Vilified by Trump, Iran’s Rouhani searches for friends

Vilified by Trump, Iran’s Rouhani searches for friends
Donald Trump, seen with ceremonial swordsmen at Murabba Palace in Riyadh, and Saudi Arabia’s King Salman bin Abdulaziz Al Saud, certainly haven’t been talking of swords-to-ploughshares when it comes to Iran.
By Will Conroy in Prague May 29, 2017

Re-elected Iranian President Hassan Rouhani was busy working the phones on May 27, firming whatever alliances offered themselves. News agencies reported the centrist discussing Syria and economic ties with Russian President Vladimir Putin and placing a call to the emir of Qatar, who has taken some fire from Gulf Arab neighbours for being too friendly towards Tehran.

If Rouhani also spent part of the day getting a word of thanks to French oil major Total, it would not come as a surprise. Its CEO Patrick Pouyanne told journalists on May 26, on the sidelines of his company's AGM, that Total can now say it intends to conclude a multi-billion dollar deal to invest with Iran in the Persian Gulf’s giant South Pars gas field. 

Given that during his visit to Saudi Arabia and Israel over May 20-23, Donald Trump was determined to paint Iran as the bogeyman of the Middle East, the major reason why Total now feels it is able to move ahead may come across as incongruous. On May 17, the White House and US State Department agreed to the extension of Obama-era nuclear deal waivers granted to Iran, which apply to oil and gas deals hinged on FDI. But agreeing to continue with the multilateral nuclear deal, thus avoiding an almighty international row and possible legal action, does not prevent the Trump administration from gradually building up unilateral measures and obstructions that could eventually prove far more ominous for Tehran than scrapping the international accord.

Thus Trump was still able to arrive in the Middle East, sign intimidating deals to arm Iran’s regional arch rival Saudi Arabia and castigate the Islamic Republic for arming militias in its fight for influence in places including Syria, Iraq and Yemen and sponsoring terrorists (the reality that Isis and Al-Qaeda are sworn enemies of Shi'ite Iran was perhaps a little inconvenient for the commander-in-chief's script). 

By now it is plain that many big Wall Street players think the Dow Jones should remain pretty much unmoved by Trump’s daily utterances. The feeling is that basing major buying or selling decisions on whatever happens to issue from his mouth is a fool's game when so much of what he says may never come to pass, or at least not in the form that he says it will. But could that really be the case when it comes to the searing hostility Trump directs at Iran?

Iranian ‘glasnost and perestroika’

On 23 May, Renaissance Capital sent a note to investors in which it stated: “Rouhani’s victory speech outlined a path of greater openness and reform for Iran - glasnost and perestroika, if you like. He said: ‘Our nation’s message in the election was clear: Iran’s nation chose the path of interaction with the world, away from violence and extremism’”. 

Yet any uncontained joy at Rouhani's May 19 election triumph over the hardliners is hardly advisable. The ultra-conservatives still hold the whip hand through the ultimate control of national affairs exercised by the supreme leader, Rouhani is no more than a centrist and pragmatist (notions of him being an out and out reformist always have been wide of the mark) and Washington is not on side and even spoiling for a fight. Iran's chances of success in unlocking its mighty economic potential therefore remain precarious.

But it is that last factor that we must always return to. Where is the Trump administration going with this?

In Saudi Arabia and Israel, Trump made it plain that the Obama policy of playing honest broker between Iran and the Sunni Arabs is finished. Instead, he wants the Arabs and the Israelis to cooperate on pushing back the Iranians across the Middle East. How that plays out has commentators perplexed as yet, but meanwhile back in Washington a new offensive against Tehran’s economic interests has begun.

On May 24, US Treasury Secretary Steven Mnuchin said that his department is reviewing licences tied to the nuclear deal that were awarded to Boeing and Airbus to sell aircraft to Iran. "We will use everything within our power to put additional sanctions on Iran, Syria and North Korea to protect American lives," Mnuchin said in testimony to the House Ways and Means Committee. "I can assure you that's a big focus of mine and I discuss it with the president."

