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End of Sanctions for Iran! - sparks of hope
May 16, 2012
He is a consultant; the economic kind. Mehrdad Emadi, born in Iran, but residing outside of Iran. He gives the European Union advice as to the do’s and don’ts of economy. I suppose what he says; goes. The phrase, “Our country, our country” seems to be a constant in his language, even though he writes in Farsi, with an accent! He misplaces the verbs and the subjects.
He is worried about the sanctions; perhaps because he knows what the day-after the sanctions looks like and where “tomorrow’s sanctions” can take us. And now with the new season of talks about Iran’s nuclear program upon us -- after fifteen months – Saeed Jalili, Iran’s chief nuclear negotiator and Catherine Ashton, EU’s chief of foreign affairs and security policy, met one another once again in mid-April in Istanbul. Although April is not typically a “warm” month in Istanbul, but the meeting proved to be warmer than their last one back in the winter of 2010. Perhaps an inherent characteristic of Spring! Both Iranian delegates and the 5+1 group were extremely pleased with the meeting which for many has ignited a spark of optimism about future talks about Iran’s nuclear program. Optimism about the fact that the phase of “talks for the sake of talks” could finally end and a new phase of “talks in order to untie the tangled knot” could begin. A new phase that can potentially blow away the dark cloud of the sanctions hanging over Iran so that its economy can get a chance to breathe again.
Emadi happens to be one of those optimists. He says if the upcoming meetings in Baghdad prove to be positive – which he firmly believes they will -- within the year, a wide margin of the sanctions will be lifted giving way to a flood of new foreign investments. He actually believes that a great number of large American and European companies will be racing against one another to enter Iranian marketplace. So optimistic in fact, that he predicts Iran fast becoming the number one economic power in the region within ten years, much to everyone’s utter surprise.
Emadi is equally worried about Iran’s place. Not on the map or what he calls “the table of world’s most powerful nations”; rather concerned about the Arab nations in the region, who might attempt a mischief; worried that the Baghdad meeting might not go as well as expected.
We explored the road map between Istanbul and Baghdad, along with Emadi. He spoke to us about the European Union’s impression of the meeting in Istanbul and an analysis of the next one in Baghdad; an analysis and opinion from the core of Iran’s “main” opponent. Mehrdad Emadi is the first person to have unearthed the roots of the sanctions for us, perhaps for the first time ever, to such extent and such depth; and all with an accent that bears witness to years of studying, reading and speaking in a multitude of non-Farsi languages. An accent that under the cloud of his fears for Iran, becomes quite sweet to hear. The misplaced verbs and subjects no longer seem to matter. What matters now is how to move the rocks and boulders of the sanctions. Plumbing the depths of the sanctions with Mehrdad Emadi, actually feels like a form of consultation … consulting with an Iranian Advisor to the European Union - totally free of charge, and as it appears from his tone, free of any strings or indebtedness…
How would an economist define a sanction?
Mehrdad Emadi: Sanction is a process of reduction in economic ties between two parties -- the degree and depth of which decided upon by one side -- or maybe even completely ceased altogether. Sanctions are not limited to inter-national relations. There have been times when people have sanctioned certain banking or mercantile or even governmental units, such as boycotting of South-African products during the Apartheid regime, or sanctioning of Barclays Bank of London due to its cavalier position about the racist regime in former Rhodesia, or boycotting of decorative objects made from endangered animals’ skin.
But only the sanctioned party ends up paying a price?
Emadi: Of course, economic sanctions will be costly for both sides, but the price is always heavier for the sanctioned party, as it ends up in an economic blockade, of sorts.
The question often asked by ordinary citizens of sanctioned nations is that the problem is between their government and other heads of states; why should they be denied their right to a comfortable and peaceful life?
Emadi: In international relations, it is very difficult to separate the people of a country from their government. Admittedly, the decisions to cut economic ties with a country would undoubtedly hurt the citizens of that nation. That is one of the biggest concerns about sanctions. In fact, whenever the sanctions gain a wider scope, the ordinary citizens of the target country will suffer the adverse effects far more than the leaders would. But in the final analysis, the sanctions are opted for, because they are less harmful than war; sanctions are in fact the most serious diplomatic weapon or the softest form of confrontation.
