What follows it the second part of an extended interview with Afshin Molavi, a conversation that began as a discussion of his piece “Iran Missed the Real Revolution” and strayed into the wider question of what it means to be Iranian today, what remains central to our cultural identity and our sense of collective loss and collective hope for the future. We spoke about in more detail about Iran's lagging economy, how it lacks globally competitive companies, how Iran's so-called allies are preying and profiting from its economic vulnerability, how the narrative of Iranian power in the region is overplayed, the neo-Orientalism of the West's infatuation with melancholy Iranian art films, and the soft condescension of low expectations for Iran.
One of the most arresting aspects of your piece was how you characterized lost opportunity. As Iranians we're all dimly aware of the many opportunities Iran has missed out on, but you articulated that in a very vivid, tangible way. Can you talk a bit about how those views developed?
Well as I was covering all these other countries, traveling to Asia and other countries in the Middle East, I was comparing them to Iran. I would go to Turkey and see Turkey’s rise and all of the foreign investment that was pouring in and all of the excitement around Turkey as an emerging economy. I would see Dubai become this dynamic commercial hub of Asia. I would visit India and see all of the technology talent being harnessed. I would visit China and see this great march of growth. I would see Qatar’s rising domination as a natural gas exporter, while Iran’s gas sector languishes under mismanagement and sanctions. I would read the business pages and hear of the next big emerging markets: Philippines, Nigeria, Ghana, you name it. And Iran was just absent from this conversation. As one emerging markets portfolio manager put it to me: “We watch Iran, but not as an investment destination, but as a risk indicator.”
And then I would see Iranians outside of Iran who were super successful and building world-class companies. I would remember the Iranians I met in my travels across twenty cities and villages in the late 1990s and the first half of the 2000s. I could see that the Iranian people certainly had the ability, the character, and the drive to build a world-class economy. I could see the technical capabilities in them that, frankly, I don’t see in many other places. Yes, I said it. Iranians, it seems to me, were more technically advanced as a people than many of their neighbors. You just have to look at all these international science Olympiads that Iranians win. 1st place, 2nd place, 3 place. Physics. Robotics. Computer Science. Chemistry. You name it. Then, you have to see where many of those Olympiad winners end up: in Silicon Valley and Australia and Europe. Rather than celebrating these winners and putting their talents to use, many of them are just forced to leave Iran for better opportunities elsewhere.
Then, I would see, read and hear of the economic and environmental deterioration in Iran. Did you know that of the 10 most polluted cities in the world, four are in Iran? Yes, four of the top ten most polluted cities are in Iran. If that is not bad management, what is?
Then I would wonder what the opportunity cost was of some of the policies the Islamic Republic of Iran has enacted, not just its economic policies but even in foreign policy. Because if you choose a stance that is “neither East nor West”, like Ayatollah Khomeini did, if you choose to take on big powers, those choices have consequences and I thought perhaps it would be interesting to see a paper on this subject.
Then, a paper arrived. The talented young Iranian-American economist Mohammad Javan Parvar has done exactly that. He did a very compelling economic paper, which included models, looking at some of the opportunity costs of policies enacted by the Islamic Republic over the last 30-plus three years. He tried to quantify something very difficult: opportunity cost. He reached some very simple conclusions: in the years preceding the revolution, Iran’s real per capita GDP was growing dramatically, six percent, among the highest growth in the world and it had a real per capita GDP about 2.5 times the size of Turkey’s. Iran was a real emerging markets star before that term even existed. Today Iran’s real per capita GDP is less than Turkey, in fact about 80 percent less than Turkey. He also demonstrated that a family of four has lost some $10,000 or so per year every year since the revolution. Or to be more precise, not earned.
It was helpful to have an economist’s paper that helped back up some of my thoughts. Dr Jahan Parvar laid it all out, noting what Iran has lost in terms of opportunity cost as a result of the foreign policies and economic policies of the Islamic Republic. His paper can be viewed here.
It was troubling to hear some Iranian-Americans who went back to Iran after many years and were somehow impressed by new roads being built or more electricity than before 1979 – as if the world would have remained static from that point. I would often hear things from these returning Iranian-Americans such as ‘well you know I haven’t been to Iran for many years and when I went back after the revolution there was more electricity in villages and more roads and lots of gardens.” This is an argument that doesn’t make any sense in the field of economics. What is important and not studied enough is opportunity cost. And I’m sure somebody could have studied opportunity costs of policies during the reign of the Pahlavis as well. I am not making a pre-revolution vs post-revolution argument. It’s not that simple or simplistic. I’m making a sensible policies vs unsensible policies argument, no matter who rules Iran. Because if I have come to learn one thing, it’s that there is no such thing as an “oil curse,” but there is indeed such a thing as a “bad governance curse” or a “corruption curse.”
