President Hasan Rouhani, unlike his tempestuous predecessor
Mahmoud Ahmadinejad, has made it clear that he will be much less threatening and more willing to make deals. He even said some nice things to Israel and allowed the government to establish an official presence on Facebook (even though Iranians are still banned from that social network). This promise of change has had some positive impact. A month into his first term as president and food prices have gone down slightly (they increased 50 percent over the last year) and dollars became 25 percent cheaper to buy on the black market. Iranians are optimistic again. Even the senior clerics, who have veto power over parliament and
Rouhani, say Iran is ready to make concessions to get out from under the sanctions. With oil income cut in half in the last year and efforts to get around the sanctions being constantly countered by efficient American sanctions enforcers, Iranian leaders are desperate to gain some relief before a deprived population gets violent. It’s still unclear if Iran is willing to give up its nuclear weapons program (which, officially it insists does not exist although most Iranians believe otherwise). Syria fears that Iran is more willing to give up support for the Assad government than surrender its nukes. Iran now wants another round of negotiations with the West and analysts of Iranian internal politics believe Rouhani will offer lots of concessions, short of actually dismantling the nuclear weapons program, to get sanctions relief.
Despite the sanctions, some Iranian trading partners have remained loyal and kept Iranian economic activity going. China is now the largest trading partner, taking half a billion dollars a month in Iranian goods each month (this year). Most of this is oil, and China pays for it largely with goods. That’s a billion dollars a month in trade activity and it gets around the sanctions and international banking system restrictions. Iraq is even more important, with only six percent less trade volume and taking mostly non-oil exports and supplying all manner of food products and consumer goods. Afghanistan is also a good source of barter (about $440 million a month in exports and imports). India has less to export to Iran but still wants Iranian oil. That trade is about $370 million a month. Another major source of consumer goods is the UAE, most of which has to be paid for with foreign currency. The UAE sends nearly $300 million worth of goods to Iran each month. These consumer goodies go a long way towards keeping Iranians peaceful, despite the fact that Iran is a religious police state and most young Iranians do not like this restrictive atmosphere at all.
Iran announced it will build a second nuclear power plant, one that can generate 360 megawatts of power. The first Iran nuclear power plant (Bushehr) finally went to full power (1,000 megawatts) at the end of August and comes under Iranian control this month. Bushehr only went online for the first time last year. There were many delays in getting this plant operational. The Iranians said that some of the delays were made for safety reasons, because of poor construction of the power plant. The Russian designed plant was supposed to be operational in 2010. Government officials kept complaining to the Russians, with no apparent effect. Russians who worked at Bushehr complained of sloppy work by Iranians and a nuclear power facility that was fundamentally unsafe. Perhaps because of this, the government had 4,000 civilians living near the Bushehr plant relocated at a cost of $10 million. Work on Bushehr began in 1974, but was interrupted by the 1979 revolution and did not resume until 1992, when the Russians took over from a German firm. Russia continues to support the Iranian nuclear power program. This support is largely driven by the need for at least one export customer for Russian nuclear power systems. No one else will buy this stuff because during the Soviet period Russian nuclear reactors were seen as shoddy and accident prone. That is not the case anymore, but the bad reputation persists. So Russia needs to get some safe, reliable Russian nuclear power plants running in Iran to prove that Russian nuclear energy technology is competitive with what is offered by Western firms. Iran is the largest producer of electrical power (70 megawatts) in the Middle East and needs more power to keep economic growth going. Thus Iran wants to build twenty nuclear power plants and right now the only supplier they have is Russia.
Meanwhile, Iran is desperate to keep the pro-Iran Assads in power in Syria. To that end it is depending on Russian efforts to get Syria to voluntarily surrender its chemical weapons. This is a scam that is really meant to halt any American or NATO air strikes against the Assad forces. Discussions about this deal have halted any air strikes for the moment and it is believed that discussions will be dragged out indefinitely as the fighting in Syria continues. Without those air strikes the rebels will suffer more losses (mainly civilians) and the Assad government will be able to hang on longer. Assad believes with enough time (free of air attacks) and enough aid from Iran he can beat the rebels into submission. Israel would like to see the Syrian chemical weapons (intended mainly for Israel) gone but doubts that this will ever happen, especially with the Assads in power. Even if current stocks were destroyed, the Assads could easily replace them. Russia believes that UN chemical weapons monitors and efforts to destroy the chemical weapons in place will make NATO or American air strikes against Assad forces politically impossible, even if the Assad forces are carrying out a much more brutal campaign against pro-rebel civilians and just using everything except chemical weapons. Iran likes this approach because Iran has been willing to help the Assad forces up its game in the brutality department. The Sunni majority will either be driven out of Syria or terrorized into submission. This won’t work as long as the Assad forces have to worry about the possibility of Western intervention from the air. The surrender of chemical weapons to UN observers and starting destruction of the chemical weapons (using foreign contractors, guarded by foreign troops who are not there as peacekeepers) gives Western governments an incentive to keep the Assad government in power until the chemical weapons can be safely destroyed. This can take a long time and Iran believes that as long as the negotiations are seen as active the Assads are safe from Western air power.
