Archive for the 'Trade' Category

Page 2 of 2

Notable: NYT Article on Oman-Iran Relationship

Published on May 24, 2009 in Energy, Ports, Trade and Uncategorized. 0 Comments

For a bit of overdue color on the contemporary Oman-Iran relationship, see Michael Slackman’s article (Oman Navigates Between Iran and Arab Nations, NYT, May 23, 2009) “The quietly influential Sultanate of Oman has accelerated its cooperation with Tehran, nurturing an alliance that helps empower Iran while highlighting the deep divisions among Arab capitals”.

Slackman’s piece supports points we’ve been making for some time, i.e., 1.) There are clear limits to the pressure the Arab states are willing and/or able to exert on their Northern neighbor (as well as limits to the pressure they’re willing to take from the West) 2.) There are many in the region who feel Iran’s acquisition of nuclear weapons is not the paramount to threat to security in the region [see Chorin's article "US Unwise to Deny Iran's Role in the Gulf" in the FT last year] and 3.) It’s largely about trade–the farther east one goes within the Gulf, the more dependent local economies are (and will be) on Iran for future energy needs and economic growth. See previous postings for details on the history of Iran-Oman trade since 2006. –EDC

Tyranny of Numbers

Published on April 20, 2009 in Education, Natural Resources, Politics and Trade. 0 Comments

I wanted to highlight a blog I’ve just discovered written by Djavad Salehi-Isfahani at Brookings. Tyranny of Numbers looks to set the record straight on Iran’s employment, education, poverty, and income distribution and other macroeconomic issues that are often bandied about by journalists and pundits writing on Iran’s economy. In a particularly important post, Salehi-Isfahani corrects many of the stereotypes of Iran as a desperately poor country with out of control inflation that we often see in the media:

Every time a reporter mentions Iran’s inflation or unemployment data, they feel obliged to assert, sometimes quoting unnamed experts, that actual numbers are probably twice the official rates. But most people who work with numbers know well that officials can manipulate one year’s inflation rate or two, but if the rates are misreported for a number of years, the mere effect of compounding will soon reveal their hand. If you take an inflation rate twice the reported rate for the last 15 years, the price level in 2008 would be about 130 times higher than it was in 1993, nearly ten times higher than the official rates indicate. It is easy to show that under reporting inflation by 50% each year for 15 years produces some very absurd results. For example, think of what such under reporting would do to the purchasing power of unskilled construction workers. Their wages increased by a factor of 20 during the fifteen year period 1993-2008 (you can easily verify this number can by asking people in the construction business in Iran, if you do not trust the Central Bank index). The official data that show a 14-fold increase in prices during the 15-year period suggest that unskilled construction workers experienced a 42% increase in real wage over 15 years, or 2.4% per year, which is rather low because it puts the increase in their real wage just below that of per capita GDP. If one believes that actual inflation was higher than has been reported, one is saying that construction workers did even worse. How much worse? Let us assume that the so-called experts are correct and inflation is in fact twice the official rate. In that case the real construction wage in 2008 should be only 15% of its value in 1993 (then about 6000 rials per day). Clearly, even a superficial knowledge of the change in the living standards of unskilled workers in Iran would confirm that the 42% increase is much closer to the truth than an 85% decline.

The overblown accounts of Iran’s economic problems that Salehi-Isfahani looks to correct are often used to further a political agenda of portraying Iran on the verge of collapse or to fuel wishful thinking that Ahmadinejad stands no chance of re-election due to economic mismanagement. The more sober picture we see from Tyranny of Numbers, is of an Iran that lags a bit behind Turkey and its Gulf neighbors, but that is certainly nowhere near an economic meltdown linked to hyperinflation or plunging living standards.

Iraqis Boycotting Iran-made Buses

Published on April 12, 2009 in Trade. 0 Comments

Nizar Latif has an interesting article in The National this week on the reluctance of Baghdad residents to ride buses imported from Iran, which are identified by their bright yellow paint scheme. It does a great job of conveying the ambivalence of the Iran-Iraq relationship, where friendly state to state relations and expanding trade fall against the backdrop of painful memories of war among the general population. A few paragraphs:

“Residents believe these buses may be working for the benefit of the Iranian government and Iran’s economy,” Mr Mansour said. “The buses represent a direct Iranian presence in Baghdad and there are plenty of people here who are outraged about that.”