Mohammad Jahan Parvar’s paper was important to my thinking on this subject. Frankly, it gave me a little bit more courage to do the piece that was circling in my head for 15 years. So I think Mohammad Javan Parvar provided a great service by producing that paper. He comes from a new generation of Iranian economists who are really doing some real unbiased important economic research and I look forward to reading more of his work.
If Iran had not gone down the revolutionary road and instead had chosen the path of sensible policy, in whose position might it have been? Who does it make sense to compare Iran with, in terms of what could have or should have been?
Let’s just imagine that the revolution did not have its excesses – though that is a big imagination leap, after all, what revolutions do not have excesses? And by excesses, I mean executions, injustice, fear-mongering. Let’s not use euphemism such as “excesses” as a way of sugar-coating things so we don’t get into trouble. And also nationalization of industries and targeting of the private sector and other such things. But for the sake of argument, let us imagine it. Let’s look at the G20 countries right now, the Group of 20 major economies. There is a reason we came up with this term G20, because for years it was the G7 and G8 and then we realized there are emerging economies whose impact on the world is so important that they need to be included in this group. Now if you look at the emerging economies that are in the G20, they are Saudi Arabia, Turkey, South Africa, India, Argentina, Brazil, Mexico, Indonesia and China. Where does Iran stand in all of this? Iran is not a member of the G-20. This tells you everything you need to know. Iran can easily stand with those emerging countries in terms of potential, and yet it does not. It falls behind.
Here is what I think would have happened had Iran pursued sensible policies: Iran would have been in the trillion dollar GDP club. The trillion dollar GDP club includes, of course, the US, Japan, Germany, France, and other G-8 economies, but also also China; it also includes India, South Korea, and Mexico. I think Iran could have been in the same bracket as South Korea and Mexico in the trillion dollar GDP club if they had pursued these sensible policies. And the reason I think that is because Iran has, in addition to immense oil and gas reserves, a talented, sizable population. Saudi Arabia’s GDP is larger than Iran’s GDP. But Saudi Arabia’s population is about 28 million or so (20 million Saudis); Iran is 75 million or so. Turkey is probably the best example because all you need to know is that before the revolution Iran’s GDP on a nominal level was about twice the size of Turkey’s. Today Turkey’s GDP is about 25-30 percent larger than Iran’s GDP and Turkey is headed to membership for the trillion dollar GDP club, as is Indonesia. Iran is not.
One can make all sorts of excuses for Iran, but as Jahan Parvar’s paper noted and some of what I have written noted, there are costs and consequences to foreign policies and economic policies. And Iran has become a laggard – despite, I repeat, its talented population and sizeable resources and strategic location.
It is important to remember when you make these comparisons that Iran, again, has the world’s largest gas reserves, the world’s third largest oil reserves. Iran is not a normal developing country. Iran is a developing country that is blessed with some real serious natural resources.
What Iran also would have had is companies that compete on a global level. When you look at Turkey right now their companies compete on an international level. If you look for example there is a company called Ulker, it’s a major Turkish confectionary, they bought out Godiva chocolate recently and they are a real global brand. You look at Emirates Airlines, they are world leaders, they are taking over the world of aviation and are on track to become the single largest carrier in the world. Tata of India is a major global player, owner of the Jaguar and Land Rover brand. Grupo Bimbo of Mexico is a major player in baked goods. Look at some of the South Korean companies that compete at the world level. Look at some of the state-owned companies that are competing at the highest level: Qatar Airways, Etihad Airways, Saudi Aramco, the national oil company. Saudi Arabia’s national oil company, Saudi Aramco, has some of the best training for its staff anywhere in the world. They spend around a million dollars per day training their staff. Now think about Iran and some of the technocrats who work for the National Iranian Oil Company (NIOC), who despite corruption, mismanagement, and the geopolitical environment, still manage to get oil and gas out of the ground. They're doing it because of the love they have for their job, their work and their country. One retired NIOC executive called his colleagues heroes. There is truth to that. But imagine if you gave them the kind of training and opportunities that some of the Saudi Aramco engineers have been given. Imagine what they could do with that. So the short answer: I think Iran would have been in the trillion dollar nominal GDP club and certainly it would have companies that could compete on a global level.
