Economy of Resistance and Regional Economic Outreach: How Iran is coping with the US maximum pressure campaign

Ever since the United States withdrew from the multilateral nuclear agreement between Iran and P5+1 in May last year, Iran’s Supreme Leader Ayatollah Khamenei has been advocating that ‘we should not pin our hopes on the outside world,’ resonating his earlier notion of the economy of resistance. However in a shift from the autarchic underpinnings of the economy of resistance, the Leader has also been advocating that Iran’s advantageous location adjacent to international waters in the Persian Gulf and Sea of Oman was a resource not being used to perfection and that fifteen countries that are Iran’s neighbours constituted a ‘very important possibility and capacity for the country.’ Tehran hopes that the advantages presented by Iran’s favourable access to open seas, its crossroad location between north-south as well as east-west and its hydrocarbon resources will lead Iran’s neighbours to seek mutually beneficial economic relations with the country.
The notion of economy of resistance was first articulated by Ayatollah Khamenei in year 2012, as a national response to the US and European Union banning imports of Iranian oil and the expansion by the US congress of ‘secondary sanctions’ on companies doing business with Iran. While the West’s crippling sanctions were designed to mount pressure on the country and bring it to negotiating table, Ayatollah Khamenei’s notion of economy of resistance, envisaged an economy that ‘is not seriously harmed or disrupted by the enemies’ machinations. The enemies will continue their machinations in different forms.’ Framed within the language of the revolution and Islam, the concept securitised the economic domain, by projecting the source of economic crisis to hostile powers seeking to undermine the Islamic Republic, shielding the Iranian leadership from popular criticism. In economic terms it advocated supporting domestic production, promoting small and medium economic units, knowledge based economy and management of foreign currency reserves, preventing extravagant consumption at the level of government and the people.
The rhetoric of economy of resistance made a comeback when on the Persian New Year in March, 2017, the Leader, taking a populist line to pile pressure on President Rouhani facing re-election two month later, named the year as the ‘Economy of Resistance: Production and Employment.’ Notwithstanding the US withdrawal from the nuclear agreement and the return of the US sanctions on Iran’s oil and banking sectors in full force and the latest US refusal to renew the exemptions granted to the eight largest buyers of Iranian oil in Asia, Iran today has been rehabilitated in the wider international community of nations. Patiently holding its end of the bargain in a multilateral deal, Iranian leadership has denounced the US sanctions as weaponising international financial system and violating international law as the nuclear agreement between Iran and P5+1 was endorsed by the UN Security Council. Its recent announcement that it would reduce its commitments under the deal is about signalling to the EU-3 that its patience is not unlimited, given that they are yet to operationalize the special purpose vehicle for facilitating trade with Iran, even after one year since the US withdrawal from the agreement.
As Tehran finds it increasing difficult to export its oil, it is working on exporting gas to its neighbours to support its plummeting export revenue. As President Trump’s ‘maximum pressure’ campaign intensified, Tehran also focussed its diplomatic energies on its neighbouring countries, articulating a vision of an extended network of energy pipelines, connectivity infrastructure and trade. Hosting Iraqi Prime Minister Adel Abdul Mahdi in Tehran in early April, President Rouhani noted that ‘the plans to export electricity and gas and hopefully oil continue and we are ready to expand these contracts not only for the two countries but also for other countries in the region.’ Iraq, which imports roughly 1.5 billion standard cubic feet per day to fuel its power stations, has been granted waiver to deal with Iran economically. Recently, Iran’s National Iranian Oil Company announced that it is opening an office in Baghdad to ‘facilitate cooperation in oil industry and the transfer of engineering and technical services to Iraq.’ As the two countries are also conducting studies for joint operation of shared oil fields along their borders, Iraq can help channel Iranian oil to international markets.
Turkey is also important for Iran to take the sting out of the US sanctions on the country. Last month in April Iranian Foreign Minister Javad Zarif travelled to Turkey after visiting Syria. In Ankara, Zarif argued for setting up a financial mechanism similar to INSTEX set up by Europe, for settling trade between Iran and Turkey. Turkey has argued that it would like to continue buying Iranian oil and it was not possible for it to quickly diversify the source of oil it imports also because it would have to renew the technology of its refineries once it buys oil from third countries. Turkey would like to buy Iranian oil as importing oil from other countries would only put more inflationary pressure on Turkish economy by raising the cost of petroleum products. But resisting US secondary sanctions would be difficult, therefore, Turkey has indicated that it will increase its gas imports from Iran. Iran already accounts for 20 per cent of natural gas imports to Turkey.
In March, 2019 Iran launched four new development phases of South Pars gas field with a capacity to produce 112 million cubic meters per day. The idea is to sell this gas to Iran’s neighbours. Earlier in March, during Armenian Prime Minister Nikol Pashinyan’s visit to Tehran, President Rouhani expressed Iran’s readiness to step up gas supplies to Armenia and launch tripartite gas cooperation to export gas to Georgia. Similarly, with Pakistan, Iran is seeking to revive the much delayed Iran-Pakistan gas pipeline project. Following Prime Minister Imran Khan’s visit to Tehran in April last month, Islamabad has stepped up to work on its section of the pipeline and decided to send demarches to US, European Council and other related forums to resolve irritants in the way of the project.
Faced with the United States’ maximum pressure campaign to isolate Iran economically and diplomatically, Iranian leadership is using the concept of economy of resistance to tell the domestic audience that the country cannot depend on Western powers for its economic goals while it is also intensifying its outreach to its neighbours in order to cultivate a network of economic relations within a regional framework.

Deepika Saraswat

26 April 2019