IranAir has struck deals to buy a total of 200 American and European passenger aircraft (which include essential American parts, bringing US licences into play) worth up to $37bn before expected discounts, and the delivery of the aircraft has become a highly symbolic affair for Iranian ministers trying to persuade the public that the Islamic Republic is slowly but surely integrating with the outside world economy. The delivery of the first ordered Airbus A321 in January even prompted a celebratory tour with stops at provincial airports and a loop around Iran’s holiest shrine in Masshad for a blessing.

Any interference with the Boeing and Airbus deals would clearly be a tough setback for Iran, but Tehran may be more worried by an 18-3 vote taken on May 25 by lawmakers on the US Senate Foreign Relations Committee in favour of authorising the Trump administration to apply more sanctions against the Iranians over their ballistic missile programme, support for Islamist militant groups and other actions. If such sanctions start to cut into Iran’s strategy of using foreign investment to build up its highly lucrative oil, gas and petrochemicals industries, the IMF scenario in which growth comes in at 6.5% for 2016/2017 but, in the absence of an oil output boom, falls back to 3.3% in 2017/2018, could become a sour reality.

Hardliners unveil missile factory

The very same day as the Senate vote, Iran’s hardliners - smarting from their decisive defeat at the hands of Rouhani, who during his campaign opposed their insistence that in the face of the resurgent American hostility it is time for Iran to once more turn further inwards and construct a more self-reliant, or “resistance”, economy - declared that the country had built a third underground ballistic missile production factory and would keep developing its missile programme.

"Iran's third underground factory has been built by the Guards in recent years... We will continue to further develop our missile capabilities forcefully," semi-official Fars news agency quoted a senior commander of the elite Revolutionary Guard, Amirali Hajizadeh, head of the Guard’s airspace division, as saying.

"It is natural that our enemies America and the Zionist regime [Israel] are angry with our missile programme because they want Iran to be in a weak position," Hajizadeh reportedly added.

Rouhani of course knows that, needled or not, Trump will remain highly unpredictable in how much he will follow through on his animosity, but with Trump’s administration currently reviewing the nuclear deal, he must continue with his strategy of building relations with as many friendly governments as possible in case he faces the worst-case scenario with Washington.

On the plus side, even the UK’s trade envoy to Iran, Norman Lamont, has hit out at Trump’s “unremitting hostility” to the Iranians despite Rouhani’s stated willingness to work to improve relations with the international community, so the Iranian president knows he has plenty of scope to build trade and investment bridges not just with Moscow - which he visited as president for the first time in late March - Berlin and Paris, but with London too.

The UK, as it happens, in March provided an illustration of just how damaging the unilateral sanctions maintained by Washington against Iran can be. Reuters reported that Iran was failing to make headway with a request to the Bank of England (BoE) to set up special clearing accounts for its banks, with the UK central bank seemingly uninterested in resolving the impasse that leaves Iran excluded from banking in London. 

The inability of the Iranians as things stand to take part in the US dollar-driven world financial system has been cited by a great number of companies as the cause of stalled investments they had planned for Iran. Nevertheless, hardly a day goes by without one foreign investor or another signing a memorandum of understanding on doing some kind of business with Iran. The interest in getting into its emerging economy of some 80mn people is huge and the rafts of potential deals that have been set up are impressive. 

Next up for Rouhani will be his country’s first international auction of oil development rights, with around $100bn needed to develop more than 50 oil and natural gas fields. The question mark hanging over this particular push for investment is of course again that known unknown: what’s Trump’s next move? Thus the ground for investors remains treacherous, but there is a prospect that Rouhani’s re-election will bring an advance. As Ghanem Nuseibeh, founder of London-based management consultant Cornerstone Global Associates, told Bloomberg in an interview in Dubai on May 22. “The election does give Rouhani a mandate to push things through. Rouhani will do one of two things: either wait and see what Trump does, or he’ll say, ‘Let’s move ahead.’ I’d advise him to go ahead.”