Finally, lets go back to the Turkey example. In Tehran and other cities, when one is shopping for clothes, the merchant will often say to you: “the quality is good, its Turkish, not Chinese.” Do you think merchants in Istanbul are saying the same thing about Iranian-made shirts or light manufactured products? The answer is “no.”
Also, think of all of the Iranian diaspora talent in Silicon Valley and elsewhere. Now, let’s imagine that diaspora talent is married to local, indigenous talent in Iran. What a catalytic connection that would be. I cannot overstate this: that would be a chemical reaction that the world would hear. I could easily envision Iranians in the diaspora and in Iran joining together to build one of the world’s great technology companies. The love that the Iranian diaspora hold for Iran is truly striking. You can’t measure love, but if you could, it would be one of the most powerful economic forces.
Let me just give you one example of the millions out there. There is a man named Khosrow Semnani. He lives in Salt Lake City, Utah. He came to the US in the late 1970s with only a degree in physics and a dream. He worked hard. He played it straight. He saw an opportunity and began building a company. The company grew and grew, and was bought by a larger company. Today, Mr. Semnani has the resources to do whatever he would like to do. His family foundation supports health care initiatives and children initiatives across the world. He could sail around the world if he chose to do so. But you know what? He wakes up at night, worrying about Iran and Iranians. I know this because I have worked with him on a couple of projects, and would receive late night text messages or emails. He was terribly worried about the humanitarian consequences of a war with Iran, and he decided to write a paper on the subject, using his considerable knowledge of nuclear power plants and laying out a stark scenario for the radiation effects of a US and/or Israel bombing campaign. His paper was read at the highest levels of US government.
Lately, he has been trying to get medicines to Iranians who cannot access medicines. He quietly gives to Iranian families in need, and he has been a big supporter of Encyclopedia Iranica and other Iranian causes.
Now, the Mr Semnanis of the world – and there are many like him who are rich in resources or rich in insights or rich in expertise or rich in love and compassion (or al of the above) – are eager to work toward developing a future, democratic, prosperous Iran. And I have no doubt that they would love to bring their skills to Iran in a significant and meaningful way.
So, with sensible policies, Iran would be a member of the trillion dollar GDP club, a G-20 member, and it would have spawned companies that compete on a global level, and diaspora talent from all fields would have worked much more closely with national talent and produced some great innovations, and Iran would have developed a brand reputation regionally much as Turkey has. So, perhaps a Turkish merchant seling Iranian biscuits or glass products or shirts would say: “it’s good quality. Its Iranian.”
I didn't realize Ulker was such a big company, I always buy their marshmallow biscuits because they are just like those Shirin Asaal biscuits in Iran. I think Shirin Asaal could easily rival a firm like Ulker, if given the chance. I also wonder if there a particular country that would be a good comparison? I know comparisons are tricky, and some outright unhelpful, but I'd personally be keen to know in whose position Iran could have reasonably expected to be.
The reason I hesitate to make a direct comparison between countries is because there are so many differences among them. I think Turkey is probably the best comparison. Dubai is not a good comparison. Many times Iranians would say “look at Dubai, look at where we were in 1979 and look at where Dubai was and look at Dubai today.” Dubai is unique because it’s small, and I think the leader of Dubai has a very strategic vision of what he wants Dubai to be. Dubai is not just tall buildings and hotels, they also have the busiest international airports in the world, top ten tourist arrivals in the world, top 5 busiest ports in the world: numbers like that don’t lie. Dubai’s story is an infrastructure story; they have built world-class ports and the ships have come; world-class airports and the planes have come. World-class tourism and the tourists have come -- Dubai attracts more tourists than India. But Dubai is unique because of the foreign labor and the expatriate workers far outnumbering Emiratis and its not a model, by any means, for Iran to follow.. It’s not a great example though Iranians in Iran often point to it in a “chee boodeem o chee shodeem” kind of way.
But Turkey is a better comparison. And Turkey has surpassed Iran in terms of nominal GDP, without the oil and gas resources that Iran has. As I said earlier, Turkey has world-class companies, attracts serious foreign direct investment, and is well integrated with the world economy. To top it off, Turkey is nobody’s “nokar.” They have an alliance with Israel but they challenge Israel. They are allies of the U.S but they also challenge the U.S. They are a member of NATO. Think about that for a moment: if any country attacked Turkey, the US would be treaty-bound to defend it.
