Overview. Iran continues to be high on the international agenda as the US applies pressure in Europe and Asia to support its sanctions, coming in the next few days. The Khashoggi case, FATF, and ICJ delivered Iran some good news this month, although the domestic economic and political scenes remain fraught, with rising inflation, a weak currency, more ministerial resignations and industrial action by teachers.
Tehran largely refrained from public comment on the killing of Saudi journalist Jamal Khashoggi, with no reaction coming until 22nd October, nearly three weeks after the story broke. The hard-line head of the judiciary publicly condemned Saudi officials’ suspected role in the death; President Rouhani speculated some days later that such “heinous murder” would be unthinkable “without US backing”. Iran may benefit from the international response to the Khashoggi case while Washington is relying on Riyadh to increase crude production and stabilize prices following the re-imposition of sanctions on Iranian oil next month. US sanctions on Saudi Arabia could sour bilateral relations and increase oil prices – both to Iran’s advantage.
The Financial Action Task Force (FATF) gave Iran until February 2019 to complete anti-money laundering and terrorist financing reforms, continuing to suspend counter-measures until then. This represents a victory for reformers and central bank technocrats over hard-line domestic opposition. FATF’s statement lists nine items that remain to be addressed, representing a challenge to the legislature, ministries, and banking sector.
OFAC (US Treasury) sanctioned 20 Iranian companies including financial institutions and reclassified nine more as Specially Designated Global Terrorist entities subject to secondary sanctions. The 20, which include Iran’s biggest steel producer, have been linked to the Bonyad Taayon Basij network (controlled by the Basij, a national militia organisation with IGRC links). Of note is the number of degrees of separation (up to seven) the newly-sanctioned entities are removed from the ultimate target (the Basij and IGRC).
The International Court of Justice (ICJ) granted Iran’s request for provisional measures in its case against the US. The ICJ ordered the US to “remove, by means of its choosing, any impediments” against the export to Iran of medicine, medical devices, foodstuffs, agricultural commodities, and spare parts, equipment and services necessary for civilian aviation safety. This is a symbolic victory for Iran. Following the order, Mike Pompeo announced US withdrawal from the 1955 US-Iran friendship treaty on which Iran’s claims are based.
Iranian banks remain extremely concerned that SWIFT, the Brussels-based international payments messaging system, will accede to US pressure to exclude Iran from its network. The Administration could impose penalties on SWIFT; however, that risks disruption to the major financial institutions that rely on it.
Australia will review its support for the Iran nuclear deal and consider recognizing Jerusalem as Israel’s capital and moving its embassy from Tel Aviv, according to its Prime Minister.
Facebook said that it “removed multiple Pages, Groups and accounts that originated in Iran for engaging in coordinated inauthentic behaviour on Facebook and Instagram” targeting US and UK users.
President Hassan Rouhani accepted resignations from the ministers of industry (Mohammad Shariatmadari) and roads (Abbas Akhoundi). This follows impeachment by the Majlis (parliament) of the economy and labour ministers during the summer. First Vice President Jahangir – a strong Reformist voice in cabinet – complained at his lack of influence on policy, prompting rumours of his resignation, which would weaken Rouhani.
A group of 150 Iranian women was given official permission by the Interior Ministry to attend a football match at the national Azadi Stadium to watch a friendly with Bolivia. Conservatives have resisted women attending matches for religious reasons.
Hassan Rouhani’s Cabinet approved plans on Sunday to cut government expenditure. Cabinet prohibited any rental or purchase of new offices, recreational facilities, or renovation of office facilities or equipment.
Supreme Leader Khamenei released a draft of the “Islamic-Iranian Blueprint for Progress” outlining his vision for Iran over the next 50 years. It rests on two pillars: (1) total Islamization of all facets of life; and, (2) use of scientific achievements to become technologically self-reliant. The final version is due to be published next year, indicating that this is an attempt to project confidence in defiance of US anti-Iran policy.
The Chinese Bank of Kunlun will cease handling payments from Iran from 1st November. It has already suspended euro payments. Data from the Association of German Banks showed exports to Iran down 4% in the first eight months of 2018 and an almost total freeze on banks’ export finance activities.
