Download Shell dec 2000

IRAN:
Regional Geopolitics and
Prospects of Economic
Development
in Iran
Bijan Khajehpour
Iran-Italy Roundtable
5-6 July 2004
Objectives
• Discuss the current domestic political and
economic developments in Iran;
• Identify Iran‘s central strategies in the light of the
regional crisis;
• Briefly analyze issues for international business;
• Discuss prospects of Iran‘s political, economic and
energy sector development;
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Current Political Picture
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Concurrent with the conservative take-over of the
Parliament, there is a relative calm in the country‘s
political establishment;
Top leadership seems to be in consensus on a
„Chinese Model of Reform“ (first economic reforms
and then political reforms);
External issues and pressures (NPT-related pressure
and regional crises) remain the key irritants in Iran‘s
developments;
Iran‘s recent regional and economic policies have
evolved around the desire to function as the region‘s
indispensible anchor of stability, especially in the
light of the deepening crisis in Iraq;
The society remains relatively disinterested in the
political struggle, but also distanced from any desire
for a regime change;
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Iran and the regional crisis
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As a result of the current regional crisis, Iran‘s domestic
discourses have been put on a security footing;
Based on new realities, Iranian leaders have concluded that
Iran’s only viable approach in international relations is to
become the “indispensable regional player in the Middle
East”
Critical tools:
• Economic and technological advancement;
• Regional positioning;
•
So far, Iran‘s response in foreign relations has mainly
focused on 3 levels; i.e.:
• Consolidating Iran‘s regional position and relations, interacting
with the majority of regional players, including Turkey, Egypt,
Jordan, Saudi Arabia etc.;
• Deepening the relations with the European Union as a leverage
against potential future US domination in the region;
• Seeking a new strategic relationship with India as a leverage in
regional relations;
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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What about Iran’s Economic Development?
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For the first time since the 79 revolution, Iran is focusing
on becoming an “economic and technological power”;
The 20-Year Perspectives produced by Khamenei
concentrate on “welfare”, “wealth creation”, “agricultural
and industrial growth” and “a software movement”;
Economic liberalization programs concentrate on
privatization, decentralization and deregulation;
The growing role of the internationally oriented private
sector is an important engine behind change;
The economy is benefiting from high oil prices and from
post-9/11 financial flows to the region;
Unemployment, underemployment and subsidies remain
key irritants in the economic development and there are
no clear solutions in sight;
Iran’s ambitious growth rates over the next few years
will mainly be generated through efficiency
improvements and better management of the economy;
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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GDP
Distribution
2002/03
Oil
15%
Water,
Electricity &
Gas
1%
Industry &
Mining
15%
Services
51%
GDP: US$ 112 billion
GDP Growth
Agriculture Construction
14%
4%
1997/98 1998/99 1999/00 2000/01 2001/02 2002/03
Private
Consumption
2.7%
6.8%
1.1%
4.8%
4.4%
4.5%
Public
Consumption
3.2%
5.6%
1.8%
1.9%
1.3%
1.5%
Gross Fixed
Capital
Formation
0.2%
3.9%
7.8%
8.3%
9.9%
10%
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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GDP Growth
1998/99 1999/00 2000/01 2001/02 2002/03 2003/04f
GDP in billion US$
101.2
102.7
99.0
106.9
112
120
3.9
1.6
5.7
4.8
6.5
7.0
1,575
1,599
1,565
1,631
1,720
1,800
Oil (%)
2.2
(6.0)
8.2
(8.4)
(1.5)
(2.0)
Non-Oil (%)
4.0
2.3
5.5
6.0
7.3
8.0
Agriculture (%)
6.2
9.4
2.8
4.7
10.1
10.0
Manufacturing &
Mining (%)
0.1
10.6
7.4
10.4
11.2
10.0
Services (%)
4.5
3.8
5.6
4.8
5.0
5.0
Real GDP Growth (%)
Per Capita GDP in
US$
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Who is behind the relative success story in the
country’s economy?
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3 significant factors:
a) Combination of the Rafsanjani’s capital
investments in the first half of the 1990’s and
Khatami’s injection of expertise into the state
sector (hardware and software);
b) The emergence of a powerful “State
Technocracy” – the second generation of IR
managers;
c) Favorable financial flows (high oil price, post
9/11 financial flows to the regions, Arab
investments in Iran etc.)