What is the historical precedence of sanctions?
Emadi: Sanctions have a very long history. Even during the middle ages sanctions set precedence between Vatican and the French Empire. But they gained a stronger foothold in post-WWII era. In the more recent history, we can name a few, such as Iran’s sanctions by the Great Britain over the nationalization of oil; Cuba’s sanctions by the United States; France, Britain, U.S.; Netherlands’ sanctions by the Arab nations during 1973 Arab-Israeli war -- which quadrupled the price of oil -- and further back in history, the economic sanctions against the Soviet Union by the western world – which encompassed the 1980 Olympic games – for its military attack and occupation of Afghanistan.
And these sanctions were effective?
Emadi: In all these cases, the sanctions were instrumental in the target country’s change of attitude; in some cases even leading to a regime change, namely Rhodesia and South Africa. As for the Soviet Union, in my opinion, it was the economic pressures that cracked the political foundation of the country and the combination of the heavy cost of military competition with the U.S. and economic sanctions finally crippled and pushed the country to the brink of collapse. As for Cuba, even though the country’s economy is far from adequate, in ratio to all the resources it has; it was able to sustain itself against the sanctions – up until six years ago -- due to a policy of frugality and economic transparency. But finally it was the transition of power to Castro’s brother that brought about promises of change in behavior.
Even with the oil embargo of the West by the Arab world, even though the party imposing the sanctions was considerably smaller, the sanctions did work. We must accept the basic fact that the creation of a democratic system of governance in sanctioned countries will motivate people to show more cooperation in order to free themselves from the yolk of the sanctions, armed with the awareness of their best strategic interest. And THAT is far more effective than outside pressures. Conversely, in those countries where certain cultural and social foundations and tribal principals are deemed more valuable than their national interests, outside pressure can at times be detrimental. In Cambodia during the reign of Sihanouk who was a proponent of peaceful coexistence, the sanctions and pressures imposed by the U.S. government at the time, led to a new leadership by Phnom Penh and the ensuing genocide in that country.
It is also true that in countries where people don’t have the right to participate in their leadership system, the sanctions can make their ruling regime more vulnerable to defeat and outside influence much more possible. Iraq and Libya stand as prime examples. But in cases where the people shared the responsibility of the sanctions and there was no evidence of plundering the nation, sanctions have failed to drive the nation to chaos and collapse. Again, Cuba is a case in point.
Is there a connection between getting sanctioned, and then getting closer to democracy? Isn’t it true that some economists and socialogists believe that severe economic hardship can create a distance between people and democracy? Democracy requires awareness and knowledge. Attaining knowledge requires money. The money that the sanctions take away?
Emadi: Abject poverty and moral turpitude can create social clashes, shorten the range of planning and reduce life to a survival level, disabling a society from making long term plans for the next few years or decades. As poverty spreads, corruption grows. As legal and healthy ways of earning money become scarce, people would feel more pressured just to survive. Moving towards a democracy requires gaining awareness and spreading awareness through formal and informal education: reading books, periodicals, newspapers, attending cultural gatherings, all of which are rarities among poverty stricken or corrupt groups.
Exactly how many years has it been since sanctions against Iran began? Do they go back to pre-revolution years?
Emadi: Our country has certainly had more than its share of sanctioning other nations throughout historical conflicts. Like the tobacco movement, boycotting Russian sugar during the constitutional revolution, boycotting British products during the nationalization of oil movement. We have likewise been sanctioned by others; such as sanctions on our oil exports imposed by Britain during nationalization of our oil, or the U.S. imposed limitations on our ability to borrow from the World Bank during the same time period; Russian blockade on our gold reserves; U.S. ad U.K. joint decision to prevent us from gaining the technology to melt certain industrial metals and to produce nuclear powered electricity; U.S. sanctions following the 1981 attack on it’s embassy; and the latest chapter of the sanctions against Iran’s nuclear program which was exacerbated by certain deficiencies in its management system.
What has been the result of these sanctions so far?