Data disclosed by Shaparak, Iran’s payment settlement network, shows a 25% year-on-year increase in monthly e-payment transaction volume and nearly 60% growth by transaction value.
Iran dropped one place in the World Economic Forum’s “Global Competitiveness Report 2018-19” with a score of 54.9 out of 100. It now ranks 89th out of 140 countries. According to the Statistics Organisation of Iran the annualised inflation rate (CPI) is 32.8%; the CBI’s figure is 36.9%.
The Tehran Chamber of Commerce, Industries, Mines and Agriculture hosted a 50-strong Syrian business delegation. Iranian business expects to leverage political support given by its government to the Assad regime in winning reconstruction contracts.
The International Energy Agency puts October’s Iranian oil output at 1.6-1.7m bpd, down from 2.5m bpd before new sanctions were announced. Others estimate exports at 2.2mbpd. An unprecedented volume of Iranian crude oil (22m barrels) was sent to China this month. The Saudi Energy Minister was quoted this month as saying, “nobody has a clue what Iranian exports will be.” Oil Minister Zanganeh denies any reports that oil production will fall as a result of sanctions, although he also announced this month that fuel (petrol and diesel) rationing may begin soon.
Isfahan Province’s only hydroelectric power plant was shut down due to an acute water shortage.
Iran’s trade surplus in mineral products increased to $3.5 billion at the end of the first half of the current fiscal year, up 9.5% in value terms compared with the same period last year.
The Rial hit a record low rate of 190,000 to the US dollar in late September, leading to a policy reversal and central bank intervention to prop up the currency this month. It ends the period at 147,000 to the dollar, with an uptick in demand for foreign currency in during the final days of October as almost 2m Iranians travel to Iraq for the Arbaeen rituals to mark the 40th day of Imam Hussein’s martyrdom.
The total value of trades in securities on the Tehran Stock Exchange (TSE) was up 73% this reporting period, with the First and Second Markets indices climbing 19% and 14% respectively.
Troops, helicopters, artillery and drones mobilised in the mountainous west to degrade the capabilities of Kurdish armed opposition groups. Iran is increasingly concerned that the US could support Kurdish groups intent on contesting the regime in this area. Komala, a small Iranian Kurdish group recently registered with the Justice Department to lobby to “establish solid and durable relations” with the US Administration. Meanwhile 14 members of the security forces were abducted from a village in Sistan-Baluchistan. Pakistani militants Jaish al-Adl (Army of Justice in Arabic) claimed responsibility.
The terrorist attack in Ahvaz (22nd Sep) has led to claims that security forces were negligent; this is highly unusual in Iran where security forces are usually immune from public criticism. 30 personnel charged with security at the event have been dismissed and one arrested.
Israel accused Iran of directing Hamas to fire over 30 rockets into Israel from Gaza on 26th October.
Three Iranian fast attack craft closed on HMS Dragon, a Type 45 Royal Navy Destroyer on 21st October in the Strait of Hormuz. After a lull of more than 12 months since the US Navy reported unsafe interactions with Iranian vessels, the Wasp Class amphibious ship USS Essex was also approached by two fast patrol boats on 25th October.
Teachers went on strike despite threats by judiciary officials (in September during a nationwide truckers’ strike, Iran’s prosecutor-general threatened strikers with the death penalty). The authorities arrested members of the organising teachers’ union (CCTU). Although Iran has seen an increase in the number of public rallies, strikes and demonstrations, the majority of protests staged have been in response to specific economic and occupational demands, remaining largely fragmented, localized and uncoordinated. There is however speculation that the CCTU was using the two-day strike to gauge its ability to mobilise and prepare for a coordinated general strike with other civil servants.
Iranians at all levels of society are waiting to see the effects of November’s imposition of sanctions. Although much of the impact has been priced in, maintenance of access to SWIFT and the future volume of oil sales remain two big ‘unknowns’ with important consequences. Despite domestic pain, Tehran is unlikely to change its regional posture. Iran is pursuing a wait-and-see strategy alongside a regional leverage-building exercise. Under the former, Tehran will closely follow the November mid-terms as a measure of Trump’s domestic support and potential for re-election; Tehran will only invest in new negotiations if it decides Trump has a chance in 2020. Until that calculation is made, the regional landscape is rife with opportunities to build leverage for future negotiations.