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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A look at the energy sector
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Iran has very ambitious plans
in oil, gas and petrochemicals;
Though the strategy on oil
production capacity increase
remains a key debate topic,
major investments in this
sector are inevitable;
The legal framework remains
an issue, though slow changes
are taking shape;
Iran’s focus in the next decade
will be on gas and also gasintensive industries;
Next important event:
Restructuring of NIOC and
consequent corporatization of
the energy sector companies.
Investments needed in
Iran’s energy sector
2005-2020
Sector
Investment Volume
(in $ billion)
Oil
40
Gas
45
Petrochemicals
25
Power
Generation
20
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Interaction between policy areas
International Relations
Focusing on Iran’s Role as
A Regional Power House
?
Reactions
Of
International
Players?
Economic
Liberalization
As a tool of
Consolidating the
country’s position
Undemocratic securitydriven Domestic
Structures
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Issues for International Business
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Iran will use international projects (especially oil and gas
contracts) to consolidate her regional position;
A wave of new contracts has commenced and will be
continued in order to secure that Iran is well positioned with
the international business community;
Actions of marginalized rogue elements and fringe entities
would still be designed to undermine the process of change
and reform, however, their power is in decline;
There is no reason to believe that Al-Qaeda operatives would
be able to strike easily inside Iran;
Worsening Iran-US relations could have an impact on
international business, should the US tighten sanctions;
Iran‘s increased attention to China, Russia and India could
mean that western companies aligned with eastern partners
would have a better chance in the Iranian market;
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Political Prospects
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Domestic political discourse will be led by Supreme
Leader Khamenei on a platform of security and
stability-driven policies;
Iran‘s key effort in the next few years will be to
consolidate herself as the „Stable Regional Power“
in a Region of Uncertainty;
Iran will continue her confrontational discourse on
the US, though potential opportunities for dialogue
and confidence building will be utilized – especially in
Iraq;
Iran realizes that external pressure will continue and
that Iran will need to develop CBMs (similar to the
signing of the NPT Additional Protocol);
Strategic Focus:
China and India;
Key signposts: Resolution of the stand-off with the
IAEA; continuation of the dialogue with the EU; 2005
presidential elections.
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Energy Sector Prospects
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Despite all good efforts, Iran’s oil production capacity will not
increase dramatically over the next decade;
New capacities will mainly make up for the depletion factor;
The net export potential will increase slightly due to a changing
domestic energy basket and a growing focus on gas;
However, the gas story will be a different one and Iran will
develop its gas potential enormously;
Prospects for the country’s gas production in billion cubic meters
include an estimated capacity of 230 billion cubic meters by 2010
and 400 billion cubic meters by 2020;
The production of this gas will enable Iran to invest heavily in
“gas-intensive industries” which are becoming a significant
instrument in the country’s industrial development strategy;
Iran will be a major producer and consumer of oil, gas and
petrochemical products by 2020. The development of energy
resources will provide ample opportunities for international
companies in the coming fifteen years;
To achieve these ambitious goals, Iran has to reduce political
tension, reorganize its oil and gas sector and create a legal
framework compatible with the developments in the world energy
industry.
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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Conclusions
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Iran has undergone a major strategic shift in her approach to
international relations: From appeasement to consolidation of
an internationally accepted regional role;
The US and Israel are seen as key adversaries in this
strategy, but Iran recognizes that they both have their hands
full – window of opportunity for Iran to consolidate her
regional power base;
Iran’s embarked Chinese Model of Reform will continue to
concentrate on economic and technological advancement;
This will create opportunities for international business, but
this time not based on Iran’s desire to improve relations, but
based on Iran’s desire to become a major regional power;
The energy sector will remain an important sector for Iran
(especially gas and gas-intensive industries);
Economic indicators will remain positive, though key
challenges such as unemployment and underemployment will
not disappear due to the country’s demographic profile;
Economic and technological cooperation will become key
parameters in Iran’s international relations;
IRAN: Regional Geopolitics and Prospects of Economic Development in Iran - July 2004
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