Stratfor Geopolitical Diary
Monday, 11 April 2016
At the last minute, Iranian President Hassan Rouhani canceled a two-day working visit to Austria that was set to begin Wednesday, to the surprise of Iranian and Austrian observers. Rouhani's trip was intended to help Iran work out economic deals with Austria, part of an effort to bolster Iran's economic relations with Europe and gain the foreign investment that Iran's post-sanctions economy needs. During his first European state visit in February, Rouhani struck far more substantial investment deals with Italy and France than could be expected in Austria.
The Rouhani administration explained that the trip would be rescheduled for "a more appropriate time," citing security concerns as the cause for the sudden cancellation. Planned protests in Vienna by Iranian dissidents, which the Austrian authorities refused to stop despite the Iranian government's demands, may also have contributed to the decision to cancel. But whatever reasons the administration gives for the trip's cancellation, major components of Iranian society — particularly the Islamic Revolutionary Guard Corps (IRGC) — oppose opening up Iran more fully and too swiftly to international trade and investment.
Now that the nuclear deal with the West has been signed and implemented, Iranian politicians have all moved economic concerns to the top of their agendas for the next year. As contentious a political issue as the nuclear deal was in Iran, the extent of economic and social reform in the deal's wake is perhaps even more polarizing. Rouhani and his allies have built their platform around jump-starting the economy with high levels of foreign investment in key industrial sectors while also curtailing social spending programs and partially privatizing a few industries. Among Western oil companies considering investment in Iran, Austria's OMV has been one of the most aggressive, and Rouhani's trip to Austria was expected to produce $1 billion to $2 billion in deals.
But Rouhani's economic platform runs counter to the interests of key groups that profited greatly under the government of former President Mahmoud Ahmadinejad. During that era, Iran walled itself off to most foreign investment and operated as a social welfare state because of harsh sanctions by the West. Iran's supreme leader, Ayatollah Ali Khamenei, has sought to bridge the gap between Rouhani's more liberal economic goals and the interests of powerful actors such as the IRGC that want to preserve the political influence they gained under the closed system as Iran reopens its economy to outside investors.In his Iranian New Year speech on March 20, Khamenei called this the year of the "Resistance Economy" and outlined a number of policies he supports. He emphasized building up Iranian industry and ensuring that Iranian contractors are involved in each investment project. For his part, Rouhani has tried to demonstrate that his economic plan is consistent with the supreme leader's goals for Iran; his spokesman recently remarked on the president's dedication to the Resistance Economy.
Rouhani's trip to Austria will probably be rescheduled soon, and his economic reforms will move forward. For example, new oil contracts drawn up in 2014 have since survived more or less unchanged. At the same time, the social reformsthat Rouhani has also promised — including more socially minded economic reforms, such as subsidy reform — will not proceed so easily. For although the president and the supreme leader both recognize that the time has come to work with the West on economic issues, their approaches differ vastly.
After all, in his role as arbiter of the Iranian political system, Khamenei is also responsible for defending the anti-Western rhetoric upon which the Islamic republic was founded. In this capacity, he often invites conflict with other powerful Iranian officials, as he did Wednesday on Twitter. In a tweet last week, Ali Akbar Hashemi Rafsanjani, the former president and a Rouhani ally, called for a future "world of discourse and not of missiles."On Wednesday, Khamenei countered that this is an age of "both missile and talk." The exchange evokes the debate within Tehran over ballistic missile testing and its impact on foreign investment. But on a bigger scale, just like the canceled visit to Austria, the Twitter exchange highlights Iran's enduring struggle to open up without sacrificing its revolutionary foundation.