Sanctions hit workers, not theocratic regime

Yassamine Mather reviews the effect of US and UN moves against Tehran

In the next few days the US Senate will consider what has been labelled an ‘Iran war resolution’ calling on the president to “initiate an international effort to immediately and dramatically increase the economic, political and diplomatic pressure on Iran to verifiably suspend its nuclear enrichment activities ...” The resolution calls, among other things, for the prohibition of the export to Iran of all refined petroleum products and “stringent inspection requirements on all persons, vehicles, ships, planes, trains, and cargo entering or departing Iran”.

Apparently it was Israeli prime minister Ehud Olmert who suggested the idea to house speaker Nancy Pelosi during a recent meeting. The motion, sponsored by Aipac (the American Israel Public Affairs Committee), has so far gained 208 signatories in the House and 29 in the Senate. Last week revelations about US covert operations inside Iran were making headlines and all this has created a sense of panic inside Iran.

For the first time political and military leaders of the regime are talking openly about the possibility of war and about Iran’s plans for retaliation. The commander of the Revolutionary Guards warned that “Iranian retaliation for a strike against its nuclear facilities could include blocking oil routes and attacking Israel with long-range missiles”.

All discussions in the Guardian Council and amongst leaders of the regime are held in secret, yet the media in Tehran are reporting serious divisions over how to respond to the latest escalation. For ordinary Iranians the combination of constant military threats plus severe economic problems aggravated by sanctions has created unbearable conditions. The working class and the urban poor are particularly hard hit.

UN resolutions

Adopted in December 2006, UN resolution 1737 banned trade with Iran in all items, materials, equipment, goods and technology which could contribute to the country’s enrichment-related, reprocessing or heavy water-related activities, or to the development of nuclear-weapon delivery systems. Resolution 1747 of March 2007 further tightened the sanctions by imposing a ban on arms sales and expanding the freeze on assets.

In March 2008, the security council imposed further measures, including the inspection of cargo suspected of containing prohibited goods, the tighter monitoring of financial institutions and the extension of travel bans and asset freezes.

These UN resolutions, proposed and pushed through by the US, claim to have one aim: ending the risk of proliferation presented by the Iranian nuclear programme. There are two flaws with this claim.

1. The International Atomic Energy Agency protocols to prevent nuclear proliferation are unacceptable. Countries which themselves possess sufficient nuclear weaponry to destroy the world several times over - and are continuing to add to their arsenals - are laying down the law to others - or, rather, to some of them. The US and its European Union allies have for decades turned a blind eye to the nuclear weapons of Israel and Pakistan.

2. Enrichment of uranium is one of the most expensive ways to produce a bomb. Plutonium is easily bought on the international market and offers a far cheaper and faster route to obtaining nuclear weapons. Iran has produced reconstituted uranium - what is known as ‘yellow cake’ - at its uranium conversion facility at Isfahan and is producing centrifuges as another way of enriching uranium. Both of these are dangerous policies and should be condemned.

However, Iranian policy has clearly less to do with achieving nuclear military capability than the regime’s need to maintain an atmosphere of crisis in order to divert attention from its serious political and economic problems at home. Although sanctions have only played a minor part in Iran’s current economic crisis - a spiralling rate of inflation, widespread poverty, etc - it is useful to blame them for all the country’s problems rather than admit to the regime’s own failings.

Furthermore, the increasing demand for oil in industrialising countries has allowed the Iranian government to reach out to alternative markets - namely those based in Asia and South America - which provide goods and services for the regime to expand its nuclear technology.

US sanctions

Under American economic sanctions, any direct or indirect financial transaction between Iran and the US is strictly prohibited. However, using the bank accounts of Iranian-Canadians, financial transactions between the two countries are made on a daily basis. Export of American goods and services (other than academic, educational and food products) to Iran is not permitted, but Iranians enjoy American brands such as Calvin Klein and Guess thanks to the entrepreneurship of Iranian residents and Arab citizens of the United Arab Emirates, who import the goods via the Iranian port cities in the south. Iranians watch American-made movies illegally imported from Turkey, while the islamic republic’s state-run television (without the permission of the American entertainment industry) shows the latest Hollywood movies to an Iranian public eager for anything American.