On a personal level, the 56-year-old driver said he was also unhappy with the Iranian machines, although not for ideological reasons. “The Iraqi government used to import British or German buses, which were always high quality,” he said. “These Iranian buses are not as good; they spend too much time broken down in the middle of the road. No one can love a bus like that.”

Some 50 Iranian-made buses, painted a distinctive yellow, were recently purchased by the Baghdad city authorities. The decision was a purely practical one, based on urgent demand and their affordability, according to the mayor, Saber al Esawi.

“We imported the buses to resolve a shortage because many of the buses in service in 2003 were stolen after the fall of Baghdad,” he said. “We needed new buses to serve the citizens.”

Buying Iranian proved to be a controversial step, however, and was met with disbelief by some Baghdad residents, who immediately suspected a conspiracy was under way.

“I was shocked when I saw the Iranian buses,” said Mohammed Ibrahim, a doctor with a clinic overlooking the Bab al Moutham bus station. “We’ve had so much Iranian intervention here and now we have Iranian industries invading.

“I don’t know why we would buy bad quality Iranian buses, buses that even the Iranians don’t like to have in Tehran because they break down. I can only think that administrative corruption is to blame, that the provincial council wanted to have good relations with Iran.”

Iran and the UAE Higher Education System

Published on April 6, 2009 in Free Trade Zones and Trade. 0 Comments

In 2004 Iran’s Islamic Azad University founded a branch campus in Dubai. Anyone with even a passing interest in Iranian higher education is no doubt aware of Islamic Azad’s dramatic expansion since its establishment in 1982. Founded by former president and then speaker of the majlis Hashemi Rafsanjani, the private, not-for-profit institution now enrolls 1.3 million students spread across 360 campuses. It currently lays claim to the title of largest university in the world, and enrolls upwards of 58 percent of Iran’s student population with a goal of winning 64 percent of the market share by 2010.

In many respects, Dubai was an obvious outlet for expansion. The Emirates were the first members of the GCC to privatize their higher education system. All GCC states have increasingly sought privatization as a means of offsetting exploding demand for post-secondary training but this is hardly to suggest that they have shared the same approach. In sharp contrast to the tightly regulated, Western-oriented privatization being exhibited in neighboring Qatar, the opening of the UAE has been market-driven and multipolar. Islamic Azad-Dubai settled into the Dubai Knowledge Village Free Zone, and in so doing, joined higher education providers (both traditional and for-profit) from Australia, Belgium, Ireland and the UK, but also India, Russia and Sri Lanka.

The driving concept is unique yet intuitive: Iran’s largest higher education provider now has access to the 450,000 Iranian citizens of the Emirates, a wealthy group that, before the recession, held between $20 to $200 billion of Dubai’s assets.

As of 2007, the UAE’s Ministry of Higher Education and Scientific Research recognized 42 institutions of higher education. On a systemic level, the UAE bears certain important resemblance to the American higher education framework. Both systems lack a real centralized structure, choosing instead to emphasize consumer choice. Institutions must demonstrate flexibility to accommodate diverse and changing student needs in global state system increasingly subject to market forces. As such, both the American and Emirati systems inspire tremendous competition for student enrollment with the result being that there is pervasive vulnerability. Occasional institutional failure is an inherent possibility.

Elsewhere the systems diverge significantly. Most obviously, foreign providers are being introduced to the Emirates to urgently build capacity whereas foreign-based higher education has never been invited to operate autonomously in the US. Even with an invitation, foreign providers would have lacked the space (and thus motivation) to set up shop in an already crowded American system.

The arrival of foreign institutions in the Emirates has often meant finding and filling educational niches that are national in basis. Potential university students have long-determined their educational needs using cost-benefit analysis– by aligning intellectual curiosity and economic incentives with institutional reputation and the availability of quality course offerings. But in the Emirates, as distinct from Qatar, there is an implicit, in fact unabashed, nationally-based appeal to large and diverse expatriate populations.

