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reflections

Dec 18, 2012 | 06:59 GMT

4 mins read

Iran's Management of Sanctions Pressures

(Stratfor)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

In an announcement on state television Monday, Iranian Economy and Finance Minister Shamseddin Hosseini delivered uncharacteristically specific information regarding the effects of the U.S.- and EU-led sanctions campaign on Iran when he said that Iran is facing a 50 percent decline in its oil revenues due to sanctions, a drop valued at roughly $40 billion.

Hosseini's comments come amid a recent increase of Iranian defiance — Iran again denied the International Atomic Energy Agency access to its Parchin nuclear testing site over the weekend — making his admission of Iran's inability to manage the sanctions pressure all the more curious.

What is a Geopolitical Diary? George Friedman explains.

What no one in Iran is talking about publicly are the slow but steady effects the sanctions are having on the long-term productivity of Iran's hydrocarbons industry. Some of the oldest operating fields in existence, Iran's oil fields require costly and highly technical enhanced recovery techniques to maintain high levels of production without negatively affecting long-term productivity. According to International Energy Agency estimates, Iranian output has dropped to 2.3 million barrels per day since the beginning of the sanctions campaign in 2012 — a significant reduction from the approximate 4.2 million barrels a day averaged in previous years.

The Iranian government has chosen defiance rather than cooperation in response to Western sanctions. If this policy continues, the potential for long-term damage to oil fields remains high if a sudden and drastic reduction in production were to occur. As the clerical elite continues its hard-line position against the West and prepares to weather a "resistance economy" rather than reaching an accommodation with the United States, the strategic value of the Islamic Revolutionary Guard Corps' hydrocarbon assets risks being depleted by poor field maintenance practices.

Iran will hold presidential elections in June 2013, which likely will represent a watershed moment in the transition of authority and power in Tehran from the ranks of the clerical elite to that of the Islamic Revolutionary Guard Corps. While official candidate lists have yet to be announced, it is unlikely that the elections will feature any viable candidate from the ranks of Iran's clerical establishment — a first in the history of the republic since the ratification of the current constitution in 1982. Iran has moved away from the ideals of the revolution, and Tehran has increased its covert activities and management of militant proxies in the region, which have been funded by Iran's hydrocarbon revenues. The clerics have relied increasingly on the capabilities of the corps to manage their interests both domestically and abroad.  

This reliance on the Islamic Revolutionary Guard Corps by the clerics to balance against the growing ambitions of other political actors has allowed the corps to increase their political and economic influence within Iran. More and more former corps commanders have filled top political and ministerial positions, and the number of clerics involved in the direct rule and enforcement of the law is dropping; almost all heavy industry contracts such as roads and bridges are granted to companies run by retired commanders. Most valuable, however, has been the corps' ability to maintain almost complete control of Iran's domestic energy industry. The naming of former Khatam al-Anbia (the corps' equivalent of the U.S. Army Corps of Engineers) commander Gen. Rostam Qasemi to the oil ministry in August 2011 by Iranian President Mahmoud Ahmadinejad all but cemented the role former corps commanders at the helm of Iran's domestic energy industry.

While foreign sanctions campaigns are undoubtedly increasing external economic pressure on the stability of the Iranian regime, the most potent threats to the stability of the clerical-led regime remain internal. Following the results of the 2009 presidential election, the world watched the so-called Green Revolution unfold on the streets of affluent neighborhoods in northern Tehran. Iran is well suited to manage popular unrest, as seen in the corps' suppression of the Green movement since 2009. As external economic pressures mount on Tehran, however, the government could face a bigger threat from a disgruntled or disenfranchised corps than from popular unrest.

Iran's clerics have relied on political and economic incentives to maintain the loyalty of the Islamic Revolutionary Guard Corps. The clerics still possess a variety of levers with which to manage their relationship with the corps, but in the face of the unintended consequences of the most recent sanctions against Iran, the clerics will need to consider the economic interests of the corps. Iran's declining oil revenues and the possibility of long-term production reductions — even if sanctions are lifted — present a direct threat to many factions of the corps even as Iran's uncertain regional position increases the nation's reliance on the corps as defenders of the revolution. These combined factors give the group increased political clout while the credibility of the clerics is waning.

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