Punitive measures against Iran might not work well, analysts
said this week after Iranian and US officials met face-to-face
in Geneva and the US House of Representatives threatened Tehran
with petrol sanctions.
Proponents of further sanctions argue they should be applied
if Iran fails to suspend its nuclear programme as demanded by
three UN security council resolutions.
Many say Iran is particularly vulnerable to measures
impeding petrol imports due to its heavy domestic consumption
encouraged by cheap, subsidised fuel.
But Djavad Salehi-Isfahani, a research fellow at Harvard,
told Emerging Markets that imports had halved since
petrol rationing was introduced by Ahmadinejad in 2007, when
they accounted for 40% of consumption.
Imports fell from 200,000 barrels per day to less than
100,000 in 2007, he said.
Economists suggest petrol sanctions would be inflationary.
Heydar Pourian, editor of the Tehran-based Iran Economics
monthly, told Emerging Markets they could also reduce
economic growth by 0.5-0.75%.
Salehi-Isfahani argued that petrol sanctions could be
generally positive for the Iranian economy, despite
any inflationary effect.
Iranians will learn to live with world energy
prices, something that other people for example, in
Istanbul have learned to do, he said. This
would also help the government politically to accelerate its
programme to reduce gasoline subsidies.
The ration sells at 12 cents a litre. Government subsidies
of petrol are part of energy subsidies that amount to over 10%
of Irans GDP and overall subsidies, including
everyday items like bread and medicines, have been estimated at
$50-$90 billion, or 15-30% of the GDP.
Irans parliament rejected a plan drawn up by
Ahmadinejad last year to phase out subsidies in favour of
benefits targeted at the poor. Opposition was largely on
the grounds that it could be inflationary, Pourian
The political and economic challenges facing Ahmadinejad
have been complicated by unrest following Junes disputed
presidential election. Irans reformists continue to
allege fraud and the supreme leader, Ayatollah Ali Khamenei,
has been drawn into the factional fray.
Salehi-Isfahani said the political emergency
gave Ahmadinejad greater leeway with the
conservative-controlled parliament, which might lead him to
step up withdrawals from the Oil Stabilisation Fund. The OSF
collects windfall oil revenues ostensibly for investment,
especially in the private sector, but successive governments
have used it for current spending.
The level of oil revenue invested has therefore been
insufficient for the economy to meet an 8% economic growth
target set by the new Five-Year plan covering 2010-15. Hence,
unemployment has risen officially to 12.5%.
The IMF projects 1.5% growth this year and 2.2% in 2010,
down from 7.8% in 2007 and 2.5% in 2008.
Salehi-Isfahani said short-term politics remained focused on
issues of redistribution rather than investment to foster
The predominant belief among the presidents
supporters [among the Iranian public] is that the government is
super rich and that since Ahmadinejad is an honest leader, then
money should trickle down to them.
Salehi-Isfahani argued there was also a danger the
government would move towards greater control of the economy.
The post-election unrest had raised its fears that liberal
economic policies had fostered the growth of a restive middle
class whose ranks were swollen by expanded higher education and
reduced poverty, he said.