Iran: The Price


August 31, 2013: Russia told Iran it would not discuss any new arms deals as long as the 2011 Iranian lawsuit is active at the international arbitration court in Switzerland. Iran is seeking $4 billion in damages because Russia backed out of a 2010 agreement to deliver $800 million worth of S-300 anti-aircraft systems (similar to the U.S. Patriot). Russia did not deliver on the 2010 deal because of the new UN arms sanctions against Iran but believes that some types of military gear could still be sold to Iran and will try to do so once the 2011 lawsuit is dropped. In reality, Russia is glad to have an excuse to stay away from Iranian arms deals, which cause the Russians all manner of diplomatic and foreign trade problems with the West and Israel.

The U.S. believes that the oil and banking sanctions have cut Iranian oil income sharply, with the total losses amounting to about $35 billion a year. In 2012, Iranian oil shipments totaled $69 billion (the tighter embargo rules began in June 2012). Iranian oil shipments are down by more than half, and of the $3.4 billion a month they are earning they are only able to spend $1.9 billion a month freely. The rest is trapped in foreign bank accounts by American threats to cut off Iranian oil customers from the international banking system if they release the cash to Iran. The embargoed cash can be used for food and medicine but anything remotely associated with military use is banned. Iran is scrambling to get around this, but so far Western banking experts have detected and foiled new Iranian schemes. This could change but the sanctions enforcers have logged years of experience dealing with Iranian sanction-busting tactics, and the Iranians now need even more exotic scams to get around the stronger sanctions. What this has done is eliminate the oil profits that have been used to keep enough Iranians content (with cheap staples and consumer goods) to prevent an uprising against the religious dictatorship. While the nuclear weapons program is popular with most Iranians, the harsh religious rule of the current government is not. A dictatorship is a dictatorship, even if it claims the mandate of heaven. The West is telling the religious rulers that if they give up the nuclear program (and accept effective oversight on that), the sanctions will go away and the religious leadership can continue to use the oil income to stay in power. Many, if not most, of the religious leaders believe backing down on the very popular nuclear program could trigger an uprising and that it is safer to try and tough it out and cope with the shrinking oil income problems. That means it’s up to the Iranian people, who will have to carry out a bloody uprising to force an end to the nuclear program. But having nukes is something most Iranians agree with so change means more than a new government, it means a major shift in popular thinking about Iranian power, how important it is, and what Iranians are willing to pay to sustain it.

Before the sanctions Iran was producing about 100 million barrels of oil a month. Now it is less than half that. Shutting off wells is costly and time consuming, so nearly half of Iran’s tankers are used for storing this oil until it can be sold. Most of the growing Iranian tanker fleet is used to carry oil to the few customers (China, Japan, South Korea, Turkey ,and the UAE/United Arab Emirates) but many are simply acting as floating storage for oil that cannot be sold. Most Iranian oil exports (about 800,000 barrels a day) are going to East Asia. In July, the U.S. passed a new law calling for doing what it takes to reduce Iranian oil exports to zero. 

The Iranian oil embargo is bad news for the Assad government in Syria, where over half a billion dollars of Iranian aid a month keeps the Assads going in their two year old civil war. Despite the reinforcements provided by Iran (Shia mercenaries from all over and Hezbollah infantry battalions from Lebanon) the rebels are still advancing. This may explain the recent Syrian use of nerve gas as conventional methods and a lot of troops had not been able to remove rebels from several Damascus suburbs or halt the terrorist attacks inside the capital. The key problem here was many Damascus residents supported the rebels. The chemical weapon attack was meant to show pro-rebel civilians that their disloyalty has a price and that mass murder was part of the punishment. Maher Assad (brother of president Basher Assad) is the guy to carry out this kind of operation, as he has long called for more brutal treatment of rebels and has often practiced what he preached. Foreign medical personnel reported treating hundreds of people for apparent nerve gas exposure after the nerve gas attack on August 21st. Some Iranian politicians have said Iran should attack Israel if the U.S. bombs Syria in retaliation, but the senior leadership is generally reluctant to get into a war with Israel or America.

Violence in Lebanon, between pro and anti-Iran factions, continues. Hezbollah is the most powerful supporter of Iran in Lebanon and is losing a lot of its popular support for that and for fighting against the largely Sunni rebels in Syria. Hezbollah has long been an expensive bit of foreign policy for Iran and sending Hezbollah gunmen into Syria made the friction in Lebanon even more widespread and intense. Iran fears that if they lose Syria they will also lose their expensive (billions since the 1980s) investment in Hezbollah and Lebanon. Altogether this would be a huge loss internationally and domestically. That, in addition to the cuts in oil income, could be the trigger for a popular uprising. 