Islamic Azad is a prime example. With long stagnating support from the public sector, higher education providers in the UAE are emerging in a fiercely competitive local context. Islamic Azad functions with an overall operating budget of $1.2 billion and generally appears to be solvent. Yet there is a risk that the fiercely competitive nature of the local market will result in the delivery of education that persistently compromises on quality. The Islamic Azad-Dubai continues to operate without the approval of any national or regional accreditation agency.

There are additional issues to consider: how do so many competing pedagogies operate in one higher educational structure? What does this contribute to national cohesion in a system that is traditionally characterized by Emirati nationals attending public primary and secondary schools and expatriates opting for private education?

The tertiary education system in the Gulf States is expanding faster than any other region in the world. In many ways it is an experiment without precedent. -SW

U.S. Military Pushing for Gulf Detente?

Published on April 4, 2009 in Politics, Security and Trade. 0 Comments

NIAC’s excellent blog reported yestetrday that U.S. representatives Conyers and Davis have introduced a sense of the House bill calling for the negotiation of an incidents at sea agreement with Iran. The full text of the resolution is here, but the jist is that the absence of military protocols for navigating Hormuz makes incidents like the 2008 Iranian harassment of a U.S. warship much more likely, and that without agreements in place or communication channels to resolve disputes, such an incident could easily escalate into a wider conflict. A key clause of the resolution frames the naval protocol as a step that can be taken even without a U.S.-Iran diplomatic reconciliation:

Whereas the absence of diplomatic relations between the United States and Iran need not be an obstacle to direct, military to military talks on procedural issues involving the safety of naval personnel and assets;

This comes on the heels of comments by General Petraeus that seemed to downplay concerns over Iranian aggressiveness in the Gulf and echoed concerns about unintended conflicts. An excerpt from the Bloomberg story:

“I don’t think we have any concerns about disruption to the navigation” in the Gulf, Army General David Petraeus said in an interview. “Certainly nothing from Iran.”

Iran’s naval forces have been quiet in the 15 months since U.S. officials say they challenged three U.S. Navy warships briefly in international waters in the Strait of Hormuz. Five Iranian “fast boats” in January 2008 confronted the vessels in the 33-mile-wide waterway between Iran and Oman at the mouth of the Persian Gulf, which is the sea route for almost a quarter of the world’s daily supply of oil.

Tensions at that time “were approaching the point where a miscalculation could result in something fairly serious, and I think everyone took a deep breath and stepped back from the ledge,” Petraeus said.

“We are still not sure whether that was sort of a rogue, small-boat operator getting a little bit feisty or what that was,’ ‘ he said, referring to the 2008 incident. “That has indeed calmed down. We’ve done a large number of transits with big-decked ships and they haven’t been impeded in any way.”

Before his departure at the tail end of the Bush Adminstration, Admiral Fallon had been one of the loudest voices calling for a naval agreement that could help reduce tensions in one of the world’s key strategic points. The resolution introduced yesterday cites support from DOD officials, that, taken with Petraeus’ comments, seem to point to an emerging consensus in the U.S. military on such a common sense step.

IREN: 16 Iranian Provinces in Danger of Total Drought

Published on March 2, 2009 in Natural Resources, Trade and Water. 0 Comments

iran_wheat_rain_maps_may081

Mohammad Nurian, the president of Iran’s Meteorology Organization has warned, that low rainfall levels put sixteen of Iran’s provinces on the “threshold of total drought ” for the upcoming year, according to a recent article published by Iran’s Environmental News Agency. Nurian warned that drastic human and economic costs would be suffered if the upcoming water shortage were not better planned-for. Iran’s varied geography makes for drastic differences in climate from region to region. In the past, severe water shortages in Iran’s south have scuttled deals to sell excess potable water from water-rich provinces like Khuzistan to Gulf Arab States.

The above image is taken from a very interesting report on Iranian wheat production put online by the US Foreign Agricultural Service. The full text and more historical data on Iran’s rainfall is available here.