Emadi: The inordinate increase in our costs. Because of the sanctions, unable to access modern technology, our industrial projects have to settle for old and outdated means with far lesser output. Another effect of the sanctions is the lost opportunities to jump in certain sensitive industries to turn Iran into a leading economy in Asia, specifically in Petro-Chemicals. On the other hand, bargaining over 50% ownership of Caspian Sea and arguing over legal contracts, has made our ability in rewriting the diplomatic and geographic future of the region and turning Iran into a thriving economy, rather difficult.
I’d like for you, as the advisor of the European Union, to tell me more about EU’s and 5+1’s analysis of the sanctions against Iran. I mean statistical information, not mere estimations.
Emadi: All Western organizations’ economical analyses are based on mathematical models used to determine the effects of sanctions where they have been used. Although not without errors, but there is an ongoing effort to improve the mathematical models so as to make the estimates as close to reality as possible. The sanctions’ timeline are typically set for 3 or 6 or 12-month periods, same as the method used by the World Bank and IMF; followed by a measurement of percentage in fluctuations shown in economy, commerce, production, investments, inflation, employment and foreign trade, according to pertinent indices. Then all possible answers and scenarios are evaluated based on degree of accuracy of predicted results - although, in some cases, the predictions have proven to be wrong.
What mechanism is used to determine the type and form of sanctions used against the Islamic Republic?
Emadi: The type of sanctions is determined based on their degree of effectiveness in reducing Iran’s financial capacity to develop what the Western world deems the danger of militarization of its nuclear project. Within that framework, all entities and organizations playing a role in funding the nuclear project or purchasing related software and hardware or dual-purpose goods -- used for both military and non-military projects -- will be evaluated by the administration of sanctions which will then decide the type of economic sanctions most effective in restricting their activities in the shortest amount of time.
Iran’s sanctions began with sensitive goods, and once other brokers for these goods entered the arena, they too were placed under the sanctions’ magnifying glass. For instance, after Sepaah’s (Revolutionary Guards) full-force entry into the oil and gas arena, both industries were consequently sanctioned, since the Sepaah itself was already sanctioned. Then, the offshore sales of oil and gas began to take place and once Iran’s trade activities outside its borders were revealed, the closure of “Swift” channel stifled its funding ability. The type of sanctions is always chosen based on their degree of impact on the subject’s projects and aspirations; limiting dangerous activities and finally their impact on ordinary citizens. All of which are indicative of the serious threat to Europe’s security, posed by Iran's nuclear project. Furthermore, Iran’s focus on expediting its long-range missile project, paved the way for tougher sanctions, since the danger was now seen on geographic horizons of Europe.
Are there specific targets and goals for the sanctions?
Emadi: In earlier stages, European Union made an effort to reduce the human-cost by honing in on specific targets, however, the spreading of certain wings over the country’s economy, reduced the effectiveness of these efforts, hence a greater impact of the sanctions on ordinary people. To the best of my knowledge, however, EU’s decision to heighten the sanctions has never meant to target the people of Iran.
Is there a think-tank designated to work out these sanctions?
Emadi: There are multiple think-tanks equipped with experts.
Are they made up of Legal or Real entities, if so who are the members?
Emadi: To my knowledge, both. It is consisted of experts in international economy, world trade, world’s financial systems, experts in construction of mathematical models of economy, banking executives and international lawyers.
It is now nearly six months since the inception of new and tougher sanctions. The oil argument remains the focal point for Western investors and leaders. Realistically, how optimistic is the West about the output of sanctions?
Emadi: There’s always been doubts about their effectiveness; but the doubts have somewhat subsided over the course of the past twelve months, resulting in a solidarity of powers in toughening of the sanctions; which can only solidify their effectiveness.
Are there new reports produced in the last six months?
Emadi: There are several such analyses produced and reviewed weekly but the overall analysis have gained much more precision over the last two years.
Is there essentially a need to re-evaluate Iran’s nuclear program.
Emadi: Yes! Because the current conditions have removed us from the tables of key countries such as those in the West, Russia, China, South Korea, South Africa, Brazil, and Saudi Arabia.
And what is the benefit of returning to these tables?
Emadi: It will help a number of problems: from the conflict over the three islands, to the aggressive behavior of some Arab countries in the shared fields of energy. They won’t stand a chance to deny or reduce our rights in the Caspian waters. The regional issues can be resolved at a lesser cost. Iran’s seat at the table of key countries holds a special importance! I must add that Iran has proven its capability to produce nuclear power and that is extremely important.
