Major
powers to make "substantial and serious offer" to Iran
Major
powers are ready to make "a substantial and serious offer"
to Iran during talks next week in return for concessions on its
nuclear program, a Western diplomat said on Wednesday
20
February, 2013
He
declined to give details of the offer - aimed at reviving efforts to
reach a diplomatic solution to long-stalled talks over Iran's
disputed nuclear work.
"We
will take an offer with us which we believe to be a substantial and
serious offer," the diplomat said of talks in Almaty,
Kazakhstan. "This is an offer which we think has significant new
elements in it."
The
West has imposed heavy economic sanctions on Iran to persuade it to
abandon those parts of its program the powers suspect are intended to
give it nuclear weapons capability.
Iran
denies seeking nuclear weapons, saying its nuclear program is for
peaceful, civilian purposes only.
"Diplomats
are committed to finding a diplomatic solution, but the government of
Iran really has to show that it's doing what it says it's doing,"
the diplomat said, on condition of anonymity.
The
five permanent members of the Security Council along with Germany -
the so-called P5+1 - will hold talks with Iran in Almaty on February
26.
Western
officials in Washington have told Reuters they plan to offer to ease
sanctions barring trade in gold and other precious metals in return
for Iran shutting its Fordow uranium enrichment plant - a proposal
already rejected by Tehran.
The
Western diplomat declined to comment on that, nor to say in what way
the offer to be made in Almaty would differ.
Another
Western diplomat said hopes for the meeting were not "sky high"
but the talks were being viewed as an opportunity to engage with
Iran. "It's an open and positive offer and we hope that they
will respond," he said.
"We've
always offered quite a bit. The original offer in 2008 was a very
generous offer, very comprehensive and that is still basically there
on the table and what we're offering now is more precision about
certain elements of that," he added.
The
2008 offer both acknowledged Iran's right to a civilian nuclear
program and recognized its need for broader security guarantees
against attack.
SANCTIONS
SEEN BITING
Western
diplomats argue that sanctions are taking their toll on Iran's
economy and hoping as a result the new diplomatic push could succeed
where past attempts have failed.
The
negotiations held by the P5+1 also follow a renewed offer by the
United States to hold direct talks with Iran if it showed it was
serious about reining in its nuclear program.
Any
broader political dialogue between the United States and Iran would
be aimed at reducing mistrust dating back to the 1979 Iranian
revolution and seizure of the U.S. embassy in Tehran. Such a dialogue
would be a means of giving additional momentum to existing
negotiations on Tehran's nuclear program.
Iran
has given little indication of what it would bring to the table in
Almaty.
It
rejected the offer of an easing of sanctions on gold trade as
unacceptable and its ability to make significant concessions is seen
as limited before Iranian presidential elections in June.
It
has, however, resumed work to convert small amounts of higher-grade
enriched uranium into fuel, a move which would slow its accumulation
of stockpiles that could, if enriched further, be used for weapons.
Diplomats
say it has also held off from putting into operational additional
centrifuges at Fordow where it enriches uranium to 20 percent - a
level that can be rapidly turned into weapons-grade material.
The
International Atomic Energy Agency is expected to issue shortly its
latest report on Iran, which will indicate the size of its stockpiles
of enriched uranium and detail other developments in its nuclear
program.
Analysis:
Iran economy far from collapse as sanctions tighten
Hossein
Ahmad, an Iranian who runs a jewellery shop in wealthy Dubai, marvels
at the spending power he sees on show during his monthly trips to
Tehran, a year after U.S. sanctions largely froze Iran out of the
global banking system.
.
20
February, 2013
Shops
in the Iranian capital are crowded. Finding a seat at good
restaurants can be difficult. And the ski resorts in the mountains
north of Tehran continue to attract Tehran's glamorous and
well-heeled.
"The
economy has problems with the sanctions, yes. But it's still
working," he says. "It isn't as bad as people outside the
country think."
Sanctions
are clearly having an impact; the country's oil revenue has been
slashed and other trade disrupted; a weak currency has sent the
prices of some imports soaring, destroying jobs as some factories
using imported parts have folded.
But
they are not close to having the "crippling" effect
envisaged by Washington. The Iranian government has found ways to
soften the impact, and Iran's economy is large and diverse enough to
absorb a lot of punishment.
So
at talks next week with the world's major powers in Almaty,
Kazakhstan, Iran seems unlikely to feel under overwhelming pressure
to back down on its disputed nuclear program, which the West suspects
is a cover to make weapons.
"The
government had a long time to prepare for economic war," said
Mohammad Ali Shabani, an Iranian political analyst based in London.
"If you're talking about collapse, that is not happening."
FOREIGN
RESERVES
Iran's
oil and gas exports, which previously accounted for three-quarters of
total exports, plunged last year because of international sanctions,
and they may fall further as Washington makes it even harder for
Tehran to obtain payment for them.
