IranSource | Understanding and Analyzing a Multifaceted Iran

It’s hard to overstate the regional impact of the rivalry between Iran and several Gulf Arab states—most notably Saudi Arabia and the United Arab Emirates—bordering in recent years on enmity.

While these countries haven’t come close to direct warfare, tensions have impacted many regional conflicts in the Middle East including in Syria, Yemen, and Iraq, and festering instability in countries like Lebanon, Bahrain, and even among the Palestinians.

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An unusual strategic event took place this week in the Middle East. For the second time in over a year, Iran fired ballistic missiles on targets in Syria, a country that borders Israel.

Israeli Prime Minister Benjamin Netanyahu, who never misses an opportunity to respond in the strongest terms—usually within hours—to any Iranian testing of its ballistic missile capabilities, chose a relatively muted response.

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The Trump administration’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) in May has thrown a previously established, delicate geopolitical balance into disarray. The remaining signatories of the JCPOA—Britain, China, France, Germany, and Russia—are exploring options to circumvent the resumption of US sanctions on Tehran primarily by establishing a channel to allow financial transactions to cover exports from Iran.

But for all parties of the JCPOA, the key Iranian commodity of interest is crude oil, particularly for Beijing. In 2017, one-third of Iran’s oil exports were sold to China—more than any other country. This relationship between the two countries softens the blow of US sanctions on Iran by giving Tehran a lifeline when facing economic hardship, to an extent.

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“I really, really think someone set him up,” Iran’s deputy foreign minister said in an initial reaction to Israeli Prime Minister Benjamin Netanyahu’s speech at the United Nations General Assembly on September 27.

In an interview with state media, Abbas Araghchi and Iranian Foreign Minister Mohammad Javad Zarif, who is seated next to Araghchi, are both unable to control their laughter at Netanyahu’s latest accusation that Iran is housing a secret warehouse for a nuclear weapons program that Iran, according to the CIA and the International Atomic Energy Agency (IAEA), ended more than a decade ago.

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NEW YORK — Iran’s mellifluous foreign minister, Mohammad Javad Zarif, was in characteristic form Saturday afternoon as he sparred with a small group of journalists and US-Iran hands and fulminated against the policies of the Trump administration.

Iran would survive the latest barrage of US sanctions, Zarif insisted, noting President Donald Trump’s relative isolation at last week’s UN General Assembly and efforts by the Europeans and others to devise ways for Iran to continue to sell oil and be paid for it despite US pressure.

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Prompted by the United States’ unilateral withdrawal from the nuclear deal with Iran (the Joint Comprehensive Plan of Action or JCPOA), the remaining signatories are urgently seeking ways to maintain the agreement—both for strategic reasons and to preserve its trade benefits. A British, French, and German proposal to launch an independent channel for maintaining trade with Tehran, however, is unlikely to succeed and risks undermining the effectiveness of European economic sanctions. 

The three European countries (also known as the E3) are reportedly pursuing the establishment of a special purpose vehicle (SPV) to evade US sanctions and ostensibly maintain legitimate trade with Iran. The proposed SPV would essentially act as an accounting firm, tracking credits against imports and exports without the involvement of European commercial or central banks. For example, Iran could ship crude oil to a French firm, accumulating credit that could then be used to pay an Italian manufacturer for goods shipped the other way —without any funds traversing through Iranian hands. By using credits instead of cash, the SPV would not require any funds to transfer outside of the European Union (EU). Supporters of the proposal contend the SPV would keep such funds safe from the reach of US sanctions. 

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A tale from more than a decade ago serves as a warning for both the US and Iran in the wake of the devastating September 22 terror attack on a military parade that killed at least twenty-five people in the provincial capital of Ahvaz.

It was around 2006 when reports started emerging of a man in his mid-fifties began making the rounds at embassies in Kuwait. He had quite a story. He was going around telling diplomats that he was a descendant of Sheikh Khazal Khan, who had led a failed 1922 Arab uprising against the rule of Iran over Khuzestan, a province in the country’s neglected but oil-rich southwest. He sought to enlist support for his own separatist group, which he promised would help fight the clerical regime in Iran at a time when the administration of George W. Bush was ramping up pressure on Tehran.

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“Now I’m Trump’s lovely man!” one Persian language tweet read with a picture of a smiling President Hassan Rouhani. The tweet was from hashtag #LovelyMan, an Iranian social media response to US President Donald Trump’s tweet.

On September 26, shortly before he addressed the United Nations General Assembly, Trump wrote on Twitter: “Despite requests, I have no plans to meet Iranian President Hassan Rouhani. Maybe someday in the future. I am sure he is an absolutely lovely man!”

Shortly after the tweet, CNN’s Christiane Amanpour interviewed the Iranian president. During the interview, Amanpour read Trump’s tweet to Rouhani, who with an amused smile dismissed the comment, claiming the US president is “playing with words and will not get us to any solutions.”

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For a country that has so often been isolated in multinational forums, Iran is wrapping itself in international legitimacy and approbation not only from much of the United Nations General Assembly but four of the five permanent members of the Security Council plus the European Union.

The night before US President Donald Trump excoriated the Islamic Republic as “brutal,” “corrupt” and “dictatorial” in a heavily nationalistic and bombastic speech at the General Assembly, the P4+1—Britain, France, Germany, China, Russia and Germany—affirmed their support for the 2015 nuclear accord with Iran and promised a special payment mechanism to allow foreign companies to circumvent sanctions re-instated by the Trump administration.

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Though August 6 marked the first set of re-imposed US sanctions against Iran, the economy had already started feeling the pain months earlier. Uncertainty about the future stirred up turbulence in the Iranian foreign exchange, and caused scarcity as well as a sharp price increase of essential goods, in addition to the gradual withdrawal of foreign companies investing in the country.

Meanwhile, there have been reports of some businesses misbehaving: such as in-store hoarding, non-oil exporters refusing to supply export proceeds to the market, and Iranians rushing to shops due to worries over further price hikes.

The national currency, the rial, was the first market that reacted to the threat of unilateral sanctions. Since November 2017, the rial started to plummet. The value of the rial against the US dollar has dropped by more than 250 percent since November, from 40,530 to 160,000 on September 24.

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