While Russia still refuses (because of the tight sanctions) to sell Iran weapons, the Russians have shipped a billion dollars’ worth of weapons to Syria since the civil war began in 2011. Russia insists that this is not in violation of arms embargoes against Syria and are simply deliveries of weapons ordered before 2011. In the last year Syria has delivered over $200 million in cash to Russian banks to keep these weapons coming (mainly S-300 anti-aircraft systems and anti-ship missiles) and their warranties operational. These purchases are being paid for by Iran, which flies in the cash to a Syrian financial operation in Moscow. The cash is then delivered to Russian government accounts via a Moscow bank. The Syrian Moscow operation is run by an uncle of Syrian dictator Basher Assad. While Russia has ideological and political reasons for supporting the Assads, there’s also the money angle. These Russian shipments are not challenged by the international community because they are, technically, defensive weapons and cannot be used to attack the rebels. Another problem that is less clear is whether the weapons are being sent to Iran. That is illegal, but without any clear evidence of such transfers there’s nothing anyone can do. The cash transfers are also illegal, since Iran is banned from the international banking system for anything involving weapons, oil sales, and military equipment in general. But no one is going to shut down air traffic between Iran and Russia. Meanwhile, at least 14 Russian cargo ships arrived in Syria since 2011, plus numerous air freight flights. Recently Russia quietly approved new shipments of small arms, which is forbidden but can be flown in and join similar weapons Syria had before 2011. Russia appears to believe that no one will challenge this either.
Iran also depends on Russia is to print new Syrian currency and export consumer goods to Syria. This is part of an effort to keep Assad supporters in place and loyal. Most of the foreign cash coming in to keep the Syrian economy going in government controlled territory comes from Iran, which has apparently told the Assads that the economic sanctions on Iran (for its nuclear weapons program) mean that the Iranian cash cannot keep coming indefinitely. The Assads have to either crush the rebellion or come up with a peace deal. Neither seems likely to happen any time soon. This puts Iran in a bind and there is no easy way out. Using nerve gas against the rebels is no problem for Iran, were it not for the international backlash. Crushing the rebellion with conventional weapons may take too long for Iran but if they are forced to cut back on their cash aid the Assads will suffer a huge morale hit, which could give the rebels the boost they need to win. The only way to halt that is to send more Iranians to fight in Syria, rather than depending on Arab mercenaries (Hezbollah and Shia volunteers from throughout the region). There have been reports of more Iranians in combat zones, but these appear to be advisors not fighters.
Meanwhile, the Western sanctions enforcers (mainly Americans) have also gone after Hezbollah supporters around the world. Hezbollah is now recognized as a terrorist organization by most Western nations, thus making it possible for their overseas income to be attacked (via restrictions on access to the international banking systems). Hezbollah has long received a lot of cash from legal (donations and some legitimate businesses) and illegal (all manner of scams) sources overseas. Without this, and Iranian aid, Hezbollah would be in bad shape (unable to train and pay its thousands of full time workers, most of them armed). Iran would suffer a major defeat if Hezbollah were to be crushed, which is something most Lebanese want very much.
September 18, 2013: Two Iranian Navy ships (a destroyer and a supply ship) visited Sudan to refuel and take on supplies. In 2012 there were two such visits in November and December. The growing frequency of these visits is believed to assist Iranian smuggling efforts via Sudan. The Iranian ties with Sudan get little publicity but they are important to Iran. The ties to Syria and Hezbollah get a lot more media attention making it easier for Iran to keep its Sudan connections quiet.
September 7, 2013: The U.S. revealed that it had intercepted messages from Iran to pro-Iran militias in Iraq that urged these groups to prepare to attack Kuwait and Americans in Iraq if the U.S. does attack Syria. The Iraqi government was reluctant to believe this at first but was eventually convinced and acted against the Shia militias.
September 6, 2013: Iranian Revolutionary Guards finally released an Indian tanker that was seized on August 12th as it was leaving Iraq with a load of oil. Although the Indian ship was in international waters, the Iranian gunboat insisted that the Indian tanker come to an Iranian port to be inspected. Iran accused the Indian ship of discharging oily water that was polluting Iran. Witnesses could not see any oil leaks. The real reason for this boatnapping was the growing Indian purchase of Iraqi oil rather than Iranian oil and an opportunity to make some cash. The severe 2012 sanctions against Iran make it extremely difficult for countries to buy Iranian oil. There are ways around the sanctions but they are risky, and many long-time Iranian customers are quietly moving to other suppliers. Some Iranian officials are angry about this and are apparently trying to remind India of that anger. That attitude changed as other oil importers let Iran know that this sort of behavior was unacceptable. Iranian officials in charge of selling Iranian oil let their superiors know that the seizure of the Indian tanker had made it more difficult to sell oil. But the Revolutionary Guards have a great deal of autonomy in Iran and demanded to at least get paid. The Revolutionary Guards demanded a $500,000 “fine” be paid before the tanker was released. The Indian government threatened to halt oil purchases and the Revolutionary Guards were forced to back down and let the tanker go. The $500,000 ransom was not paid but technically is still owed. Iranian diplomats have had to work overtime to repair relations with India.
September 1, 2013: An armed group invaded Camp Ashraf in Iraq. This was the longtime base of Iranians belonging to the People's Mujahideen Organization of Iran, or Mujahideen Khalq. This secular (Marxist) organization has long (since 1965) opposed the monarchy and later the clerical groups that now dominate Iranian politics. Saddam Hussein provided sanctuary for the Mujahideen Khalq in 1986 and let over 3,400 stay at Camp Ashraf, near the Iranian border. The Khalq was disarmed by U.S. forces in 2003. America and Iraq refused Iranian demands to arrest and return several thousand members of Mujahideen Khalq to Iran (for terror attacks Khlaq made from their Iraqi base). Since 2003 there have been several raids on Camp Ashraf, and last year most residents were moved to a more secure camp near the Baghdad airport. But a hundred hard core Khalq members refused to move. About half of those were killed in today’s raid. The government says the deaths were the result of an internal dispute, while Khalq representatives insist it was a raid, probably by Iraqi soldiers or pro-Iran terrorists. There have been several hundred Khalq deaths during these pro-Iran militia raids in the last ten years.
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.