EVENTS

Date:	Wednesday, May 9, 2007
Time:	3:00 PM -- 4:30 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

May 2007

Risky Business? Global Investment in Iran

While the risk of doing business with Iran has increased since the election of Mahmoud Ahmadinejad and the imposition of UN Security Council-mandated sanctions, many international corporations, banking institutions, and state-run export agencies have continued investing in the Islamic Republic. Western governments have denounced Tehran's nuclear ambitions and sponsorship of terrorism, but apart from the U.S. government, most have done little to limit investment or curtail taxpayer-funded export credits for business with Iran.

Why, in spite of its defiance of the UN and its continued support for terror, does Iran remain an attractive financial and commercial partner? Are Iran's extensive financial ties with the outside world a potential source of leverage with the regime? Who is investing? And how much?

At a May 9 event, AEI research associate Omeed Jafari unveiled a new interactive project, Global Investment in Iran: Interactive. Speakers included Patrick Clawson, deputy director of research of the Washington Institute for Near East Policy; A. William Samii, adjunct research analyst at the Center for Naval Analyses; and Danielle Pletka, vice president for defense and foreign policy studies at AEI.

Omeed Jafari
AEI

AEI has created an online database entitled "Global Investment in Iran: Interactive." The project includes publicly available information on global transactions with the Islamic Republic of Iran from 2000 to the present. The project database includes thirty-eight countries, over three hundred corporations, national export credit lending agencies, and banking and financial institutions. It details more than 300 reported transactions valued at over $152 billion. The project organizes the data presented by year, economic sector, company, and country.

Danielle Pletka
AEI

American debate about policy options to deal with Iran's nuclear weapons program has been reduced to an argument over the merits of engagement versus military action. AEI developed the "Global Investment in Iran" database as a resource for American foreign policy debate on Iran, not to advocate one policy over another. The primary goal of the project is to demonstrate how Iran fits into the global trading community; it is far from an isolated rogue like North Korea. The project captures the extent to which national export credit agencies, banking and financial institutions, and corporations underwrite, finance, and participate in Iran's economy. Companies and their shareholders need to be thinking about the risk involved in dealing with Iran. However, the message has not gotten through and Tehran is not yet feeling any significant pressure.

A divestiture movement has taken root in the American states. In addition, several bills pending before Congress would achieve various objectives such as renewing sanctions or divesting from Iran. Recently, Florida voted to divest its pension funds from companies doing business with Iran's energy sector and California is in the process of doing the same. The U.S. Department of the Treasury has also been active in targeting banks doing business with Iran, and as a result four banks have ceased their dealings with Tehran.
 
Patrick Clawson
Washington Institute for Near East Policy

The International Monetary Fund (IMF) reports that Iran will earn $58 billion from oil revenues in 2007--an increase from previous years. Yet, despite these gains, the Islamic Republic will run another budget deficit. This inconsistency stems from the fact that Iran spends more than 25 percent of its $248 billion GDP on subsidies. In fact, Iran spends more on subsidies (mostly for energy products) than it gets from oil and gas revenues. The result is a government so short on money that it cannot even pay teachers. The IMF explains that Iran's economy will be stable for the middle term if oil goes up to $65 per barrel or more. This is unlikely, so unemployment will increase. Given the existing pressures of unemployment and a burgeoning youth population, it is surprising that Ahmadinejad is proposing more price freezes. He cannot deliver on his campaign promise of delivering oil wealth to people. Iran's economy will face serious problems and Ahmadinejad will be blamed for them.

A. William Samii
Center for Naval Analyses

Article 147 of the constitution of the Islamic Republic says that in peacetime, the government must use the military for relief, production, and development Article 150 states that the Islamic Revolutionary Guard Corps (IRGC) "is to be maintained so that it may continue in its role of guarding the Revolution and its achievements"--not to guard borders or other traditional army duties. Yahya Rahim Safavi, the head of the IRGC, says that it is the protector of the revolution and is ready to provide engineering services to the administration.

There are over one hundred enterprises associated with the IRGC. It commercially benefits from Iran's economic isolation. Ghorb, similar to the U.S. Army Corps of Engineers, employs roughly 40,000 members of the IRGC. Therefore, about one-third of the IRGC is employed in Iran's lucrative construction sector. In June 2006, Ghorb was awarded a contract to develop the South Pars gas field and for a metro line. It won several more contracts that month totaling $7 billion. The IRGC's foray into business does not bode well for either the West or Iranians.

AEI intern Jasmin Niku prepared this summary.