What is the consensus in the West about Iran’s nuclear destiny?
Emadi: It is expected that Iran will recognize the concerns that European countries have and to accept their request for transparency and within the framework of Baghdad meeting, to also accept their recommendations in its pursuit of nuclear energy. Just as the potential costs involved would be greater for Iran, so are the benefits to be reaped. The consensus within the EU is that Iranian leaders do possess the intelligence to recognize the real dangers in continuing down a dead-end road and realize the gravity of these days.
Why is it that Iran’s nuclear case remains unresolved?
Emadi: It is puzzling why Iran has chosen to remain reluctant to the benefits of cooperating with IAEA. A number of Western experts believe that certain groups have reaped unnatural benefits from Iran’s lack of transparency and the heightened sanctions in recent years. The conflicts with IAEA only prolonged this period, as the tougher sanctions further stifled Iran’s adequate management and transparency in its foreign trade which allowed certain groups to make a fortune in the process. And other elements outside Iran --disenfranchised by the country’s politics -- tightened the knot so as to prevent any resolutions, resulting in more sanctions.
What are the specific effects of the sanctions on Iran’s economy? The jump in value of Dollar, the bubble in price of gold, etc. ?
Emadi: In my opinion, the most harmful effect has been the deprivation of Iran’s industries from advanced technology which has greatly reduced our industrial output and hindered its ability to compete in global markets. We were effectively eliminated from many global markets! In respect to prices and value of our national currency, it must be said that the decline in industrial stamina, decrease in export revenues and the drop in domestic production, have increased the country’s dependency exclusively on oil revenues - all of which are caused by the huge increase in imports.
Had our industrial exports been better managed over the past years, properly guided and supervised by experts in economic and industrial fields, in order to enhance production and exports, today we would not be witnessing such hikes in the price of Dollar or Euro or Gold or Real Estate. The prices of dollar and gold are but a small reflection of our reduced productivity and ability to export.
All eyes in Iran should be on rebuilding of an industrialized and exporting country. Once that goal is achieved, we will see a drop in value of currency and demand for gold. A phenomenon previously witnessed in South Korea, Japan, Germany, and currently in Malaysia and India. The sanctions helped expose the short comings in existing abilities on one hand, and raise public awareness of such inefficiencies on the other. I repeat the salvation of our economy lies in an increased capacity to develop and export our industries.
Yet the current sanctions are weighing heavily on the daily lives of ordinary citizens and their livelihood. In fact, far more than affecting the government, the sanctions are victimizing ordinary people and the middle class and the producers who are forced into bankruptcy.
Emadi: You are correct in your assessment that large sectors of the society have moved under the poverty line and if the trend continues, even larger groups will join them and the very foundation of our social values will be shaken; jeopardizing the core health of the entire society. We are incumbent to motivate our political leaders to welcome constructive negotiations and we have a human duty to reach out and extend a helping hand to one another in order to maintain and heal our relations so as to stop certain opportunism from continuing on.
Do you honestly feel these sanctions are fair?
Emadi: It is extremely difficult to see the hardships and the struggles for survival before us that have resulted partly from poor management of the country and partly from the multi-dimensional sanctions and turn a blind eye on them. This is both worrisome and unjust. On the other hand, an uneducated assessment of the situation can potentially pose a security threat for the region and even Europe.
Well, Iran has said that it has no ambitions for nuclear weaponry and has even given limited permission for inspection of its facilities. What exactly do the Western powers expect from Iran?
Emadi: If Iran had indeed focused on alleviating the concerns of IAEA, many of the issues facing us now, would have been resolved by now. Should IAEA announce in the near future a satisfactory cooperation shown by Iran, I can tell you that over 70% of the sanctions and all major restrictions will be completely lifted in less than one year’s time. The key operative words here are “Transparency” and “multi-dimensional cooperation”. While certain public statements made from time to time, can only further diminish Iran’s strength and create the impression that there’s no unity in Iran’s mission or position. It must be said that the behavior and demeanor during negotiating talks is vital, and it requires formal channels. Let me remind everyone that at this time, more than ever, both sides need to adopt a gentle and peace-making approach.