With all these cashflow problems Iran keeps being asked to finance other foreign Islamic terror organizations. For example, Iran is being openly asked to resume subsidizing the Palestinian Hamas terror group that controls Gaza. Earlier this year Hamas was forced to openly oppose the pro-Iran Assad government in Syria after their Sunni donors threatened to cut off aid and political support if Hamas did not get in line with other Sunnis and denounce Iran. Hamas spoke out against the Assads but tried to make nice with Iran. Hamas, despite Iran cutting off aid (some $1-2 million a month), continued trying to maintain friendly relations with Hezbollah in Lebanon. The recent military coup in Egypt cut off aid from that quarter and Hamas is desperate. This is a tricky situation for Iran. As most Palestinians (who tend to be Sunni or Christian) have come out in favor of the Syrian rebels. Hamas has run Gaza since 2007, and Hezbollah has been a major factor in Lebanon for over 25 years. Despite the Iranian connections, both Hamas and Hezbollah are Arabs and both exist mainly to destroy Israel. Iran tried to be discreet when confronted with Hamas support for the Syrian rebels (who are now fighting Hezbollah gunmen along the Lebanese border). Hamas pointed out that a few of its members have unofficially joined to fight alongside Hezbollah inside Syria but had to admit that even more had joined the rebels.

Palestinians in Gaza and the West Bank tend to back the rebels. But nearly a million Palestinians in Lebanon and Syria are split, with nearly half of them backing the Assad government in Syria. This has also upset Iran, which has generously supported Palestinians for decades. Iran is finding that Hezbollah is not eager to sacrifice its reputation in the Arab world just to please its patron. So Iran is giving Hezbollah more money and anything else its leadership wants. The Sunni Arab nations in the region are warning Hezbollah that this support for Iran could have dire consequences down the road. For the moment, the Hezbollah leadership is remaining loyal to its paymaster. But many rank-and-file Hezbollah are not so sure. Sunni Arab nations are working on that doubt, seeking Hezbollah leaders who might be amenable to new leadership for their organization and new sources of financial support. Renewing financial support for Hamas would also be risky.

In the last few years Iran has been getting more aggressive towards the Sunni Arab states (especially oil-rich Saudi Arabia, Kuwait, and the UAE) and that has escalated into a shooting war in Syria. While some Iraqi Sunni terrorists have gone to join the fighting in Syria, many more young Sunni Arabs have been inspired to join the terrorist groups in Iraq. Government relations with the Iraqi Sunni Arab community keep getting worse and Iran is becoming more threat than ally.

While Iraq, and its Shia majority, are friendly to Shia Iran, most Iraqis are wary of Iran and get especially nervous when Iranian leaders casually talk of southern Iraq really belonging to Iran. At the same time, Iran is acutely aware of how unruly its own Arab minority (a few percent of the population) can be. There are a growing number of terrorist incidents inside Iran traced to Iranian Arabs. Most Iran oil is pumped from the ancestral lands of these Arabs, who are bitter about how they receive little for all that oil. Iraqi Arabs see the Iranians doing the same thing with Iraqi oil if Iran ever managed to carry out their expansion plans.

The Iraqi Arabs see the Iranians as a growing threat to Iraqi oil fields because of all this Iranian talk of regional domination. If Iran ever managed to carry out their ancient, and often foiled, expansion plans, Iraq would be the most likely first target. Iran has, for thousands of years, been trying to annex southern Iraq. In the past it was just about owning the fertile Tigris-Euphrates river valley (central and southern Iraq). But now the focus is on southern Iraq, which is over 80 percent Shia and contains the major Shia holy places. More importantly this area has most Iraqi oil fields that would increase Iranian oil exports by over 50 percent. Iraqis, particularly Shia Iraqis, note that Iranian Arabs, living just across the border in Iran's oil producing region, are not treated well, never have been, and probably never will be. Ethnic Iranians have a low opinion of Arabs and do little to hide it.

The Iranian Arabs are despised by ethnic Iranians, and the current generation of Iranian Arabs are fed up with the discrimination they suffer. Their fathers fought bravely for Iran when Iraq invaded in the 1980s, and all the government gave in return was more abuse. There's more anger than organization and violence coming from these Iranian Arabs. Despite that, the anti-government Arab terrorist movement in southwest Iran has been growing rapidly since Saddam Hussein was overthrown in 2003. The government blames it all on American and British agents, who are widely believed to be helping to organize armed resistance. There's never been any proof. Those rumors have been an Iranian staple for over a century. The local Arab rebels blame the non-Arab Iranians and say nothing about foreign assistance.

The shortage of foreign currency has caused inflation as the government prints more money that cannot buy many foreign goods and there’s not enough being manufactured in Iran to take up the slack. Inflation is running at about 50 percent a year and the exchange rate for dollars is stuck at about 33,000 rials per dollar. The military is less concerned about the exchange rate, since they cannot legally import anything. Moreover, the defense budget has more than doubled in the past year, to $5 billion. That, however, is still one of the lowest defense budgets in the region.

