EWD Publications IRAN

December 2006 News East-West Debt

East-West Debt started its activities in 1997 when Dutch and Belgian economists and counsellors with more than 15 years of experience in the market found each other and decided to establish a structured cooperation.

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From the januari 2007 publication:

IRAN: THE DRAMA CONTINUES, HOW STUBBORNESS CAN RUIN THE REGENT.
In our last newsletter we expressed worries about the nuclear stand off that faced Iran. We were fearful that sanctions might be put in place against Iran thus harming both its import and export capacity but also halting influx of foreign currencies and therefore capability to pay foreign debts.
Let us have a look at the situation as it has developed over the last few months. As reported before, Iran's credit ratings had fallen severely putting Iran's rating a solid four points under investment grade. These figures have not yet improved and could even worsen over the next few months as no solutions seem in sight just yet, and the plot thickens.
Renewed tensions over Iran's nuclear program emerged just the beginning of October, as both the US and Britain said they would return to the United Nations Security Council to consider targeted sanctions against Tehran. Condoleeza Rice, US Secretary of State, said she feared Iran's latest proposals to enrich uranium abroad were just a stalling tactic. She made the statement at a meeting in Cairo with eight foreign ministers from Arab states, thus confirming the deep mistrust that the US and most western states have been expressing.
Javier Solana, the EU foreign policy chief who has been trying to bring the two sides together has been warning that he can not try and mediate forever. The message is clear: somebody has got to give!
To ease tensions just for the time being and to create a window of opportunity for further talks, Solana had suggested a temporary suspension of the uranium enrichment program. High ranked Iranian officials however said that such a suspension is out of the question. It seems that Iran's government is not impressed by the threat of sanctions that might be put in place and is therefore keeping a stiff upper lip. Can Iran afford to be that stubborn? Actually until now the answer to that question is "yes"! The Security Council had set a firm deadline for Tehran to suspend uranium enrichment by the end of August or face international sanctions. The end of the year is now quickly approaching and no sanction has been put in place yet. The only treat of real sanction is what is called the soft sanctions approach which was proposed by Germany, amongst others, only forbidding the export of goods to Iran that are directly necessary for uranium enriching. Mahmoud Ahmadi-Nejad, elected president of Iran, does not seem very fazed by this problem. For he has allies in the region and plenty of oil dollars to procure most things he might need. Furthermore both Russia and China have declared themselves hesitant to vote for such sanctions or any other sanctions in the Security Council. Even France has been rumored not to want to support any type of sanctions because an alleged secret tradeoff has been made to protect her peacekeeping troops in southern Lebanon from attacks by Iranian-backed Hizbollah in exchange for a softer approach on the sanctions issue.
What does Tehran have to fear? So if sanctions are nothing to worry about in the foreseeable future, are they likely to come under some kind of military attack? With Iraq being on the brink of a civil war and Lebanon and Syria knee deep in their own problems and furthermore for a good part sympathetic to Tehran's course, apart from Israel there is no real threat from within the region. Most diplomats doubt that whilst Israel is busy tackling the current Lebanese problems they will find it opportune to attack Iran and completely destabilize the whole region even further. Especially with President Bush coming under increasingly more fire for his Iraq fiasco, Afghanistan facing a revival of internal disputes and Bush, having to operate now with a government that has democratic majority in both congress and senate, will hardly overplay its hand at this moment. Bush can not spare anymore resources nor loss of American life. Furthermore, the recent debacle with North-Korea conducting a nuclear test and its apparent defiance for the nuclear non-Proliferation treaty could only increase Tehran's resolve to stay on their chosen course.
Aftab, a website close to Hassan Rowhani, a leading conservative pragmatist, suggested "the threat of Korea might be a chance for Iran". It is clear that both sides, Iran and the US and its allies, however must become a little less stubborn if they want to find a solution to this standoff.
At the moment Iran faces little consequences for its behavior and will therefore continue to enrich uranium. Only if Iran will really face some consequences will it stray from its chosen course. However the first real pain has set in without intervention from the Security Council or the US. Iran has just lost a huge oil deal with partly state owned Japanese company Inpex. It was said that Inpex would find it difficult to finance the 2 billion dollars deal, which was already signed, given the political risk associated with Iran's nuclear standoff. This is a clear sign that foreign investors are starting to bail out. This crisis is taking too long and does not look resolvable. If Iran wants to preserve its economy and expand into the future, it will have to find and maintain political stability. Without political stability there can be no viable investment climate and therefore no economical growth. However, Iran will very poignantly point out that without enough energy resources there is also no economical growth!