So Far, Few Bet on Iran's Elections

Published on February 24, 2009 in Politics and Trade. 0 Comments

intrade

The Irish prediction market website Intrade aims to harness the power of crowds to foresee future events like election results, economic conditions, the probability of war or Oscar winners. It allows individuals to place bets that a certain event will or won’t happen, and, so the theory goes, the more bets being placed on a certain event, the more accurately that the current price will reflect the probability of that event’s taking place.

Looking at the above screenshot from Intrade’s page on the Iranian elections, we see that the market gives Ahmadinejad betwen a 40-50% chance of being re-elected. But the key thing about this “market” is that volume is extremely low, with only 54 betting incriments being placed on Ahmadinejad, and just 2 on Khatami (which puts him at between 37-66% to win). By contrast, markets covering American politics routinely draw tens of thousands of bets, thus are more accurate. So few bets on the Iranian election explains the wide range given for the two candidates’ chances and also means that these numbers should be taken with a bigger grain of salt than in higher volume markets.

Obama Keeps Levey, Dubai Dhow Captains Rejoice

Published on February 18, 2009 in Natural Resources, Politics, Ports, Security and Trade. 0 Comments

Barack Obama has decided to keep on Stuart Levey, the Bush Administration’s Treasury Department undersecretary for terrorism and financial intelligence. Levey’s pet project was implementing a set of informal sanctions whereby U.S. officials attempt to persuade foreign banks and firms – many of which are UAE based – to stop doing business with Iran.

For the best outline of the program, I’d refer you to Robin Wright’s article from a few months back. At the time I wrote a post on my objections to it, namely that (among other things) it empowers Iran’s Revolutionary Guards to take on a bigger role in the economy since they can muster state resources to do things like smuggle goods, set up front companies and launder money.

Others no doubt celebrating the move are the smugglers, hawala operators, and countless other individuals who take part in the massive informal trade between the UAE and Iran. I can almost hear the champagne corks popping from Cairo.

The theory behind sanctions, both the formal kind and the informal sort spearheaded by Levey, is that business interests will pressure the government to change its naughty ways. That pressure no doubt exists to some extent. But I am constantly surprised that policymakers rarely take into account (at least publically) the knock on effects that sanctions have within the targeted societies and their economic neighborhoods. For me, the interesting question is who benefits from the re-channeled economic activity shaped by sanctions. A lot of this happens across the Gulf, and is something we should be thinking about more carefully.

The Revolution Has Lost Its Way, But UAE Can Help

Published on February 18, 2009 in Politics, Security and Trade. 0 Comments

An opinion piece in today’s The National (UAE) has an interesting take on the anniversary of the Iranian Revolution, given the current sensitivies in the Gulf over Iran’s growing economic interests in the region.

In it, author Sultan Bin Saud Al Qassimi (who founded Dubai’s Barjeel Securities) describes the early Revolution as a broad-based coaliltion of religious conservatives, communists, nationalists, and liberals that “lost its way” beginning with the takeover of the U.S. embassy in November of 1979.

The piece criticizes the emergence of the clerical elite and its preoccupation with external affairs and relative neglect of internal affairs, citing the Iran-Iraq war and creation of Hizbullah. But the author then immediately shifts into condemning Iran’s present relations with Venezuela and recent tensions over the dispute with the UAE over Abu Mousa, along with two other Gulf islands, the Greater Tunb and the Lesser Tunb.The article then runs through a litany of internal Iranian security and economic issues that the ruling clerical elite and revolutionary Guards continue to neglect.

One additional bit that deserves calling out is this:

It took the US government half a century to admit any wrongdoing and offer a tepid apology to the Iranian people for meddling in their affairs. Madeleine Albright, the former US Secretary of State, announced in the twilight of the Clinton administration that “it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs”. Too little, too late.

The turn of phrase is actually exactly in line with the feelings of many in the Iranian religious establishment. Here is Albright’s address in 2000 for reference, which was indeed met with derision and accompanied by a widespread crack down on Iranian liberals at the time. But I digress.

