TEHRAN - If it comes to
sanctions, Iran says it can take anything the U.N. Security Council might impose
for its expected failure to meet Thursday's deadline to halt sensitive nuclear
work.
But analysts and diplomats say the Iranian economy, which is already
struggling to create enough jobs despite surging oil revenues, would be
vulnerable particularly to restrictions on gasoline imports, European financing
and industrial components.
But Iran may be betting it will not face any severe penalties soon because
divisions at the United Nations may delay the process and limit sanctions to
asset freezes or travel bans on officials -- steps the world's fourth largest
oil exporter feels it can handle.
"If we are put under sanctions, we will be under pressure but the pressure
will not harm us," Alireza Sheikh-Attar, deputy foreign minister for economic
affairs, was quoted as saying by the official IRNA news agency.
Iranian President Mahmoud Ahmadinejad has also shrugged off the threat and
insists Iran will not halt uranium enrichment, which the West says Iran is using
to make atomic bombs. Tehran says it wants to build nuclear energy plants, not
weapons.
"Our nation is a strong nation. A nation that has been able to attain the
nuclear fuel cycle with its bare hands can solve any other problems," the
president said on Wednesday.
Economists say some of Iran's confidence may be well placed because it has
learnt to cope with almost a decade of U.S. sanctions which have encouraged
greater self-sufficiency.
"We haven't joined the global economy and because of this we will not die
under potential economic sanctions," said economic analyst Saeed Laylaz but he
added that this did not mean sanctions could be brushed off as lightly as
officials suggest.
"It will be difficult, harmful and expensive for the economy of Iran. Even
now, only because of the U.S. sanctions, we are losing between $10 billion to
$15 billion per year," he said.
Economists say restrictions on financing from European banks, Iran's
main trade financiers which are already treading warily because of the nuclear
dispute, would hike borrowing costs for Iranians and make it tougher to import
equipment.
For now, Iran's coffers are brimming with petrodollars, so the central bank
is able to help businesses which need hard currency for trade. Iran's oil
revenue is forecast to reach $54 billion in the Iranian financial year to March
2007.
But even with this windfall, economic growth of 5.5 percent has missed
forecasts and unemployment officially still runs at 12 percent. Unofficial
estimates suggest it is much higher.
Iran is also being forced to dip into reserves meant for use when oil prices
tumble. The central bank, which has few tools to soak up the extra liquidity in
the market, has already warned the government that priming the economy will push
up prices.
"The (reserve) cushion is not a real cushion, it is also a danger. If the
government continues to pump oil money into the economy, you will have more
inflation," said a Western diplomat.
Inflation is now running at a little more than 10 percent and economists say
major price rises would mostly hurt the poor -- the president's core
constituency which he promised to help.
Iran is also heavily dependent on imported gasoline because its refineries
cannot produce enough to meet demand which has grown rapidly because of
subsidies that keep prices at just 9 U.S. cents a litre (34 U.S. cents a
gallon). This makes Iran vulnerable to fuel import restrictions.
But major powers may be wary of such a step because it could hurt the public
more than the government and spark social volatility in a country where cheap
abundant fuel is considered a national birthright, analysts say.
The government has itself backed away from rationing fuel in part for fear of
the social impact, analysts add.
If sanctions are imposed, Iran has said it could possibly cut oil supplies,
driving already high international oil prices higher still. But such a step
would be costly for Iran because oil exports account for about 80 percent of its
export earnings.
However, any punitive measures may be some way off, diplomats say, because
Russia and China, both big trade partners with Iran which hold veto powers in
the U.N. Security Council, have shown no sign of backing
sanctions.
