Iran’s opening-up: southern comfort for Central Asia

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LONDON (TCA) — Amidst the wildest speculations that predominantly Shiite Iran might emerge as a powerful buffer to keep Sunnite extremism at bay for Central Asia and take the shape of a regional power broker, realities speak a different language. For the moment, Iran needs everybody else’s help a lot more than anybody else needs Iran’s. But where politics face a long haul, trade might have a unique and immediate opportunity – especially where the landlocked Central Asian former Soviet republics are concerned.

While Russia is doing its best to successfully fight off the socioeconomic effects of the international sanctions imposed on its economy for its role in the conflict in eastern Ukraine, Iran is in a completely different situation. Even though 89 per cent of the active population is officially employed, only 37 per cent is being considered doing jobs that represent a tangible contribution to the national economy. Incomes are so low that only just over half of the population of marriage age can afford to maintain a family and the rest remain unmarried.

This may be one of the symptoms that demonstrate that Iran is “technically” bankrupt. Estimates on frozen assets abroad which can now be recuperated vary between 55 and 150 billion greenbacks, but they include private assets the owners of which are far from certain to be willing to return their property under Iranian jurisdiction. The obvious reason is to be found in recent history: when back in 1989 the powerful merchant class, known as bazaar, which controlled much of the country’s trade and industry, decided to rid the country of the nationalist regime of the Pahlevi family, they did so with the support of the Shiite clergy which was the only force in the country to mobilise the masses.

A ‘coloured revolution’?

But the alliance soon proved to be treacherous: instead of helping a “capitalist” regime get into the saddle, the clergy seized power for itself and with it the country’s key money maker – namely the entire oil and gas industry – with the help of the so-called Revolutionary Guards, an army-next-to-the-army recruited among the lowest-ranking social classes which can be compared to the Khmer Rouge in Cambodia – a situation that remains in place up to this day. Most of the bourgeoisie fled the country, and froze all cash reserves they had abroad.

Those who stayed at home kept a low profile for about a generation to reemerge by the end of the century as what is usually dubbed Iran’s “reformist” movement. But the ayatollahs crack down on even their moderate wing so relentlessly that some fear that only a “coloured revolution” can bring fundamental change for the better. Even in such a case, though, the economy is set to remain as crippled as it is for a long time to come indeed, which will prevent Iran from playing a decisive role in regional politics – including Central Asia – for an even longer time to come.

Access to the Indian Ocean

“Iran now exports 1.2 million barrels a day of oil, [bringing in] $14 billion per year (and perhaps a bit more, given that some Iranian light crude goes at a higher price),” an article recently published by Asia Times reads. “Iran also sold (as of 2014) about 9.6 billion cubic meters of natural gas, which might bring in another $4 billion at today’s market prices. As of 2014, the Iranian government spent $63 billion a year, according to western estimates. […] This year Iran plans to spend $89 billion, the government announced Dec. 22.  Iran’s government plans to raise taxes across the board, supposedly to decrease dependency on oil in the government budget. But tax revenues for the fiscal year starting March 2016 are estimated at only $28 billion. Even under the assumption that Iran can sell $22 billion worth of oil, the budget gap will rise to about $40 billion, or about 10% of GDP. In nominal dollar terms, Iran’s GDP shrank from $577 billion to $415 billion in 2014.”

Briefly: Iran will have to earn lots of money before it can spend any of it on any geopolitical or other aspiration beyond its national borders. This is where Central Asia’s perspective lies in terms of economic advantages. An Iran accepted as an international business partner rather than an outcast represents an open invitation to the former USSR for something it and its predecessors have been dreaming of for centuries ever since the days of Ivan the Terrible: free access to the Indian Ocean. The British East-Indies and the Anglo-American alliance that succeeded Britain’s colonial empire always stood in the way; now, it seems to be out of the way.

Tehran means business

The most obvious beneficiaries of such a situation are major gas supplier Turkmenistan (which shares a border of close to 1,000 kilometres with Iran) and oil supplier Azerbaijan which borders Iran, as well as Kazakhstan and Russia, each of which has a direct maritime link with Iran across the Caspian Sea. Low market sales prices for oil and gas have forced the three hydrocarbon suppliers to look for the cheapest possible transportation outlet – and Iran represents just that.

Not even pipelines are needed for the purpose; Iran’s densely populated and industrialised north is in dire need for oil and gas both of which Iran produces in abundance but that production is concentrated in the southwest with which there are no pipe links. Swap deals with the former Soviet republics which have briefly been in place around the turn of the century but were soon to be thwarted by international sanctions, covered by revenues from exports from the Persian Gulf, can do the trick once more. Such deals avoid war-torn Afghanistan as well as the political hotbed of the Gulf and are a cost-saving shortcut for supplies to an area stretching from Pakistan to Australia. A new oil terminal on Iran’s Indian Ocean coast already under construction and a gas pipeline into Pakistan in the planning are living proof that Tehran means business – in the most literal sense of the word.