Dr. John C. Hulsman

By : Dr. John C. Hulsman

Beyond the obvious geopolitical benefit of being bought in from the cold, the other major object of Iran’s nuclear deal with the West was to revitalize its moribund economic condition. Sanctions were absolutely killing the regime; the lifting of the strictures allows for the unfreezing of foreign Iranian assets amounting to $30-$50 billion. Even more importantly, Iran will regain access to international financing and Foreign Direct Investment (FDI), and the chance to import desperately needed sophisticated industrial technology to revamp its decrepit oil industry, the life-blood of the economy.

Once this is in place, the next step will be to quickly ramp up oil exports, as the engine to once again make the Iranian economy go. The aim is to increase oil production from 3 million barrels per day (bpd) in 2015 to 5 million by the end of the decade. This newfound wealth would go a long way toward restoring Iran’s position as a major economic power in the region, to go along with its geopolitical importance. Indeed, just after the deal was struck, The Supreme Leader of Iran, Ayatollah Khamenei, consoled himself by declaring that future estimated Iranian growth rates would be ratcheted up to 8% a year for the next five years (up from a present rate of 2.5% in 2014), a boom attained recently by only India and China.

If only it were so easy. The coming political pressure on the pragmatic government of Hassan Rowhani revolves around his overselling of this economic fairy tale to adversaries such as the hard-line Revolutionary Guards, as well as to hesitant allies like the Supreme Leader. For getting rid of sanctions, while a necessary economic step for Iran on the road to its economic recovery, will not be sufficient in itself to turn the country around. By over-playing the real but limited benefits of the sanctions being lifted, Rowhani has made the next few years very dangerous for the cause of reform in Iran, as it will prove impossible for him to attain the rosy future he peddled as a way to gain elite support for the nuclear deal. Disillusion is bound to follow, imperilling his efforts at further reform.

Looking in the mirror

In an effort to move heaven and earth to have sanctions removed at the earliest possible date, Tehran has outdone itself in largely meeting the terms of its nuclear agreement with the West. As such, the U.S. may begin lifting sanctions as early as January 2016, even ahead of the coming critical elections in Iran for the Majlis (Iran’s parliament) and the Assembly of Experts, a crucial body that could well pick the next Supreme Leader (Khamenei is 76 and has had prostate cancer). This state of affairs bolsters the Rowhani government in the short run, as his supporters can point to this tangible outcome as definitive proof that the President has kept his primary election promise, in having global sanctions removed to spur on Iranian economic growth.

Rowhani’s political viability will evaporate, as happened to his clueless predecessor, President Ahmadinejad

Dr. John C. Hulsman

This political advance is vital, as at present Rowhani can only count on the sustained support of 50 lawmakers in the 290-seat parliament. In order for him to continue his process of instituting painful, necessary, economic reforms, he covets broad parliamentary support. While the February 2015 elections will doubtless see him build upon these dismal numbers, it also remains highly unlikely that the Iranian president is capable of gaining an outright majority in the Majlis. Barring that outcome, he will be more dependent than ever on the unstinting backing of the Supreme Leader.

And to quote Shakespeare, herein lies the rub. Khamenei has only half-heartedly backed Rowhani’s bold nuclear gamble as a necessary evil, if it brings with it quick and stunning economic results. This is very unlikely to happen because sanctions–damaging as they have been—are not all that ails the Iranian economy. Growth is set to amount to 3% in 2015, increasing to 5% next year, much better than under the previous economically illiterate Ahmadinejad government, but nowhere near what the Supreme Leader (and the Iranian public) has been led to believe is possible.

For following the ruinous Ahmadinejad presidency, where up to $700 billion of state assets were parcelled out to his loyalists (especially in the Revolutionary Guards), Iran remains economically fragile. While less dependent on the price of oil than other countries in the region, its proceeds still account for 42% of government revenue. The precipitous fall in the global price of energy has hit Tehran hard. Iran remains mired in corruption; Transparency International ranked Iran the 136th least corrupt nation on the planet (out of 175) in its 2014 index. Youth unemployment is increasing, even as living standards have decreased.

So removing global economic sanctions hardly amounts to waving a magic wand and doing away with Tehran’s other, endemic, economic ills. A plunging oil price, decades of government fiscal mismanagement, corruption, and bureaucratic red tape remain, all blotting out the economic landscape. If these intractable, long-term problems are not addressed, and quickly, by the Rowhani government, there is no chance that the economic boom he promised the Supreme Leader will come to pass. And without fulfilling his grandiose promises, Rowhani’s political viability will evaporate, as happened to his clueless predecessor, President Ahmadinejad.

Ironically, for Rowhani, the hard work begins now that the nuclear deal has been struck.

Dr. John C. Hulsman is the President and Co-Founder of John C. Hulsman Enterprises (www.john-hulsman.com), a successful global political risk consulting firm. An eminent foreign policy expert, John is the senior columnist for City AM, the newspaper of the city of London. Hulsman is a Life Member of the Council on Foreign Relations. The author of all or part of 11 books, Hulsman has also given 1490 interviews, written over 410 articles, prepared over 1270 briefings, and delivered more than 460 speeches on foreign policy around the world.

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