Addressing Aipac on Monday June 2, John McCain, the Republican presidential nominee, said new sanctions should restrict Tehran’s ability to import refined gasoline and rein in the operations of the Central Bank of Iran. He called on European countries to back a broad international divestment campaign targeting companies that do business in Iran. The next day Olmert and Condoleezza Rice accused the world of not doing enough to counter Iran: “Our partners in Europe and beyond need to exploit Iran’s vulnerabilities more vigorously and impose greater costs on the regime - economically, financially, politically and diplomatically,” Rice said.

Of course, the current level of sanctions has already had devastating effects on the lives of ordinary Iranians, while government officials are busy moving their own money out of the country.

As early as January 2007 the US treasury imposed sanctions against Iran’s commercial Bank Sepah, accusing it of financing Tehran’s missile programme and having links with an alleged North Korean missile exporter.

Bank Sepah International, a wholly owned subsidiary in the UK, and Derakhshandeh, the parent bank’s chairman and director, were also targeted by a notice barring any US citizen from dealing with them and freezing any assets they have under US jurisdiction. The United States also imposed sanctions against other Iranian banks, accusing them of either helping finance Iran’s nuclear programs or funding terrorism.

International pressure

Throughout 2007 and in the early part of 2008 the US pressured European countries to increase sanctions against Iran and by April 2008 this yielded results. The EU approved new sanctions against Iran in June, including a freeze on the assets of its largest bank.

The Anti-Defamation League took out full-page advertisements in Swiss and international papers accusing Switzerland of “funding terrorism”, a charge vehemently rejected by Bern. The ADL placed advertisements headed, “Guess who is the world’s newest financier of terrorism? Switzerland”, in the International Herald Tribune, The Wall Street Journal and The New York Times .

In late April Switzerland announced it had frozen the assets of a further 12 Iranian companies. The 12, plus 13 individuals, have been added to an existing blacklist of 23 companies and 27 people. Five Iranian nationals are also banned from entering and passing through Switzerland, which will also ban the delivery of so-called ‘dual use’ materials - those that could be used for the manufacture of nuclear plants.

On April 21 Japan announced it has frozen the assets of Iranians alleged to be involved in the nuclear programme, in line with UN sanctions.  It blacklisted companies, including Abzar Boresh Kaveh Co, which is allegedly involved in the production of centrifuge components, and Joza Industrial Co, which the US claims is a front company manufacturing ballistic missiles.

Abzar Boresh Kaveh is involved in precision metal cutting, and produces drills, taps and car components. Even if one of its clients is Iran’s nuclear industry, clearly its main customers are car manufacturers. So sanctions against it could end up affecting Iran’s car workers, already hit by other sanctions as well as privatisation.

Japan, which is heavily dependent on Middle Eastern oil, had maintained trade ties and cordial diplomatic relations with Iran, but pressure from the US has forced it to change its mind. In 2006, Tokyo pulled out of a project to develop Iran’s largest onshore oilfield at Azadegan.

In the Netherlands oil major Royal Dutch Shell withdrew from a planned gas project in Iran, after coming under US pressure not to participate. Shell, Spain’s Repsol and the National Iranian Oil Company (NIOC) had signed a memorandum of understanding in January 2002 to develop Phase 13 in a project to be known as Persian LNG.

A Chinese company which had won a contract for the construction of a highway in Iran has recently pulled out. Since the beginning of the year, the four main banks in China - a country that is heavily reliant on Iranian oil - have decided to freeze their ties with Iranian companies, causing agreements worth hundreds of millions of dollars to go up in smoke. The automobile sector was first to feel the impact of this measure, while in February an agreement between Tehran and Beijing to exploit gas fields in the Persian Gulf was cancelled.

In France, BNP Paribas and the Union de Crédit Agricole have imposed restrictions. Total has decided to give up investments in Iran. Iran’s automotive sector is now threatened and Iranian politicians announced in February 2008 that they were prepared to cut all economic ties with France in response to Paris’s ‘hard line’ against the Iranian government, threatening an end to car maker Iran Khodro’s relationship with Peugeot and Renault. Iran Khodro’s flagship Samand model is based on the Peugeot 405 and its Tondar is based on the Renault Logan.

