PHOTO: Iran’s Supreme Leader and President Hassan Rouhani:”The value of each to the other is quickly running out”
Frud Bezhan writes for Radio Free Europe/Radio Liberty, with input from EA:
Iranian President Hassan Rouhani was riding a wave of optimism one year ago. The long-negotiated nuclear deal with world powers he had sold to Iranians as an end to their economic woes was finally being implemented.
But amid the first anniversary of implementation day on January 16, Rouhani has been saddled by the high expectations he set, as Iran’s economy continues to struggle and the great boost in foreign investment and other benefits he envisioned has so far failed to materialize. With hard-liners seizing on the opportunity to criticize Rouhani for a deal they opposed from Day One, the relatively moderate president is once again scrambling to sell the advantages of the deal to the Iranian people.
Rouhani has been accused of overhyping the agreement and being duped by Washington and five other world powers at the negotiating table. In many ways, it mirrors the situation in the US, where supporters have fended off consistent opposition to the Joint Comprehensive Plan Of Action, in which Tehran agreed to curtail its nuclear program in exchange for sanctions relief, since it was signed in July 2015. With President-elect Donald Trump preparing to take office, his campaign promises to rework a deal he portrays as poorly negotiated and bad for the American people have cast a pall on the future of the JCPOA.
“Win-Win Outcome”
Outside economists suggest the nuclear agreement has helped Iran’s economy, which was on the verge of collapse. But they add that Tehran has been unable to yet reap the full benefits of the deal because of internal and external factors, including resistance among Iranian hard-liners to opening up the state-controlled economy, the significant financial restrictions still imposed on Tehran by Washington, and continued wariness by European companies to invest in Iran.
Rouhani, who is expected to run for another term in Iran’s May presidential election and who has banked a lot of his political capital on the deal, has responded to his critics by touting the agreement’s “win-win outcome.” He has urged Iranians to remain patient, promising that the benefits of the deal are “appearing”.
He has pointed to Iran’s oil output, which has soared to near presanctions levels, to headline-grabbing agreements to purchase long-desired passenger aircraft from the U.S. firm Boeing and its European rival, Airbus, and to potentially lucrative understandings with the French firm Total and Russia’s Gazprom to develop major oil and gas fields in Iran.
“The outcome of the JCPOA is in everyone’s favor,” Rohani said during a live interview on state television on January 1. “No one in the world says Iran has lost in this deal, or has been deceived, or has failed. Those who oppose it…say Iran deceived the other party.”
Indeed, the main economic indicators point to improvement in Iran. Economic growth is projected to reach 4.3% and 4.8% in 2016 and 2017, respectively, compared to 0.5% in 2015. The effort to bring inflation to under two digits has seen success and the fiscal deficit has fallen.
“The lifting of the sanctions put wind in the sails of the moderate politicians that favor continued economic reforms, tighter fiscal policy, lower inflation, and faster growth,” says Steve Hanke, an economist at Johns Hopkins University in Baltimore. “There has been modest improvement. They have kind of turned the corner, but it has been nothing big.”
But that is only part of the picture.
The Iranian currency, the rial, hit a record low against the dollar in recent weeks, prompting fears that efforts to boost the exports of industrial goods will suffer and anticipated foreign goods will be prohibitively costly. The unemployment rate is on the rise, reaching 11.3% in 2016 compared to 10.8% in 2015.
In a nutshell, the limited economic progress Rouhani’s government has made has yet to trickle down to the average Iranian household in terms of jobs, salaries, and the prices of basic goods. This is something that none other than Supreme Leader Ayatollah Ali Khamenei has pointed out, saying in August that Iranians had yet to see a “tangible effect” in their daily lives.
Some of the criticism was invited by Rohani and his negotiating team. To sell the nuclear deal to skeptical members of the Iranian leadership, Rohani and his chief nuclear negotiator, Foreign Minister Mohammad Javid Zarif, played up the benefits and played down the difficulties.
“Residual” Sanctions
During the negotiations, Khamenei was vocal in insisting that all existing international sanctions against Iran be removed immediately upon the implementation of the agreement.
That was not to be, however.
Even though the US, the European Union, and the UN lifted many nuclear-related sanctions against Iran, Washington has maintained unilateral sanctions linked to Iran’s human rights record and controversial ballistic-missile program that forbid U.S. citizens and companies from doing most forms of business with Tehran.
“The problem is that, over the years, you’ve got sanctions on top of sanctions on top of sanctions. There were many sanctions that were specifically removed with the [nuclear agreement], but there were many others in the spiderweb,” says Hanke, adding that some of these residual sanctions are “undefined”.
Scott Lucas, an Iran specialist at the University of Birmingham in the UK and editor of the EA World View website, says the sanctions still in place have severely affected Iran’s “access to trading relationships, access to foreign investment, and access to finance”.
Those sanctions have left big banks and multinational companies worried they could still be prosecuted for doing business with Iran.
Lucas says that is why the sales of Boeing and Airbus airliners have been held up, because it is unclear how such transactions will be financed and transacted. The first of 100 Airbus planes arrived only days before the anniversary of the JCPOA. And the 80 passenger jets Iran has agreed to buy from Boeing for nearly $17 billion — marking the largest deal Tehran has made with an American company since the 1979 Islamic Revolution — won’t start arriving until 2018, assuming the sale is allowed to go through by a skeptical U.S. Congress and the new Trump administration.
Tehran has openly protested the US Senate’s unanimous extension in December of the Iran Sanctions Act, which seeks to deny Iran the ability to finance and acquire technology that could be used to develop a nuclear weapons program. Legislators and officials in the Obama administration reportedly argued the extension would not violate the JCPOA agreement.
But Tehran has claimed otherwise, recently requesting a meeting of the joint commission that oversees the nuclear deal to express its opposition to the extension of the Iran Sanctions Act. In the end, Iran’s earlier threat to retaliate against the U.S. Senate vote did not lead it to trigger a formal dispute-resolution mechanism.
A statement issued after the January 10 meeting in Vienna said that “all sides reaffirmed their strong commitments contained in the JCPOA, in particular as they relate to the Iran Sanctions Act, and recognized the United States’ assurance that extension of the Iran Sanctions Act does not affect in any way the sanctions lifting Iran receives under the deal or the ability of companies to do business in Iran”.
Spoilers in Iran
On the domestic front, Rouhani has had to contend with internal resistance from hard-liners, including clerics, the judiciary, and the powerful Islamic Revolutionary Guards Corps, which is estimated to control much of the economy.
“When you appear to have financial restrictions, you have the [IRGC] and their supporters saying Rouhani is weak and Rouhani can’t follow through because they would be quite happy for those investment deals to collapse or at least be restricted because they benefit,” says Lucas. “It’s a perverse thing about Iran that the group that benefits if Iran does not recover is the [IRGC].”
Meanwhile, Khamenei has sharpened his criticism. He has continued to emphasize a “resistance economy” aimed at boosting domestic production for export and warned against Western “infiltration” by way of the agreement.
“Rouhani is the lightning rod for the economic issue and the nuclear deal, so if they ever go south, the Supreme Leader can blame Rouhani, and that’s where we are right now,” says Lucas. “The two men had a pragmatic relationship where each needed the other at a certain point. But the value of each to the other is quickly running out.”
