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New Year priorities: Tehran focused on turmoil at home, not nuclear program

While many US and European leaders are focused on curbing Iran's nuclear program in 2011, in Tehran the emphasis is more on domestic challenges such as economic reform.

By Staff writer / December 31, 2010

Iranians fill their vehicles in a gas station in central Tehran, Iran, Dec. 19, after Iran announced a plan to slash energy and food subsidies. With internal political and economic problems, Iran will be unlikely to focus on their nuclear program in the new year.

Vahid Salemi/AP


In Washington and European capitals, top New Year priorities on Iran may be Tehran’s nuclear program, and the next round of talks in Istanbul in late January.

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But for Iran’s leadership, 2011 promises to be a year of significant domestic challenges, as President Mahmoud Ahmadinejad presides over a precipitous series of subsidy cuts, imposed on an inefficient economy already under strain from a host of sanctions.

Undergirding the turmoil in the Islamic Republic are questions of legitimacy that remain unresolved since the contested June 2009 presidential elections, which brought millions of Iranians into the streets in sometimes deadly protests of fraud.

Economic reform

The most important challenge in Tehran in 2011 will be economic reform.

After decades of expensive subsidies that drained the treasury of anywhere between $30 billion to $100 billion per year, Tehran’s cold-turkey withdrawal of subsidies on gasoline, fuel, and bread – which last week quadrupled the price of gas overnight and made diesel prices skyrocket much higher – is an “extremely drastic” measure, says Farideh Farhi, an Iran specialist at the University of Hawaii.

Indeed, the changes amount to the most serious economic retooling since the 1979 Islamic revolution, which toppled the pro-West Shah but created an oil-driven welfare system that provided cheap utilities and services. While there have been few reports of unrest so far, taking away such subsidies after a generation can be politically explosive.

The fact that prices have risen so abruptly – with the most needy Iranians set to receive a payment of just $40 per month from the government to fill the gap – has raised the risks.

“So much of the focus of this program has been on mollifying the population,” says Farhi. “It’s been done extremely systematically [but] there is a huge question to be asked: Why on earth, under these very difficult circumstances, with Iran under tremendous pressure from outside and a shaky position inside, the government would go for such a drastic effort?

“And I don’t have an answer,” adds Farhi. “I’m just holding my breath that it will work out. Because if it doesn’t work out, it has very, very serious consequences for Iran – we’re not just talking about the Islamic Republic.”

A jump in inflation?

The new measures announced by Mr. Ahmadinejad seek to address longstanding problems in Iran that have existed for decades, and 2011 will prove a decisive year.

“This kind of inequality and accumulation and power has been here forever in this country,” says Djavad Salehi-Isfahani, an economist at the Brookings Institution in Washington.

In some ways “inflation is a good thing, it’s the lubrication you need to get the economy to adjust to the new reality,” says Mr. Salehi-Isfahani, contacted in Tehran.


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