Iran would be able to instead refine the oil as petrochemicals or other products like plastics, industrial solvents, chemicals, or even electricity than the returns to the Iranian economy would be revolutionary and something that not only has Iran not yet achieved but no oil exporting country to date has been successful in. 

Iran's economy to date is hugely diversified versus its neighboring oil exporters. Also due to the Iran-Iraq war (longest modern war) and over 33 years of sanctions Iran has seen the need early on to build local industries and today boasts some world leading sectors for quantity of production. 

The black curse given to oil is named appropriately as it truly curses an oil exporting economy to easy and fast returns from selling oil versus building local industries to process that oil and create jobs for its population. 

This policy reform was explained by  National Iranian Oil Company chief Ahmad Ghalehbani last Wednesday, on the oil ministry's news site Shana, 

"Iran's goal is eventually to stop exporting crude and expand the production of refined products and other derivatives"

There are also plans to export more electricity to energy deficient neighbors. New transfer lines are being built recently to allow for this new income source. Analyst have also estimated that with a fraction of the crude oil now being exported could be rather converted into exported electricity and have returns as much as Iran's whole oil exports combined. 

Other monumental reforms which would bring Iran into the developed and modern form of economy would be the use of taxes to pay for annual budgets.  Iran currently utilizes taxes for around 43% of its income.  Having already the least amount of its annual budget coming from oil sales (apart from Norway) Iran could truly reform its economy and achieve as Norway has done in looking at oil as capital versus income. This reform has been in Iran's Parliament for a while now and if eventually passed would be commendable. If agreed to, Iran would no longer be able to export oil and use the funds as income. It would have to do with the returns as it does any other capital; as investments. 

Platts reported that Iran's Economy minister Shamseddin Hosseini said on October 24 that Iran planned to rely increasingly on taxation rather than on oil revenues, quoting the labor news agency ILNA as saying. "Parliament has agreed to debate urgently a bill to modify the country's tax regulations."

They go on to say ILNA by quoting Hosseini that 43% of Iran's expenses was covered by taxation and that "if we get into trouble in selling oil, we should use tax resources to cover the expenses." 

These decisions are not those of mad men with little insight on where they want their nation to go. The image of Iran that is built by her enemies can be a double-edged sword in that building a misunderstood perception of your counterpart means you also misinterpret the reactions that that nation would make. That is why after forcing all sellers of gasoline to stop their exports to Iran, the US was in a state of shock and denial at first. What they had not foreseen was of the ability of Iran to not only avoid self-destruction but create efficiencies in the usage of gasoline while saving billions of dollars in import bills and more billions (estimates of 10-30 billion dollars) in subsidized energy sales. 


But to their credit predicting Iran's reactions is no easy task. As I quoted the last Israeli ambassador to Iran as saying a reflection of his words is timely and fits well with this topic. Uri Lubrani was quoted in the The Daily Beast as saying,

He said the Iranian leaders he'd met over the years were all highly skilled negotiators who would run circles around American officials.
"They are traders in their tradition. They're bazaaris. They know how to how to haggle, when to catch an adversary when he's weak. They're pros," Lubrani said.
"It took me a long time to understand this. I developed a gut feeling out of sheer experience. No Ivy League graduate will ever really understand the soul and the tradition and the behavior of the Iranians."

This piece was first published on The Real Amir Taheri

 

I am a business consultant by day working to bring Iranian businesses into the international market and in the evenings a journalist. My hope is to show the real Iran to the western world.
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Hopefully many people with influence will read thi... by Derick West on Wednesday, Nov 7, 2012 at 9:07:20 AM