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Iran should focus on its domestic development

Published by The Straits Times, Singapore on 2004-09-28

The Middle East - extending from Morocco in the west to Iran in the east - has long been an enigma for global analysts because of the historical, cultural and political complexities of its 300 million people. It's not for nothing that many a diplomatic - and journalistic - career has been wrecked on the rocks of the region's kaleidoscopic realities.

Now it's Iran's turn to offer up some freshly troubling questions at a time when the region is already replete with instability in Iraq and new violence between the Palestinians and Israelis:

Is Iran - with oil-export revenues of more than US$30 billion expected this year - well on its way to producing nuclear weapons that would threaten not only neighbouring Middle East enemies such as Israel but also European nations? Indeed, should it be allowed to do so? With growing unemployment among its young, and rising social tensions, can Iran afford to pursue the development of a nuclear arsenal?

And even with proven crude oil reserves of more than 130 billion barrels, and daily production of some 4.2 million barrels, can Iran - a nation of 67 million overwhelmingly poor people - afford to live off its oil revenues if imports, already at US$32 billion now, keep rising each year? Moreover, the oil industry isn't generating the volume of jobs required to alleviate Iran's reported unemployment rate of 16 to 17 percent. Among those younger than 30 years of age, the jobless rate may be even higher. Inflation - usually a key indicator of economic health - is running in excess of 17 percent annually.

Back in 1979, when I covered the Islamic revolution that deposed Shah Mohammed Riza Pahlavi, the new rulers of what had been transformed overnight into a theocratic state often boasted about how their country would one day become a nuclear power.

They pointed out that the Shah had plans to build more than 20 nuclear reactors with the assistance of Germany and the approval of the monarch's ally, the United States.

Iran, they said, would match the presumed nuclear capability of Israel, the Jewish state hated by the Shia Muslim fundamentalists who took over the oil-rich Persian Gulf state. The ayatollahs turned to the erstwhile Soviet Union to replace Germany as Iran's main builder of these plants, of which one - at Bushehr - has already been completed.

Their boast, 25 years ago, hasn't turned out to be an idle threat. Last week, President Mohammad Khatami said that Iran would continue to produce enriched uranium fuel for nuclear energy. He said Iran had begun converting 40 tonnes of uranium oxide into uranium hexafluoride gas, the feedstock for enriched uranium. While it has not yet resumed enrichment of the gas by feeding it into supersonic centrifuges, President Khatami - who's ineligible for re-election after his second term expires at the end of the year - said Iran intends to do so.

The cleric-politician also said that Iran plans to build a second nuclear reactor.

Although President Khatami stopped short of saying that Iran would develop nuclear weaponry, there's long been suspicion within the International Atomic Energy Agency - the Vienna-based United Nations body that monitors nuclear development - that Iran, a nation of 66 million people, isn't quite pursuing its nuclear plans for producing energy for civilian purposes alone. The IAEA asked Iran to halt its uranium enrichment programme within two months or risk sanctions, but the ayatollahs rejected the demand on the grounds that Israel, also a member of the IAEA, hasn't been similarly scolded nor subjected to UN inspections.

Last week's disclosure by President Khatami was followed by another Iranian announcement that it had test-fired a new long-range missile, the Shahab, which means "shooting star" in Persian. According to the Israelis, this missile can easily reach London, Paris and southern Russia. There's speculation that the Israelis may well use US-manufactured bunker-busting rockets to destroy Iranian nuclear facilities, just as in 1981 when they bombed Iraq's incipient nuclear plants.

Iran, of course, predictably says that it will resist any Israeli efforts to attack its nuclear facilities. It also contends that, even though it's a signatory to the Nuclear Nonproliferation Treaty, it has every right to develop nuclear technology for peaceful purposes.

It isn't alone in maintaining such a stance: virtually every developing country that's signed the treaty insists that it needs nuclear energy to meet growing domestic demands for electricity, manufacturing and industry.

The Associated Press reported last week that some of these developing countries say that the nonproliferation treaty has become "a tool of nuclear states to impede nuclear development in nations they mistrust and has lost its original purpose." The original purpose was to encourage a system under which countries without nuclear weapons that signed the treaty were promised full support in developing other nuclear technologies in exchange for renouncing nuclear weapons, according to the AP.

But could there be some truth in Iran's public insistence that its nuclear ambitions are confined to sustainable economic development? The 61-year-old President Khatami told union representatives in Tehran recently that it was high time that the theocracy weaned itself away from its traditional reliance on oil export revenues, which account for about 80 percent of the Islamic Republic's export income.

Industrial productivity needed to be enhanced, he said, and the country's management and training projects warranted overhauling. And Iran, he added, would be seeking more foreign direct investment through already proven successful vehicles such as the issuance of Eurobonds and other measures.

Regardless of the president's exhortations, it's not going to be easy for Iran to attract foreign capital in the volume it would like. Last year, the Islamic Republic received a puny US$40 million in foreign direct investment, less than a twentieth of neighbouring Pakistan, also an Islamic state, but one that has acknowledged it's a nuclear power.

Foreign capital is also critical for Iran because it wants to increase its daily oil production from 4.2 million barrels to 12 million barrels. It cannot accomplish this without heavy foreign investment in the oil industry.

Iran has been severely affected by the US-imposed sanctions in 1979 soon after Islamic militants seized the American Embassy in Tehran and kept diplomatic hostages for 444 days. Unless there is greater inflow of foreign technical know-how, Iran's prospects of reviving its moribund non-oil sector remain weak.

That sector was once much more productive. For example, exports of Caspian caviar sturgeon have fallen nearly 90 percent since the 1979 Islamic revolution. A report in Reuters said recently that hand-woven Persian carpets, Iran's second most valuable exports, have been "bludgeoned" by foreign copies - made in Pakistan, Turkey and Iraq. Only exports of pistachio nuts - a key agricultural product - have shown continued strength. Non-oil exports are expected to be about $7 billion in 2004, according to the International Monetary Fund.

The IMF also estimates that Iran's overall economic growth rate for the next four years is expected to be 5.2 percent annually. This will not be sufficient to make up its budgetary deficits as the country attends to domestic social and economic development projects, rebuilds its long neglected infrastructure, and also continues major agricultural and gasoline subsidies.

Iran, in short, neither needs nor will be able to sustain a nuclear weaponry programme. It's time that the ayatollahs tended to their own parish first.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist


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