Iran's Economy: A Political Battleground

The public purse is a political battleground in any country. But when Ayatollah Ali Khamenei dubbed this Persian calendar year of economic jihad, it signaled a turn – the pain of a flailing economy now so sharp that the regime wanted to shrug it off publicly with an air of defiance.

“Iran’s economy is in shambles. It’s now so mismanaged, they’re starting to worry about its impact on the regime,” says Karim Shirazi, an Iranian analyst in Dubai. We agreed not to use his real name so that he could speak frankly without compromising himself or his company’s work in the Islamic Republic.

The Iranian economy is weighed down by pressures and problems, externally, by sanctions punishing its nuclear program, and internally, by policies of President Mahmoud Ahmadinejad and his government.

Is the hurt so bad it could take down the system? That’s the money question. On the flip side, an economic turnaround could boost those in power. “If the regime can expand prosperity to a wider base, the Islamic Republic could survive indefinitely,” says analyst Jason Rezaian.

With politics clouding reality and little reliable data, here’s the compiled summary of our own reporting and analysis in the public domain:

Sanctions are biting harder than ever, but business still gets done through the leaks and loopholes. So it’s not changing the regime’s behavior where it counts: on its nuclear policy, specifically, its accelerating enrichment of uranium. President Mahmoud Ahmadinejad’s policies have been largely bad for business and made life harder for most Iranians. Together, that could get Ahmadinejad booted from office, but it probably won’t topple the regime. Iran is rolling in oil money – a salve for all its economic wounds. But Iran can’t effectively tap the wealth underground, given the bans on foreign investment in the energy sector. That, combined with overall mismanagement, makes Iran’s economy is “fundamentally unsustainable,” in the words of one analyst – a “patient with many viruses.”

Is the patient terminal? Could a bad economy crack the Islamic Republic? There are many opinions, but no one really knows. The best we can do is chart the forces.

We’ve expanded some of them below, line by line, so you can grapple for yourself.

SANCTIONS ARE BITING HARDER THAN EVER...

The sanctions regime punishing Iran’s nuclear program has intensified in the past year, making it harder and much more expensive to do business in or with the Islamic Republic. New sanctions targeted some of the most vulnerable points, the transactions Iran needs most: gasoline imports, access to global banking and foreign investment in the energy sector. The consequences are a felt force, from Tehran businessmen traveling with suitcases of cash because they can’t wire money abroad to Iran oil production steadily declining for lack of up-to-date hardware.

Strategically, this round of sanctions has forced countries and companies to choose: do business with Iran or do business with America. For many, it makes basic business sense to turn their back on the Islamic Republic.

BUT BUSINESS IS STILL GETTING DONE...

Sanctions don’t scare everyone. China, India and South Korea are guzzling Iranian oil. Through leaks and loopholes Since May the U. S. Treasury Department has called out companies from the UAE, Venezuela, Singapore, even Israel, all for allegedly skirting sanctions to do business with Iran. “The question is, “Who’s not doing business with the Islamic Republic?” says Avi Jorisch, a formerKhamenei Treasury Department official who says Iran has deftly circumvented sanctions through a network of correspondent banks in Europe and Asia. New sanctions in June alleged that Iranian shell companies were using banks like Citigroup, HSBC, and Bank of America to do business.

Continue Reading: http://blogs.abcnews.com/mideastmemo/2011/07/irans-economy-a-political-battleground-but-could-it-undo-the-islamic-republic-.html