Have the sanctions against Iran, had adverse effects on the Western economy at all? Certainly we can’t ignore Iran’s place in the oil/gas market.
Emadi: Yes indeed. They’ve had a huge impact. Naturally the impact has affected certain special divisions of certain industries, as opposed to the western economy as a whole, with the exception of Greece, Malta and Austria. The most significant global impact has been on the price of oil. The $8-$10 p/barrel increase is in my opinion the result of sanctions.
Unfortunately it is not Iran profiting from this increase. It was mostly oil-rich Arab nations, Russia and Venezuela who reaped the profits. An attempt to remove Iran from the global oil market will no doubt be costly and heavily so for certain countries.
Are the western companies unhappy about the sanctions and the resulting difficulties in investing in Iran?
Emadi: Those with a long history of operating in Iran have incurred significant losses, only exacerbated by the current economic down turn in Europe. They are extremely distraught over the fact that the relations that they had spent years to build and the prominent positions they had established for themselves in Iran, have but in a short time been replaced with China and India. Naturally they are very unhappy.
Have they expressed their gripes before the European Union?
Emadi: They did up until last year, but now the reality of the need to implement the new sanctions has more or less been accepted by all. That does not mean the grievances have subsided. They’re still there and may even get louder than before.
How likely are these grievances to influence the future of new sanctions or possible removal of the existing ones?
Emadi: They used to receive more attention, but not as much, in the recent months.
In the event of a failed meeting in Baghdad, would the Iranian people be the only ones to absorb the shock of the new sanctions or would the impact reach Europe as well?
Emadi: I believe that this time the sanctions would hurt the people more than the political leaders – far more! As for Europe however, given the worrisome economies of Greece, Spain and Italy, the heightened sanctions on Iran, would only weaken the chances for the return of economic growth to these countries. The sanctions will be a Lose-Lose proposition for both sides, with Iran losing a little more. We must remember that the only winners of these sanctions are those countries who have benefited from the sanctions all along, by establishing a solid place for themselves in Iranian market, selling their sub-standard and low quality products while pressuring Iranian production. Not to mention the small nations in the Persian Gulf region who have made a fortune from the sanctions on Iran.
There are reports of positive results from the recent meeting in Istanbul. What have you heard in this regard?
Emadi: The news of their private meetings has made me more optimistic than I’ve ever been over these past years. Maybe we have reached a focal point in the talks between Iran and the 5+1 group. It may also be due to my dire forecast of the next chapter of new sanctions.
Have they told you the specifics of the Istanbul meeting?
Emadi: What I’ve heard is that it wasn’t only the tone that had changed; it was rather the general behavior and willingness to take the issues seriously, for the first time. This is an opportunity to untie the old knots. So, it has set precedence for further talks.
There are two theories about the Baghdad meeting. One scenario being: no resolution reached - status quo. What direction would the sanctions take in that case? And how likely do you see the 2 sides to reach a resolution?
Emadi: I don’t think the situation will remain the same, if they don’t reach an agreement. The new sanctions will be decided and enforced in that case. However, I am cautiously optimistic that Iran will take the key offered here, to open the doors. All the balls are in Iran’s court right now. What will happen in Baghdad is directly dependent on Iran’s willingness to further the talks.
What will happen in the case of favorable meeting?
Emadi: Then Baghdad will be open up the first chapter in resolving the conflicts. The details of cooperation with IAEA will be discussed. We must keep in mind that during initial phases, everything is extremely brittle. And there will be outside forces trying to stop the talks from succeeding, so everything rides on Iran’s level of determination to make this work.
Will they lift the sanctions?
Emadi: If the steps taken are solid enough to withstand the difficulties on the road ahead, Yes. It will be difficult but quite possible. Remember, we are attempting to take a Lose-Lose game that’s been played for years and turn it into a Win-Win game now, and the process is going to be tedious and trying. There are pessimists and doomsayers on both sides who have filled the climate of such talks. There are elements who are opposed to ending Iran’s sanctions and isolation and presence at international tables amongst key nations. However, I can easily see this happening over the next 3-5 years.