My view of geopolitics is that states are amoral actors. I wish they were more moral, but that is not the reality. International relations is about maximizing the interest of your nation but it is not a zero-sum game. The days are gone of master-servant relationships and countries like Turkey show that you can be nimble and develop global alliances and still assert your own interests. And when you do so, when you choose to be a responsible actor, your people can benefit with economic growth and political dignity at the same time.
Having a globally connected middle class has been a crucial engine of growth in all these emerging economies you describe. Iran's middle class has suffered under sanctions, do you think it will still be in a position to play that role? Or has it been eroded by financially, and not is not even quite middle class anymore?
It’s an important question and I think that the Iranian middle class is vital to the country's future. When the Iranian middle class is given a choice, when it’s given a real choice in an election, they vote for a candidate that is more moderate and wants to reintegrate Iran into the world. The middle class has always played an important role in Iranian political history, if you look at the 1979 revolution, the powerful combination of the traditional middle classes and the modern middle classes they wanted different things, but the fusion of those two middle classes played an important role in bringing the revolution about. Are we headed to an Iraqi middle class situation? i.e Total decimation. I don’t think we are there yet, but the situation is not good. I’m appalled at the lack of access to medicines and here’s where the sanctions regime is directly to blame. No matter one’s position toward the Iranian government, any situation in which people cannot get much-needed medicines should be condemned and actively remedied.
There is a history of wealth in the Iranian middle and upper classes which has given Iranians some breathing room. An uncle loans money to nephews, a well off diaspora brother sends some money back. So there's an element of the middle class having an accumulation of assets in gold, carpets, etc and relatives who can help, but we are reaching a breaking point, it seems to me. These anecdotal accounts are troubling, of the numbers of people who are selling off their gold, carpets and some of their other goods that they've accumulated during the years simply to get by. The stories of people selling their liver or kidneys to make ends meet or the middle class Iranians flying to Indonesia and taking a rickety boat to Australia. If that doesn’t bring tears to your eyes, you are not human.
I read a story recently about the rise of poor Iranians selling their organs. I did some more research and it seems that Iran is one of the few countries in the world where it is legal to sell your kidney. Imagine your desperation if you are prepared to sell a kidney. Now, this is not a middle class phenomenon, but it is still telling, and it is unbearably tragic.
That's horrific. It reminds me of something that a friend in Iran said recently about how painful Iranians find this economic decline. Iran is not a country with a modern history, say the last fifty years certainly, of widespread, abject Third World poverty. I'm sure not being accustomed to a situation dire enough to require you to sell your kidney makes being pushed to that even more painful.
What you mentioned early about Iran's allies benefiting from its isolation also struck me, because it seems that Iran has become so economically vulnerable that it's no longer capable of having allies. Because having an ally, being an ally, suggests some balance of power in which both sides gain. Has Iran lost its ability to even have a real ally? Isn't it just encircled by smiling predators?
That’s an important point, and here is where we can bring sanctions in. The sanctions that have hit Iran, particularly the US and EU sanctions of the last two years, have been costing Iran anywhere from three to five billion dollars a month in lost oil revenue, and have weakened Iran in much the same way that a bad flu weakens the body, and allows all sort of other germs and parasites to attack. And believe me, they are attacking Iran.
Iran is losing up to $60 billion a year of lost revenues. And that’s just based on current oil production capacity. Absent a sanctions environment, Iran could be producing much more oil – anywhere from 4 million barrels per day within a short period to up to 8 million barrels firing on all cylinders. So, the losses are much, much larger when you consider it in those terms. Iran's banks are also entirely choked off from the international financial system and Iranian businesses can’t get credit. This is a grave and serious economic situation.
It truly hit me starkly one afternoon when I looked at the World Economic Outlook report of the International Monetary Fund (IMF). They do something called the map of the world, where they color the world in varying shades of blue and red. Blue is good. It means that your economy is growing, and the color red means that your economy is contracting. And most of the world is blue and certainly most of the emerging world is in varying shades of blue. The only red on this entire map east of Europe is Iran. Let me repeat: Iran is the only country in the entire Eastern hemisphere that is red! Its economy is contracting. So every other country in the eastern hemisphere is growing, maybe one percent, two percent, or three, six or eight percent. But the only country in the eastern hemisphere not growing is Iran.