The article ends with congratulations to the UAE government’s pursuit of healtheir trade relations with Iran: “A revealing example of how importantly Iran regards its trade with the UAE emerged when it described the US pressure to limit the UAE’s trade with Iran as “illegal”, saying it would jeopardise the region’s economy.” A deftly-woven critique of the U.S. and powerful point of commonality, indeed.

It’s important in this context to remember that Iran’s economy is still dominated by its only state-sanctioned trade syndicate, the Revolutionary Guards. They of course still control both domestic and international economic activity in Iran – sanctions and frozen accounts aside.

In this case, the author’s chiding of current Iranian foreign policy (”…..maybe Iran should consider concentrating on its immediate challenges such as tackling unemployment and cross border terrorism rather than waste time with Hugo Chavez’s deliriums, Hassan Nasrallah and Khaled Meshaal’s empty rhetoric and the Holocaust denial conferences.”) and calls for the Revolution to “again find its way” are perhaps a not so subtle call to some in the Iranian ruling elite to rethink their priorities and regain the broad support of a populace long since marginalized.

And perhaps the UAE can offer constructive assistance and – who knows – investment in tackling more pressing economic challenges inside Iran.

Hello and Welcome

Published on February 18, 2009 in Energy, Natural Gas, Politics, Security and Trade. 0 Comments

… to Iran in the Gulf! As our name implies, we plan to keep track of developments in the region and use this site as a sounding board for ideas that will develop into more formal writing on Iran’s relationship with its neighbors across the Gulf.

I want to begin with a Bloomberg article from today about the UAE’s civilian nuclear cooperation deal with the US. It’s not particularly groundbreaking, but touches on many of the issues that we will be covering here. The article is brimming with quotes from US politicians and nonproliferation types praising the deal, by which the UAE forswears domestic enrichment in exchange for America’s blessing and technical support. The obvious message to Iran being that playing by the nuclear rules pays off. Amid the sea of praise comes a voice who nonetheless raises a proliferation concern:

Joseph Cirincione, president of the San Francisco-based Ploughshares Fund, a nonproliferation foundation, says he worries that power plants can be ‘the starter kits for nuclear weapons,’ and that some nations may have ulterior motives in seeking nuclear energy.

‘Iran’s rivals cannot afford to let it gain the military, political and diplomatic leverage conveyed by nuclear weapons,’ he says. ‘What’s to stop them once they’ve built the reactors from adding on a fuel-making facility?’

The concern that nuclear infrastructure — no matter how well safeguarded — poses a significant proliferation risk looks much less relevant in the wake of the Bush years, which saw nuclear cooperation expand with US allies like India who for decades have been developing nuclear infrastructure — including weapons — outside the NPT. Under Bush, nuclear policy was sharply politicized; friendly countries got technology and a blind eye towards past excesses while enemies like Iran and Syria got sanctioned or bombed.

Gulf countries — Iran included — have four main reasons to develop nuclear technologies: prestige/nationalism, weapons potential (not necessarily immediate), to free up more hydrocarbons for export, and to diversify energy sources thus improving energy security. The key difference is that Iran seeks to enrich its own uranium while the UAE has committed to obtaining its nuclear fuel from outside sources, and, of course, that Iran is not friendly with the United States and its allies.

Where does this leave us? A few thoughts:

1. I would argue that Iran’s hostility to the U.S. and Israel, and general regional tensions have much more to do with causing the “Iran nuclear crisis” than the nitty gritty of how many centrifuges are spinning, etc. Solve the regional strategic problem by creating an Iranian-American-Israeli modus vivendi , and you have solved 95% of the Iranian nuclear problem.

2. It is getting harder and harder to control the flow of nuclear material and know-how. This is partially the result of the Bush administration’s politicization of nuclear deals, but mostly, it has to do with the inability of governments to control the spread of knowledge and technology, and their unwillingness or inability to sanction allies who proliferate.

3. At least in the short term, the global financial crisis looks set to be the proliferation hawk’s best friend. Nuclear plants cost $ 2-3 billion a pop, most of which must be spent in foreign exchange. And you can’t exactly abandon one in the airport parking lot and skip town if you miss a few payments.