Economic Outlook

Published October 18th, 2000 - 02:00 GMT

The massive reform victory spurred speculation that the United States would relax economic restrictions imposed on Iran. These expectancies were shattered, however, as President Clinton extended a ban on American oil contacts with Iran, accusing Tehran's government of continuing to support international terrorism. The sanctions introduced in 1995 prohibit US companies from investing in Iran's energy sector.  

 

European oil firms have exploited US policy by becoming increasingly aggressive in seeking lucrative deals to develop Iran's huge oil and gas industry. Last November, for example, Shell Exploration secured an $800-million agreement with the National Iranian Oil Company to develop two offshore fields. American firms, which watch such deals materialize, fear they are missing out on profitable opportunities. Aware that American oil companies are unhappy with their own government's policy, Iran has invited US firms to take part in developing its energy resources. One significant variation of the new moderate Majlis will be to divert more attention to creating an attractive foreign investment environment. While a complete transformation may not be imminent, foreign capital will be courted, especially in Iran's hydrocarbon sector, with increasingly competitive terms offered.  

 

On the domestic front, the election victory should also provide a boost for Khatami's economic liberalization program. The outgoing conservative-led assembly had opposed gradual market reform. For example, it rejected a government proposal to raise petrol prices by 28 percent and other fuels and power by 20 percent to curb paralyzing state subsidies and trim wasteful use. Nevertheless, the President has also met resistance to his privatization plans from pro-reformers; privatization in the telecommunications, power and water industries has been blocked. 

 

Meanwhile, Iran is also striving to join the World Trade Organization. During the mid-February meeting of the U.N. Conference on Trade and Development (UNCTAD) in Bangkok, Iran's Commerce Minister alluded to his country’s desire to accede, but accused unnamed countries of blocking its efforts to join based on political grounds. At the moment, Iran finds itself outside the 135-nation trading club, which deprives it of certain commercial privileges. WTO membership could yield much-needed job opportunities for a country in which 2.9 million members of its workforce, or 16.3 percent, are unemployed (many experts claim that unemployment is in fact double the official rate). It would also provide a spark for an economy that expanded by merely 1.5 percent in 1999 and is projected to grow by 2.5 percent this year. 

© 2000 Mena Report (www.menareport.com)

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