Think about that for a moment: Iran is bleeding red in a sea of blue. If that map doesn’t tell you everything you need to know, what does? And then when the IMF issued its report on negative two percent growth in Iran, and Hassan Rouhani’s administration said “no you are wrong, IMF, we are experiencing negative five per cent growth.” So, Rouhani sees the devastation and is willing to be honest about it. That’s an important first step. So these sanctions have been really devastating, they have hit Iran very hard.
And Iran’s so-called “allies” are benefiting from Iran’s decline. Remember the flu analogy I offered. Iran’s body has weakened and its “allies” are not giving it chicken soup and medicine. Instead, they are quietly entering its home and stealing the gold and silver. Russia wins with Iran’s international isolation. Russia does not have to worry about Iranian gas competing with them in European markets. India also wins because it forces Iran to pay for its oil in rupees, and then the rupee declines 20%, and Iran is forced to buy Indian goods with those rupees. As one Iranian businessman lamented to me: “it’s oil for Basmati rice!”. Chinese force Iran to pay in renminbi, and then Iran is forced to use those rising balances to buy Chinese goods, often inferior and over-priced. Iraq back-fills lost Iranian oil share to Asia, as does Venezuela. So, they are walking off with the silver as Iran’s body wheezes and coughs. When you probe these matters, you see that a lot of countries benefit from Iran sanctions, and it’s not Western ones. As the old saying goes: With friends like these, who needs enemies?
How is all this impacting Iran's oil sector? This seems very troublesome both in the immediate term and also the long-term, because the oil sector is dilapidated and requires development, correct?
The oil sector is in real trouble. Production is down from 4 million barrels per day to 2.7 million barrels per day. Even that 4 million number is far below Iran’s capability. Exports have hit one million barrels per day – this is less than during the Iran-Iraq war! No major multinational will dare invest in Iran’s oil and gas sector and the Chinese who own concessions are dragging their feet. The Indians have pulled out. Projects are languishing. Iran, with the world’s largest gas reserves, is a net gas importer. Yes, the country with the world’s largest gas reserves, imports more gas than it exports!
The previous oil minister Rostam Qasemi recently took a trip to India, and I was struck by how during that trip he offered his Indian counterparts all sorts of different enticements that Iran would never have offered in the past to any country to invest in oil and gas. It might not be an exaggeration to say that these kinds of deal that they were forced to offer to the Indias of the world are Treaty of Turkmenchay type deals. The whole optics of the trip looked like an Iranian minister bowing and scraping for investment. I am sitting in America watching this, so perhaps my sensory radar is different, I don’t know, but if I were in Iran and/or were a part of the establishment, I would find it terribly undignified for an Iranian Petroleum Minister to have to essentially beg countries to invest in Iran.
When you read the oil industry press you're always reading about how Iran is offering discounts on their crude oil and selling to the Asian markets, and that’s why some want to buy Iranian oil. Iran's so-called “allies,” as I noted earlier, are exploiting this weakness. In fact an Indian minister was recently quoted as saying that India should buy more oil from Iran because by doing that, they can save money – noting the discounts Iran offers. What he was essentially saying is that “we can get a discount on oil from Iran, they pay rupees in Indian bank accounts and then they are forced to buy inferior goods with those rupees.” Not a bad deal for India – a very bad deal for Iran.
I understand that all of this is sanctions-related, but the reality is that while Iran is suffering, its “allies” are picking it clean.
What about when these predatory allies are the ones Iran relies on to develop its oil and gas fields?
When it comes down to it every nation is looking after its own interests. So Chinese oil companies will win contracts in Iran's oil or gas fields. So they sit on that contract and they don’t do anything with it. And the reason they don’t do anything with it is because they do the math. They say look, I can do business with this $500 billion economy (Iran's) or I can do business with a $15 trillion economy, the United States. Or they do the math and they say, you know what, it’s probably better off if I don’t provoke any friction with the United States, so I will pay my fee, I will pour a little bit of money into the contract, but I’m not going to do anything serious in that oil and gas field. Some of that weaknesses may be changing. For example the new petroleum minister Bijan Zanganeh has told the Indians Iran will no longer going accept payment in rupees and he has invited western oil companies to visit, but we are still far off the sort of final status nuclear deal that could lead to a lifting of sanctions and a return to normalcy in Iran’s oil and gas sector.