The
International Energy Agency estimated last week that Iran's oil
exports may have dropped below 1 million barrels per day in January
from 2.2 million bpd in late 2011, costing the country over $40
billion in lost revenues last year.
That
loss is manageable, however, for a nearly $500 billion economy, and
Iran has taken steps in the past year to put the economy on an
emergency footing, partially offsetting the drop in inflows of wealth
with a reduction of outflows.
Imports
of luxury goods including foreign cars and mobile phones were banned,
state media said, while the government cut subsidies for students
studying abroad. Gold exports were controlled to make capital flight
from the country harder.
Most
importantly, the government presided late last year over a slide in
the Iranian rial, which lost about two-thirds of its value against
the U.S. dollar in the free market before stabilizing in its current
range around 36,500.
It
is not clear whether authorities deliberately engineered the slide,
which caused panic among businessmen and brief street protests in
Tehran, but the end result suits a government that is hunkering down
to resist more years of sanctions.
Since
the state controls the oil sector, it can divert most of Iran's
remaining hard currency supplies where it wishes. It is using special
exchange centers to sell dollars at cheap rates to importers of basic
foods, medicines and other essentials.
Meanwhile,
the mass of Iranians who want dollars for other purposes - to import
luxuries, travel overseas or move their savings abroad - must buy
them at the expensive market rate. This cuts demand to send money out
of the country.
The
outcome, analysts say, is that Iran may avoid an external payments
crisis even if oil exports fall further. Its foreign reserves are
estimated by private economists to have dropped to around $70-80
billion from just above $100 billion at the end of 2011; the fall may
slow and eventually halt as the currency depreciation and other
emergency policies take hold.
Iranian-born
economist Mehrdad Emadi, of the Betamatrix consultancy in London,
said statements by officials in Iran suggested they had identified
$60 billion as a safe minimum level for reserves, and would take
further steps to restrain imports if necessary to protect that level.
"We
are not even in the neighborhood of a critical situation for the
balance of payments," he said.
Oil
used to provide about two-thirds of government revenues, so the
sanctions have hit state finances hard. But once again, the weak rial
has come to the government's aid, letting it make money by selling
some of its petrodollars to the private sector at much higher prices
than a year ago.
The
International Monetary Fund estimated in October that Iran would post
a general state budget deficit of 3.9 percent of gross domestic
product this year - easily bearable for a government with gross debt
of only about 9 percent of GDP.
LIVING
STANDARDS
The
sanctions are, however, sapping Iranians' living standards as the
weak rial pushes up inflation through higher import costs. Chicken
prices, for example, nearly tripled in a year as the cost of buying
feed from abroad jumped.
The
official inflation rate hit 27.4 percent at the end of 2012.
Including imported goods, actual inflation is believed to be roughly
twice as high. A small jar of Nescafe now costs about 230,000 rials
($6.30 at the free market rate) in a Tehran store, up from 120,000
rials a few months ago.
Higher
import costs, as well as inefficient management, have made it hard to
obtain some medicines. Hospitals have reported shortages of drugs to
treat cancer, diabetes and other diseases.
The
auto sector, which built over 1.6 million vehicles in 2010, has been
devastated by more expensive imported parts. Output roughly halved in
the past year, and thousands of people lost their jobs as some parts
plants closed, local media said.
But
the picture is more nuanced. Some companies such as home appliance
makers, which were being undercut by cheap imports, are now growing
strongly because the rial's drop has made them more competitive,
Shabani said.
Iranians
seeking to escape inflation and unable to move their money out of the
country are building new homes, boosting the construction and
carpentry industries.
These
mini-booms are reflected in flashy new cars cruising Tehran's streets
and luxury apartments going up in its affluent neighborhoods. The
stock market hit a record high this week.
Emadi
estimated that while some of Iran's top industrial centers could
hemorrhage jobs because of the sagging oil and auto industries,
overall the economy was unlikely to shrink more than around 2 or 3
percent this year.
Meanwhile,
government subsidies and handouts are expected to continue softening
the impact of inflation on Iran's poorer families by keeping staple
foods such as bread, rice, sugar and edible oil affordable for them.
Parliament agreed last month to allocate a further $2 billion to
support low-income families.
The
rial's depreciation has halved the savings of the middle class and
destroyed some of their businesses, but "those at the top and
bottom of the pyramid haven't seen a dramatic amount of change",
said Emad Mostaque, a strategist who follows Iran at London-based
NOAH Capital Markets.
This
uneven distribution of the pain of sanctions is why, for Washington,
they could prove counter-productive: they are doing most damage to a
group that might be expected to push for political change in Iran.
"The
middle class, people with fixed incomes, pensioners are under a lot
of pressure. They are too exhausted to rise up," Shabani said.
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