Iran imports over €1 billion of automotive parts every year from France. The US government could theoretically cause significant problems for European firms with a presence in Iran, but has yet to move against Peugeot or Renault.

Any sanctions that severely undermine the Iranian economy will have an impact on consumer demand, potentially leading to a fall in sales. If annual private consumption and gross fixed capital-formation growth - of 6% and 8% respectively - fell by 50% in reaction to a sanctions regime, Iran’s GDP growth would more than halve, causing automotive sales growth to fall by a similar amount.

The UK provided the Iranian regime with financial support worth about £290 million last year, while at the same time calling for sanctions. The money was offered by the Export Credits Guarantee Department (ECGD) to support British firms exporting to Iran, mainly to the country’s petrochemical industry.

Meanwhile, Israel imports Iranian oil on a large scale and gets around the boycott by having the oil delivered via Europe. The oil is imported into Israel by the Eilat-Ashkelon Pipeline Company, which keeps its supply sources secret.

Effects on workers

According to the Iranian Central Bank, the rate of inflation is 20%. The official rate of unemployment is now 15% but the real rate is estimated at around 30%.

Under current political conditions both internal and external capital avoids investment in long-term projects. Domestic investment is discouraged by the fall in the rate of capital accumulation. A huge burden is placed on the gross domestic product and value-adding activities, which hinder the possibility of capital accumulation in line with developmental needs. The impact on the state sector is disastrous.

The effect on the private sector is less, but still considerable: prompted both by the pursuit of profit and by non-economic considerations, the private sector tends to eschew productive investment in favour of playing the stock market, hoarding, speculating, buying and selling, dealing in real estate and land transactions.

On top of this, recent sanctions against Bank Melli, Iran’s largest bank, and Bank Saderat will affect the payment of workers’ salaries (most major firms in Iran pay salaries directly into accounts in these banks) - especially if they collapse as a result.

There are few foreign sources of investment, and the use of official sanctions by the US and its allies acts as a barrier to the entry of international finance. The threat of being cut off from US and many major European markets means foreign investment in Iran is limited to some oil-related projects and car manufacture. Thus, Japan and Italy have tried to ensure their future supplies of oil in Iran by investing in petrochemicals or other strategic goods. But, even here, where they are securing their supplies against present and future rivals, advance payment has been extracted in the form of oil sales, itself fulfilling the need to secure oil stockpiles.

Clerics getting richer

Yahoo and Microsoft removed Iran from the list of countries they served in 2007, and Paltalk does not allow free access from Iran to its public rooms. All this affects student, labour and political activists opposed to the theocracy, while state officials and the security services have unlimited access to government servers. Iranian scientists and scholars are unable to access scientific and mathematical packages, yet the state and the nuclear industry buys the same packages via Russia and Ukraine.

Despite sanctions, rich Iranians in north Tehran have no problem buying luxuries. “Pop into Paytakht shopping centre in Iran’s capital and you can snap up a new Dell laptop, choose from a range of Motorola handsets and compare them with the latest Apple iPhone,” wrote one foreign correspondent. It is estimated that goods worth more than $6 billion, ranging from luxury items to household appliances and even food, are smuggled into Iran each year, mostly from Dubai. Transactions on this scale could not happen without the direct involvement of government officials and the help of the Islamic Revolutionary Guard Corps (IRGC). In addition, the IRGC allows smugglers to ship American brands from Gulf countries such as Bahrain and Qatar - both US allies - but only after the smugglers pay heavy fees.

For the last 30 years the IRGC and the local islamic committees have been the main distribution centres for ‘unislamic goods’, including alcoholic drinks, Barbie dolls, western music and films. Sanctions have given these ‘distribution centres’ even more financial power, as they now control the circulation of many more goods. Senior clerics such as ayatollah Rafsanjani, who were able to make astronomical fortunes thanks to sanctions against Iraq, are still doing very well, even though sanctions are supposed to be targeted against them.


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