If everything goes as planned, the lifting of sanctions should not take longer than a year, however the return to normal circumstances, meaning a flourishing economy, will be part of the problem we have to face. To achieve that goal, certain organizations that have been taken over, must be returned to the private sector. Other nations such as Japan, Germany, Austria and Sweden must be attracted to the idea of reinvesting in Iran. Then over the span of several years, the production units with strong export capacity and credit worthiness must receive tax immunities in order for them to flow into the country, large sums of currency.
With the help of economic experts in Iran, it is predicted that in 3-4 years time, the country could easily reach an industrial growth rate of over 6% and unemployment reduced by over 1/3 of its current rate; which would be considered a huge leap for Iran’s economy. The process of change will begin gradually during the first months, and in time, with proven transparency and building of trust between the two sides, they will gain momentum.
We may well be witnessing a race to return to Iran for trade and investment. Let us not forget that we are speaking of one of 15 wealthiest nations in terms of natural resources, with extremely capable and progressive and forward-thinking people.
Who is most anxious about lifting sanctions against Iran? Europeans, Americans, investors, politicians?
Emadi: The most amount of effort spent in trying to free Iran from the sanctions are shown by Western youth, student activists, academics as well as industry executives and then in the next wrung are the moderates and peace advocates among politicians, even those in the military with war experience.
Which political groups are for the lifting of sanctions and which groups against?
Emadi: The proponents of lifting the sanctions are mostly made up of those countries whose trade relations with Iran have always been highly profitable. And those least enthusiastic about removal of sanctions are two completely separate groups: First is the group who has consistently demanded use of force against Iran, and only joined the sanctions to prove that they are ineffective, mainly because they aspire to strategically dominate the region. The second group is basically worried about Iran’s Inter-continental ballistic missile project and its nuclear program.
Given your own background in advisory positions with Russia’s banking industry, do you see Russia as a benevolent partner for Iran?
Emadi: Russia is a key neighbor for Iran. Russians have been able to achieve nearly all their goals within the Caspian region and through the Boushehr and several other sensitive projects, extremely important alliances have been made between us. However, I personally believe that the Russians ideally prefer to see Iran kept in isolation so that it will always remain in need of Russia. And as such, they can receive all kinds of bonuses from Iran. This phenomenon is not original with Russia. In certain ways Turkey and UAE are the same. Even in the West, there are tendencies to keep certain key countries of the world in need of the influence of the U.S. or Britain or France.
Looking at economic interests of both countries, we can find a number of differences which with the expansion of Russia’s influence in Iran, could seriously harm Iran’s economic growth and energy resources. And Russia has already received certain bonuses from Iran for various projects in recent years. Boushehr plan and sale of Missiles deal; to name but a few. However, again this is not just a Russian phenomenon. It is the nature of relations between two countries where one becomes excessively dependent on the other.
Why are the super powers so opposed to Iran's nuclear program, when our neighboring Pakistan and India are both nuclear powers? Why isn’t there any sensationalism about these countries?
Emadi: Because nuclearization of India was not at odds with the West’s security concerns, since it could be used as a line of defense against China. And the Pakistanis’ special connections with the U.S. and Saudi Arabia helped them get a green light from the West, despite India’s concerns. In either cases, none of these countries has even once threatened the West or spoken of a New World Order, as India peacefully pursues its nuclear projects, next to Brazil, South Africa, South Korea and China.
While Iran, which unlike these countries, hasn’t even yet reached a nuclear-power status and to my knowledge there are no signs of militarization of its nukes, yet it has repeatedly and aggressively threatened the West and its allies. It is not difficult to see why Iran has become the central concern for the world.
Should we expect a miracle in Baghdad?
Emadi: We don’t need a miracle. It is more prudent to not lose hope since we seem to be moving out of the chapter of pessimism and into a new chapter of cooperation. Although taking small and slow steps, but steps nonetheless. Even if a miracle happens in Baghdad, it is because of hope for the triumph of wisdom ... hope that at the moment of truth, helping hands will reach out to hold one another … hope that the right words will be spoken during these peace talks, quietly, constructively and far away from tensions and chaos.
It is entirely possible and probable for Iran to return to the global market and in less than a decade make awe inspiring quantum leaps in its economic growth that will leave all her neighbors in a bewildered state of wonder and surprise…