He had promised to bring the oil income to every family’s dinner table, showing that the Khomeinist revolution could offer prosperity while pursuing a messianic foreign policy. Later this month, however, President Mahmoud Ahmadinejad of the Islamic Republic will introduce a gasoline-rationing scheme, the first of a series of austerity measures his administration has already adopted.
The rationing scheme will allow every Iranian driver two gallons of gasoline each day at the subsidy’s price of 40 US cents. The measure is certain to create a black market, with influential businessmen-mullahs and their allies in the Islamic Revolutionary Guard Corps (IRCG) set to make huge illicit profits.
The rationing has become necessary because the Islamic Republic, the world’s fourth largest exporter of crude oil, spends almost half of its oil revenues importing more than 40 per cent of the refined petroleum products it needs.
How did Iran get into this rather strange situation?
It all started with the late Ayatollah Khomeini declaring at the start of the revolution that what mattered was Islam and not the economy. In a notorious off-the-cuff comment, he dismissed the concerns of his first prime minister, Mehdi Bazargan, about the economy by simply noting that “Economics is for donkeys!”
Matters became further complicated when Muhammad-Ali Rajai, a schoolteacher who became prime minister and then president in 1981, introduced the concept of “khod-kafai” or “self sufficiency”. Rajai was blown up but his ideological heritage remained. Today, Ahmadinejad casts himself in the role of “a second Rajai”.
Rajai believed that if Iran was incapable of building something itself it had better wait until it could do so at a later date. And that included oil refiners. With most Iranian technicians and engineers fleeing from the Khomeinist revolution in 1980 and 1981, there were few Iranians who knew how to build refineries. Thus pre-revolution plans to build 25 new oil refineries between 1980 and 2000 had to be shelved. The Khomeinist leadership would not allow the “infidel” to come and build refineries.
One of Rajai’s successors as President of the Islamic Republic, Ali-Akbar Hashemi Rafsanjani tried to modify that ideological stance in the 1990s. Himself a businessman and reputed to be Iran’s richest individual, Rafsanjani revived the pre-revolution plans for refinery building. He failed, however, because of the ruling establishment’s fear of bringing in tens of thousands of “infidel” technicians whose presence could undermine the regime’s Islamist ambitions.
Removing part of the state subsidy on gasoline is only the first step towards a broader policy of reducing the government’s budget deficit, now at an all-time record.
The Islamic Republic imports almost half of all food it consumes and has managed to prevent large scale starvation thanks to heavily subsidized prices. If subsidies were removed, the price of bread, for example, would more than double. Most Iranians are still able to consume sugar because the state picks up a third of the real bill for imports.
Despite the massive rise in oil prices in the past two years, Ahmadinejad’s administration may soon find itself facing a cash-flow problem. This is partly because of the massive increases the president has decided in the military and security budgets. Clearly trying to put the country on a war footing, the president has scrapped a number of longer-term development projects. At the same time, he has increased expenditure on the Islamic Republic’s presence in what he regards as theatres of conflict with the United States, notably Afghanistan, Iraq and Lebanon. Fear of ethnic revolts in several provinces, including Sistan and Baluchistan, and Kurdistan has also forced the administration to allocate unprecedented outlays to a security build-up there.
Ahmadinejad believes that the United States is a power in terminal decline and would be forced to withdraw from the Middle East under the pressure of its own domestic political rivalries. And, yet, the US may try to throw the dice one more time in the Middle East by attacking the Islamic Republic. Ahmadinejad believes that such an attack, if it ever comes, would be limited to air strikes spread over a few days. That would enable the US under President George W Bush to camouflage its retreat from the Middle East as an act of military punishment for the Islamic Republic.
Based on that analysis, Ahmadinejad believes that his government’s economic difficulties, including a sharp increase in inflation and mass unemployment in several sectors would be more than an offset once he is able to show that he has challenged the American “Great Satan” and emerged a survivor.
There is, of course, another possible scenario.
The US need not attack the Islamic Republic and then let it live to fight another day. After all, as Machiavelli noted centuries ago, that would be the dumbest thing to do. One should not leave an enemy wounded. One should either kill him or turn him into a friend.
The Islamic Republic has always enjoyed an advantage when it comes to low intensity warfare. This is because none of its regional or other adversaries have so far wanted to play the same game with it. The Islamic Republic has always tried to run a marathon while its enemies have been stuck with a sprint.
For the first time, ever, the Islamic republic may soon find out that at least some of its enemies are prepared to pay it in its own currency, that is to say try and wage low intensity war against it. The United Nations’ Security Council has already passed two punitive resolutions against the Islamic Republic. A third resolution looks likely later this month when the ultimatum fixed by the council for the Islamic Republic ends.
Ahmadinejad’s high-risk strategy may soon force the Islamic Republic to fight on two fronts: inside the country against a growingly restive population, and outside against a coalition of determined enemies that will not be content with limited fire-works as imagined by him.