Iran and «Economy of Resistance» Strategy

Iran and «Economy of Resistance» Strategy

The international sanctions against Iran have been lifted. President Hassan Rouhani believes that Iran is opening a new chapter in its relations with the world. By adopting the Joint Comprehensive Plan of Action (JCPOA), which will ensure the exclusively peaceful nature of Iran’s nuclear programme, Tehran has once again become a fully-fledged member of international life, having reserved the right to the ‘peaceful atom’. President Rouhani has called the nuclear deal a «golden page» in Iran’s history. However, the lifting of sanctions has not resulted in any particular rejoicing in Tehran.

Iran’s spiritual leader, Ayatollah Ali Khamenei, has expressed satisfaction with regard to the lifting of the «unjust sanctions» against the Islamic Republic of Iran, but has stated that «care must be exercised». The Supreme Leader of the Islamic Republic of Iran remains doubtful «that the opposite party would fulfil its obligations in full». True, as Iran’s nuclear dossier was closing, Washington immediately announced the introduction of new sanctions against the Islamic Republic. This time around, the problem has moved from the nuclear issue to Iran’s missile programmes.

In his letter to President Rouhani, Ayatollah Ali Khamenei writes that the lifting of sanctions on its own will not improve Iran’s economic situation and that «heavy costs have been suffered in return for what has been achieved under this deal. Writings and remarks that try to ignore this fact and pretend to be grateful to the Western side are not treating the nation’s public opinion with honesty». Khamenei believes that even after the lifting of sanctions, Iran will have to live in an «economy of resistance». He warns of a possible breach of promise by the US in particular and calls for «resistance and steadfastness». The sanctions have been a «great lesson» for Iran, which the Supreme Leader emphasises will be taken into consideration in the future.

It will be recalled that the sanctions against Iran are multilayered. There are UN sanctions and also sanctions imposed unilaterally by the United States and the European Union. The UN sanctions largely relate to bans on the supply of modern weapons to Iran, including missile technologies. In addition, the UN Security Council also imposed visa restrictions and froze the assets of certain high-ranking officials and military personnel. Unlike the UN’s targeted sanctions, the restrictions imposed on Iran by the US and EU are much broader.

The economic sanctions imposed by the US and EU targeted Iran’s main exports – oil and gas. At the same time, the Central Bank of Iran was disconnected from the SWIFT international payment system and Iranian businesses were prevented from taking part in large-scale international dollar transactions. For the last three years, Iran’s business community has been forced to rely on often unreliable third-party financial institutions in their foreign trade and resort to the services of intermediaries to carry out major trade deals. The country’s financial isolation and the ban on cooperating with Iran in the oil and gas sector resulted in withdrawal of foreign investments from the country and previously reached agreements with foreign companies were effectively torn up. The sanctions against Iran are believed to be the harshest ever imposed by the United States and its allies.

The essence of the «economy of resistance» is the development of an optimal response by the state to discriminatory measures in order to minimise damage to the country’s economy. It should be acknowledged that Iran was never fully able to «turn the sanctions into new opportunities». The sanctions have harmed Iran’s economy, but they have not destroyed it. In terms of GDP, Iran is still the second largest economy in the Middle East and the seventh largest in Asia.

What is more, Iran managed to do a lot for the country’s future during the years of sanctions. First and foremost, it has reduced the country’s dependence on crude oil exports. Thus Iran increased its own production of gasoline amid Western embargo on its supply to the country. A total of 67 petrochemical projects are being implemented in the country, including the construction of the Setareh Khalij-e-Fars (Star of the Persian Gulf) oil refinery with a daily capacity of 36 million litres of gasoline, the completion of which will allow Iran to not only support itself completely in terms of gasoline, but also export it. In Iran’s budget for next year, the share of income from the export of crude oil amounts to no more than 25 per cent. Before the introduction of the oil embargo in 2012, the Iranian budget received almost 80 per cent of its revenue from the sale of crude oil.

The sanctions provided a powerful impetus to the development of Iran’s industrial infrastructure and increased the independent production of high value added products. At the present time, Iran ranks first in the Middle East in terms of the volume of petrochemical production.

The lifting of sanctions does not mean that Iran is willing to restore economic relations with America’s European allies in full. Companies in Europe will have to do a lot to win back the trust of Iranians and re-establish a business dialogue. At any rate, there are no plans for large shipments of Iranian oil to Europe in the near future. European importers need to first obtain new contracts, while Iran needs to restore its level of oil production. This, however, requires both money and time. At present, Iran is seeking foreign investment in its economy. According to Iranian President Hassan Rouhani, the government is going to focus on attracting investment from abroad, increasing its non-oil exports, and deciding how to use best the foreign exchange reserves that were frozen as a result of the sanctions.

As yet, there is no evidence that Europe is willing to invest in the Iranian economy. There is another noticeable development, however. It seems that for reasons of security, Iran has decided to give preference to more reliable foreign partners. Together with Russia, Iran has identified 35 priority projects in the energy and construction industries, the construction of offshore terminals, the construction of railways and others. In addition to a state loan of $5 billion, the Russian Vnesheconombank and the Central Bank of Iran are preparing an agreement to provide Iran with a loan of €2 billion. Iran has also agreed to the development of the Farzad-B gas field in the Persian Gulf by a consortium of Indian companies. India is prepared to invest more than $15 billion in Iran, including for the construction of the Iranian port of Chabahar in the Gulf of Oman.

Tags: Iran  Middle East  US  Khamenei  Rouhani