Monday, July 03, 2006

Iran Has Deadline

Western powers have set a July 12 deadline for Iran to suspend uranium enrichment and agree to talks on its nuclear program. The unnamed "diplomats" also stated that Russia and China appear willing to allow the U.N. Security Council to impose sanctions on Iran should they reject the deadline. In two days, Iran's chief negotiator for their nuclear program, Ali Larijani, will meet with EU envoy Javier Solana. Solana apparently does not think that Iran will accept the incentives proposed by the major powers, but does expect them to make a counterproposal and to suspend their nuclear program during talks.

One of the diplomats believes that Iran refuses to respond to the major powers proposal because they hope to persuade Russia to support their program. The Iranians, according to this anonymous diplomat, believe that Russia will be more likely to favor Iran after the G-8 summit, scheduled for July 15-17 in St. Petersburg.

A Reuters article today describes Iran's internal oil politics. The political and economic situation explains why Iran's claims that they need nuclear technology for power are superficially credible. Basically, Iran's problem is though they export oil, they have little refinery capacity and must import gasoline. This has created two problems:

Highly subsidised gasoline imports have landed Iran in a big mess. Its cities are dangerously polluted and economists see largesse on subsidies as one of the core reasons why Iran's flaccid industry is so uncompetitive.

Iranian security officials fear their country's dependence on imported gasoline could leave it highly vulnerable to any U.N. sanctions imposed over its disputed atomic programme.

An addiction to cheap gas makes Iran polluted and vulnerable to outside forces, and subsidies make their economy uncompetitive. Sounds sort of familiar.

Reforming their oil policies would merely require more refineries, but one of the forces that prevents reform is Iranian populism.
"Economic decisions are contaminated with populist policies. Within the last 40 years the issue has grown more severe every year and no government has actually had the will to solve it," said independent economic analyst Saeed Leylaz.

"The oil ministry has never been given the appropriate budget," he added.

I take "populist" to mean welfare, housing, and, perhaps, a nuclear weapons program to satiate the public's nationalist ambitions.

The Iranian government is responding to the crisis the way centralized, dictatorial states always do: they are imposing rationing and price controls.
Parliament has forced action in the year to March 2007, slashing the budget for petrol imports. This should mean the government will either have to ration or raise prices -- both politically inflamatory moves that could stir unrest.

Interior Minister Mostafa Pourmohammadi and Oil Minister Kazem Vaziri-Hamaneh say the government favours stopping imports and introducing rationing, fearing that price hikes could stoke inflation already running at 12.1 percent.
March 2007 should be an interesting month.


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