A discussion on the issues facing the new government of Iran

Held at The British-Iranian Chamber of Commerce, 20th September, 2013

Dr Soleymani | Professor Lucas | Dr Mehdi-Zadeh | Lord Lamont

At the Members' meeting on 20th September, a panel, chaired by Lord Lamont, discussed the issues for the new government in Iran. The panel comprised Professor Scott Lucas, Head of American Studies at the University of Birmingham in the UK and the editor of EA World View and, BICC directors, Dr Touradj Amir Soleymani and Dr Cyrus Mehdi-Zadeh. Professor Lucas introduced the external picture for Iran and our two directors commented on the condition of Iran's economy. Debate, questions and answers ensued.

Professor Lucas opined this was a time for hope and moderation in Iran's foreign policy. Change but prudence in Iran-US relations.

The nuclear issue was an important pawn in the chess game for regional power between the US and Iran. The Syrian conflict had become an issue in the contest, because of Iran's support for Syria which had become a marker for the success or failure of US Middle East policy. These issues were linked to other matters, involving a contest for influence, such as Iraq, Palestine, Egypt, Turkey and the Persian Gulf. The key to these foreign policy issues was the Iranian economy.

There was a need to address economic problems which had opened up political space for President Rouhani, domestically.

The Islamic Republic had erred in 2011, proclaiming an 'Islamic Awakening', framing the Arab Spring as an extension or export of the Iranian Revolution rather than the local desire for change: this alienated regional powers. But now Iran is trying to recover its position in areas such as Egypt, Turkey Palestine and Lebanon. The continuing and deepening conflict in Syria had become a touchstone in the attempt to recover its position. In order to succeed in whole or part Iran needed to move towards a resolution of the nuclear issue to allow sanctions to be lifted wholly or in part.

Dr Soleymani | Professor Lucas | Dr Mehdi-Zadeh | Lord Lamont

Professor Lucas believed that it was unclear whether the Obama Administration had the will, unity or ability to overcome congressional opposition to a nuclear rapprochement with Iran. Europe had an increasingly important role as a broker for an agreement between the US and Iran or as an alternate space for Iran to pursue political goals. China and India are both important for their assistance to Iran now and in the longer term. Iran will seek to repair relations with Turkey and the Gulf States.

Dr Medhi-Zadeh commented on the domestic economy.

Iran has seen a gradual surrender of its economy to internal and external politics. During the last eight years there has been growing economic mis-management, together with increasingly stringent sanctions, leading to increasing pressure on the macro and micro economy. At BICC's Annual Dinner in 2012, Professor Pesaran categorised the situation as 75% mis-management and 25% sanctions.

Some measures of the dire straits of the economy are: 40% decline in oil exports in 2012; a 1.9% decline in GDP in 2012; the budget has moved from surplus to deficit; the official Rial devalued 2.5 times; inflation rose to over 45% in 2013, with hyperinflation in some sectors; unemployment rose; and reserves were heavily drawn down.

Many companies have closed or restructured themselves; but the businesses that continue are leaner and more efficient. Import substitution has taken place to a significant extent.

The immediate effect of President Rouhani's election had been enthusiasm and hopefulness in the business community. The openness and realism of the new government has had a great positive effect. The appointment to cabinet of technocrats and professional people has engendered the hope that the economy will be managed on rational grounds and enable it to revive. However most are pragmatic and realise that this change for the better will take much time. The Central Bank governor sees the reduction of inflation to be the most important internal economic aim.

EU, and in particular the UK, has a considerable way to go to recover the pre-eminence of the EU in Iran's trade relations of eight years ago. EU and UK exporters need to planning re-entry into the Iranian market.

The content of this talk does not necessarily express the views of The British Iranian Chamber of Commerce. The views and opinions expressed are those of the authors.