Reprinted from

Iran's Economy Vulnerable, Experts say

Kenneth R. Timmerman
Friday, May 11, 2007

 Iran's economy is vulnerable to outside pressure, giving the Bush administration and its allies more opportunities than generally believed for compelling the regime to halt its nuclear weapons program, a panel of U.S. experts said.

"There has been no serious discussion of what lies between doing nothing and doing everything," American Enterprise Institute scholar Danielle Pletka said on Wednesday.

By doing nothing, she cited calls by the Baker-Hamilton Iraq Study Group and others to open a direct dialogue with Tehran, which many analysts view as appeasement.

By doing everything, she meant a U.S. military campaign against Iran.

The debate between advocates of those positions "has become a caricature of U.S. foreign policy choices," Pletka said.

Instead, there was a broad range of economic pressures the U.S. and its allies could bring to bear that could do serious damage to the regime.

AEI yesterday released an on-line data base compiled by researcher Omeed Jafari listing more than 300 companies from 38 countries that were doing significant business in Iran.

 An examination of Iran's business relationships showed that unlike North Korea, Iran's economy was "tightly dependent on buying and selling ... and on the good will of export credit agencies," Pletka said.

As an example, she noted that Italy's export credit agency has extended $6 billion in export credits and political risk insurance to Italian companies doing business in Iran.

If Iran defaults on any of its commitments to those companies, "it's the Italian taxpayer who is left holding the bag."

Pletka and other experts praised recent efforts by the U.S. Treasury Secretary Hank Paulson and Undersecretary Stuart Levy to increase the pressure on Iran by limiting Iran's access to international financial markets.

In the year or so that Treasury has been active on Iran they have been "far more effective than the State Department has been" for all the years it's been working on Iran," Pletka said.

 So far, the United States has been focusing "not on investment, not on commerce, but on financial transactions," said Patrick Clawson, deputy director for research of the Washington Institute for Near East Policy and a former World Bank economist.

Clawson joined the criticism of the State Department for not being more pro-active in sharing information that would enable U.S. partners overseas to better enforce sanctions enacted under two recent United Nations Security Council resolutions against Iran.

"The business community wanted targeted sanctions? They're targeted. Sorry, guys," he said.

Drawing from information published in a March 2007 report on the Iranian economy from the International Monetary Fund, Clawson noted that Iran earned $58 billion last year from oil exports. "That's $21 billion more than three years ago," he said.

With the windfall oil revenues, Iran "ought to be in a real boom" economy, he said.

Instead, Iran is the only major OPEC oil exporting country in the region that is running a budget deficit. "Iran is not in economic crisis – but that's a stunning indictment," he said.

For Iran to avoid serious economic downturn, Clawson said that oil prices would have to remain at $65/barrel for the next two or three years, "and that's not going to happen."

President Mahmoud Ahmadinejad came to power by promising to break the back of the "oil mafia" in Iran, and by promising to deliver prosperity and swimming pools, Clawson said.

"The Iranian economy is going to have serious problems and Ahmadinejad is going to get blamed for it."

Those problems were as predictable as the sun rising in the east, "so we should take credit for it," Clawson said.

In introducing the new "Global Investment in Iran" data base, AEI Vice president Danielle Pletka said her intention was not to advocate a specific policy, but to show lawmakers and others that real options existed.

"This is not just about sanctions, but also about the wisdom of doing business in Iran," she said.

Noting efforts in California, Florida, and other state legislatures to divest state pension funds from companies doing business in Iran, she said that "shareholders… might want to ask if this was a good risk."

Already, U.S. pressure has had an impact. Pletka noted that the French foreign credit agency, Coface, recently downgraded Iran's credit-worthiness, and large international banks were scaling back their Iran exposure.

These pullouts "send a message to the Iranian regime that there is a cost to their foreign policy," she said.

So far, however, the cost has not been high enough to impact Iranian behavior, the panelists agreed.

Clawson said he expected that the next round of United Nations sanctions would focus on foreign investment in Iran's oil and gas industry. "The EU 3" – France, Germany and Britain – "have already broached the idea" of imposing some kind of investment ban that would be enforced by a new Security Council resolution.

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