November 4 marked the first anniversary of the 1979 seizure of the US Embassy in Tehran since Iran’s landmark nuclear deal in July with the P5+1 (United States, Britain, France, Russia, China plus Germany). Some three-and-a-half decades after the US hostage crisis began, Tehran is reasserting itself significantly more forcefully on the international stage, following decades of international estrangement.
However, it remains unclear exactly what course the country will charter as it opens itself up more to the world, and the degree to which influential conservatives in Iran might thwart the greater engagement desired by the government of Iranian President Hassan Rouhani. Tehran’s choices will have a major impact not just politically, but also economically, as it potentially transforms into what some assert is a nascent Middle Eastern superpower.
The latest sign of thawing in Iran’s former diplomatic and economic isolation came last Friday when Iranian Foreign Minister Javad Zarif joined, for the first time, multi-country talks to try to bring a resolution to the Syrian crisis. The change in US policy concerning Tehran’s involvement in the discussions is a political dividend of this summer’s nuclear agreement. Although some powers, especially Saudi Arabia, resent Iran being given a seat at the table, it is increasingly acknowledged internationally that Tehran is key to any eventual political deal, given its staunch support for the regime of Syrian President Bashar Al Assad.
In the economic sphere too, Iran has major forward potential. The International Monetary Fund indicated last month that the economy could grow by 4 per cent to 5.5 per cent in 2016-17, in the context of international sanctions relief, if oil production is raised by up to 1 million barrels per day (bpd).
As sanctions begin to be rolled back in 2016, Tehran could receive a financial bonanza of around $100 billion (Dh367.8 billion) in currently frozen assets. However, because the country has significant existing financial obligations, plus the need to strengthen financial reserves, the amount of useable liquid assets is estimated to be nearer a third or quarter of this amount.
This is still significant, but needs to be seen in the context of the massive $1 trillion estimates of Iran’s infrastructure investment that is needed, much of which will require foreign investment. A good case in point here is development of the country’s oil and gas fields (the fourth largest oil reserves in the world, and the biggest for natural gas), which is a key prize for international energy firms.
Goldman Sachs has estimated Iran could supply an extra 200,000-400,000 bpd in 2016 and Tehran will provide more details of new oil and gas schemes in a London conference in February. As the country reintegrates itself into the global petrochemicals market, its main export targets will be in Asia-Pacific, including China, India, Japan and South Korea. As Iran flexes its political and economic muscles internationally, a key question is what this enhanced power will mean for its posture in the region and beyond. While some perceive that the nuclear deal will result in much wider foreign policy change, this is unlikely to be the case — in the near term at least — given the competing views in Tehran between Rouhani government’s centrist and reformist supporters and powerful conservative hardliners.
The latter wants greater cooperation, including with Saudi Arabia, believing that more conciliatory policies will improve foreign investment, commercial links, and diplomatic ties. They argue that this will, in turn, secure greater international support for Iran’s positions on peace initiatives in Syria, Yemen and Lebanon.
However, conservatives in Tehran are digging their heels in against any fundamental change in foreign policy principles, which have been broadly consistent since 1979. This includes broad opposition to the Middle Eastern policies of Israel, the US and Saudi Arabia and also Iranian financial and military support for various militant forces in the region, including Lebanon’s Hezbollah, Yemen’s Al Houthi militia and the Shiite forces in Iraq.
In the interplay between these factions in Tehran, July’s nuclear deal has boosted prospects of reformists and centrists in February’s parliamentary elections and significantly improved Rouhani’s chances of re-election in 2017 too.
However, for now at least, conservatives have the upper hand with regard to Iran’s regional policy in the Middle East, with Ali Khamenei, Iran’s Supreme Leader, and the predominantly hard-line military and security bureaucracy, acting as a brake on change.
With regard to Syria, for instance, hardliners are critical of the Rouhani government’s new involvement in multi-party talks, as Khamenei made it clear last Sunday when he called them a “dangerous initiative”. This circumscribes Rouhani’s room for manoeuvre, despite concerns from a growing number of moderates and reformists in Tehran of the increasing diplomatic, financial and military costs of supporting the Al Assad regime and how long these can be maintained.
In Iraq, a key emphasis for Iranian conservatives is supporting the continuation of a unified, but dependent, country. This includes support for Iraqi militias in the fight against Daesh (the self-proclaimed Islamic State of Iraq and the Levant).
Meanwhile, emphasis will be placed by Rouhani on supporting Baghdad through enhanced economic and political ties. One key initiative being pushed here is a major new free trade zone (FTZ) on the Southwestern border with Iraq (near to the oil-rich Iraqi province of Basra) reminiscent of Jebel Ali, the successful UAE hub. The 37,500 hectares Arvand FTZ project, which aims to be completed within two years, has ambitions that go beyond Iraq and the Arabian Gulf to potentially also forge stronger economic links to the Caspian Sea to serve Russia too.
With the Gulf Cooperation Council (GCC) states, the effectiveness of the Rouhani government’s diplomatic campaign to improve ties will continue to be blunted by refusal of conservatives in Tehran to disavow their support for Al Houthis in Yemen.
Nevertheless, Rouhani will persist in seeking to reduce tensions with the GCC to improve trade and investment, while encouraging states such as Kuwait and Oman to move away from Saudi’s hard-line position on Iran.
Taken overall, Iran’s re-emergence as a significant regional power, both economically and politically, is not likely to result any time soon in a fundamental shift in its post-1979 foreign policy posture. Despite the fact that Rouhani’s position has been strengthened by July’s nuclear deal, conservative hardliners will continue to hold sway on Tehran’s regional policy for the foreseeable future.
Andrew Hammond is an Associate at LSE Ideas (the Centre for International Affairs, Diplomacy and Strategy) at the London School of Economics.