Naturally, smugglers are having a good time. Some work for the government but most move consumer goods to the many people who have foreign currency or gold and jewels (always popular among the well-off). The government recently admitted that the smugglers had brought in enough illegal satellite dishes to provide about 40 percent of the population access to forbidden foreign TV broadcasts. There are many Iranian (Farsi) language channels outside Iran, nearly all of them forbidden inside Iran. It’s not just the news that is outlawed (and that can be obtained via shortwave radio or the Internet) but the entertainment. Images of women in their underwear (or less) is forbidden inside Iran and quite popular with many Iranians, as are Farsi language soap operas (plus many similar shows dubbed or subtitled for Farsi audiences) and other video entertainment that shows forbidden ideas and lifestyles. People have gotten good at hiding their sat dishes or finding the right people in their neighborhood to bribe (and not check out odd looking structures on the roof that hide the dish).

August 28, 2013: A new report from the UN IAEA (International Atomic Energy Agency) describes improved uranium enrichment efforts and continued problems confirming Iranian efforts to enrich uranium to weapons grade levels. Iran continues to deny IAEA access to a new underground facility. As far as the IAEA can tell, the new sanctions are not slowing down Iranian work on nuclear weapons and that Iran is in the process of greatly increasing its enrichment efforts and is probably developing nuclear weapons. IAEA is to meet with Iranian officials again on September 27th but this continues to be just one evasion and delaying tactic after another.

In Nigeria two local men were charged with working for Iran to help (with Iranian agents) plan attacks against Israeli targets in Nigeria.

August 23, 2013: In western Afghanistan (Herat province) an anti-Iran demonstration was held in the provincial capital. The Afghans were angry at the Iranian diplomats, operating out of the consulate in Heart, engaging in spying, bribing Afghan officials, and carrying on like a criminal gang. This is common practice with Iranian diplomats, especially in countries where they have a lot of influence (via threats or bribes) or feel a need to accomplish something important (like terror attacks against Israel or Western targets). Cash bribes to Afghan officials is another foreign expense that is becoming more difficult to justify but it is rather essential because of the continuing threat from Afghan drug smugglers, who have created over two million opium and heroin addicts inside Iran. In response there is constant police activity at the Afghan border and Iran has seized two-hundred and fifteen tons of drugs in the last five months and made hundreds of arrests. But the drugs keep coming (and most of them continue on to the Arab Gulf States or Europe).

August 22, 2013: In the northwest Kurdish separatists (PJAK) claim to have clashed with Iranian soldiers and killed five of them, while losing two of their own.

August 21, 2013: A Sierra Leone businessman was arrested in the U.S. for trying to arrange the shipment of a thousand tons of yellowcake uranium to Iran. It was a U.S. sting operation and the arrested man had samples of yellowcake with him. Yellowcake, or uranium oxide, is produced by refining tons of dirt (ore) containing uranium. To do this the dirt is crushed and bathed in sulfuric acid, dried, and filtered to produce a yellowish powder, which is where the term “yellowcake” came from. The yellowcake must then be processed further, using anhydrous hydrogen fluoride and fluorine gas, to form Uranium Hexafluoride. This stuff, while not very radioactive, is nasty and must be kept in air tight containers. If Uranium Hexafluoride gets in contact with water it forms poisonous and corrosive gasses. Uranium Hexafluoride is used to obtain, via some more rather tricky refining, the highly radioactive Uranium 238 material that is used in nuclear power plants and nuclear bombs. Iran is believed to be running short of yellowcake and in the market for additional supplies.

August 20, 2013: In Thailand two Iranians were sentenced to long prison terms (life and 15 years) for engaging in terrorist acts. In February 2012, a house in the Thai capital exploded after the three Iranians inside attempted to throw a bomb (built for a terror attack against Israelis) at police. It went off inside the house, badly wounding one of the three Iranians. Two of them were captured and are now going to prison for a long time. The third made it out of the country and is still wanted. The three men had rented the house for several months and the Iranian government would not admit to any guilt. The trial revealed much evidence that Iran was involved and Iranian diplomats in Thailand will have to be very careful for a few years.

August 19, 2013: The Iraqi government has responded to growing foreign pressure and resumed inspecting (for illegal weapons shipments) Iranian aircraft (by first forcing them to land) flying to Syria. Iran responded by calling this illegal and implying that there would be serious consequences if the Iraqis persisted. This appears to be all for show, as the Iraqi inspectors can easily be persuaded (by Iranian bribes or threats) to see nothing illegal. Iranian trucks full of military supplies still roll through Iraq and into Syria. What Iraq is more concerned about is Sunni terrorists moving weapons and bomb making materials into Iraq from Syria. Iraq has over twenty-thousand soldiers and other security personnel guarding the Syrian border, which is largely uninhabited and suitable for cross-country driving.




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