Understanding the political economy of Iran

by Muhammad Shahzad

Iran is an immense country with a national identity marked by the self-esteem of those who know they form part of a great civilization. Geography also plays a part in Iran’s desire to become a great regional power. This nation-state is located at a strategic intersection between the Arab, Turkish, Russian and Indian worlds.

Iran because of its geography, population, size, and natural resources is aimed towards extending its influence and powers in the Persian Gulf. Iran has been concentrating on guarding its offshore accommodations and mounting its small marine forces. For Iran’s security, the body of water plays an important role which is why taking control of this waterway is essential for Tehran’s existence and security. If we look at this phenomenon from a geopolitical perspective, we will find out that the body of water is the only zonal area splitting the Iranian Peninsula from its neighbors in the South, and these neighbors in the south are ethically different from the Shia population of Iran.

Moreover, through this waterway, Iran also deals with the great powers means which serves as a political instrument too for Iran. Iran has several times threatened the West that in case tensions grew over the nuclear program of Iran, then they would close the way to the Strait of Hormuz but it is possible that in case of any threat or total war, Iran may attempt to do so which will result not only in the disruption of the International oil markets but also an outbreak in the oil installations of Saudi Arabia will be observed and in this way, the consignment of oil in the section will be ultimately disturbed. It will undermine the energy markets affecting the economy of the United States as it is one of the largest importers of Saudi Arabian petroleum oil.

Because of the strategic importance of the Strait of Hormuz, Iran is against any kind of military intervention of foreign elements in the Persian Gulf. When in the 16th century, foreign military forces took control of the Persian Gulf by entering the region, Iran tried its best to expel them from the body of water. The presence of the military forces of the United States in the body of water is viewed as a great security threat by Iran.

Why Iran is not a part of the Gulf Cooperation Council

Following are some of the highlights of why Iran isn’t a member state of the GCC:

  • One of the reasons why Iran is not a member of the Gulf Cooperation Council is that the GCC is an alliance of Arab states.
  • Secondly, all the member states of the Gulf Cooperation Council have opposed Iranian influence in the region and they do not want Iran to play a leading role in regional politics.
  • Thirdly, there exists a rift between Iran and Saudi Arabia and both have hostile relations towards each other. Saudi Arabia plays a dominant and pre-eminent role in the Global Cooperation Council and that is why it is against Iran’s regional hegemon and so does not want Iran to be a part of the GCC.
  • Lastly, if we go back to the details of the history of why GCC was established we will see that on 30th November 1971, Iranian forces illegally occupied three Islands of the United Arab Emirates and Arab Gulf states felt a threat from the emerging military capability of Iran. That is why other Arab states wanted to form a unification against Iran and so it resulted in the formation of the GCC in 1981.

Dynamics explaining Iran’s conduct

There are two factors based on which we can explain Iran’s behavior.

  1. Iran is not only against the presence of the armed forces of the United States in the Persian Gulf but also Iran wants to sustain its hegemony in the region.
  2. Another fact is the branch of the armed forces of Iran, The Islamic Revolutionary Guard Corps (IRGC), is responsible for the safety of the Persian Gulf. The Islamic Revolutionary Guard Corps also makes sure that there is no aggression between Iran and the United States because any hostility between the two states will serve as a threat to the Revolution and activities of the Islamic Revolutionary Guard Corps.

Another important point here to make is that the “Persian Identity” relates to the significance of the Persian Gulf. Historic supremacy and influence of Iran in the Persian Gulf, the Persian identity and character of the region make Iran the dominating force of the body of water. Iranians view the Persian Gulf isn’t just a body of water but they relate it to their enormous empire and Persian Civilization. In other words, Iranians are eager to support the “Persian ness” of the body of water. When National Geographic 2004, while mentioning the Persian Gulf in an event, used a substitute term “The Arabian Gulf” the Iranian government wrote to the organization to issue a descriptive report and protested against this act of National Geographic.

Development Project of South Pars Gas field

In modern times, the demand for the energy sector is rising, it becomes important for Iran to protect its energy source lines in order to meet its consumption domestically. The Persian Gulf is essential here to the interests of Iran. After Russia, Iran is the state which has the second-largest reserves of natural gas. Iran holds nearly 17 percent of the world’s reserves of natural gas. South Pars gas field, which is one of the largest reservoirs of gas in the world and shares a border with Qatar and Iran and is of strategic importance for Iran.

Qatar’s gas field is developed on the other hand due to the imposition of international sanctions and the absence of foreign investment, Iran’s gas field is still under development. Hence it is crucial to Iran’s infrastructure and economic progress to improve its natural gas fields because natural gas is the key source of producing electricity for Iran. If Iran increases its production of natural gas it will result in an increase in its exports to Europe and other regional countries. The development project of the South Pars Gas field comprises various services like onshore facilities, offshore services, shifting gas pipelines to all the webs, etc.

The financial growth of Iran is reliant heavily on its oil exports apart from natural gas. The main shipping route of crude oil in Iran is through the Persian Gulf and also most of the installations of Iran’s oil are present there.

The principal and largest terminal of Iran’s oil export is Kharg Island. This Island has the ability to stock about 28 million barrels of oil. This Island is located northwest of the Strait of Hormuz. It serves as the key sea terminal for Iran and also it has been serving as a significant base for the Iranian naval forces since 1979. Kharg Island suffered from great devastation as a result of heavy bombings on it by the Iraqi forces in the Iran-Iraq war. Its economic activities have expanded and improved after it became functional in 2008.

Impacts of the Iran-Iraq War on the Economy of Iran

On 22nd September 1980, an armed conflict arose between Iraq and Iran which came to an end on August 20, 1988. Iraq found a threat from the Iranian Revolution of 1979 that the influence and impact of this revolution may be extended and its Shi’ite community (Iraq) may stand against the Baathist regime. Iraq was against the domination of Iran in the Persian Gulf region. Iran turned its attention towards the security of its shipping routes in the body of water right after Iran-Iraq War (1980-1988).

This war is also known as Tanker War because of the reason that the tankers of Iran were targeted continually that used to carry petroleum to the energy markets. This resulted in financial suffering in Iran and fuel provisions. Iran’s trade had to be enrooted through Turkey and the Soviet Union because of this war. This resulted in an increase in the transportation costs of Iran. Iran became dependent on contractors from foreign countries for merchandise.

After the creation of the Islamic Republic of Iran in 1979, the associations between Iran and the United States became tough and there is a geopolitical struggle for influence in the body of water and for power, which created an environment of zero-sum for both states. While some in Tehran and Washington say that the clash between both states is inescapable. I believe that peaceful cohabitation is possible which will be in interests of both states.

As both US and Iran are alarmed about Persian Gulf maritime safety, both are fighting against terrorism and both want to ensure the free flow of oil and energy, so these could be the areas of mutual interest between the two states on which peaceful coexistence is possible. As the Persian Gulf is an area of influence for Iran so it wants that it should be under its control but this is unacceptable to the United States the United States should dismiss Iran’s legitimate concerns while Iran should also take care of the comforts of the United States and its allies in the Persian Gulf.

Muhammad Shahzad Akram is a Research Officer at the Center for International Strategic Studies (CISS) AJK. He holds an MPhil degree in International Relations from Quaid I Azam University, Islamabad. 

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Center for International Strategic Studies AJK, King Abdullah Campus Chatter kalas Muzaffarabad, Azad Jammu and Kashmir