Iran in 2016

2016 is a pivotal year for Iran, with implementation of the nuclear deal expected in January and high-stakes elections in February. Tehran’s ability to reengage with the international community will hinge on its compliance with the agreement. The parliamentary election could determine Iran’s direction on foreign and domestic policy. And the Assembly of Experts election could have a profound impact on the selection of Supreme Leader Ayatollah Ali Khamenei’s successor.   

 

 

Iran has made significant progress toward completing its key commitments under the nuclear deal. It has moved most of its low-enriched uranium out of the country, uninstalled thousands of centrifuges, taken steps to increase transparency, and specified its plan to convert the Arak reactor so that it can’t produce weapons-grade plutonium. Implementation Day, the next major milestone under the deal, will occur when the U.N. nuclear watchdog confirms Iran’s compliance.

 

Iran appears to be on track to meet its responsibilities as early as January. “We can say that everything is set for the final step, which is removing the core part [of the Arak reactor]” and replacing it with a new one, a spokesman for Iran’s atomic energy agency said on December 29.

 

On Implementation Day, the United Nations, the European Union and the United States will terminate, suspend or cease application of nuclear-related sanctions. Iran will be able to access the international financial system, repatriate some billions of dollars  in frozen assets abroad, and fully return to the oil market.

 

Iran is required to ensure its nuclear program—particularly uranium enrichment and research and development—remain within the parameters of the deal. On enrichment capacity, it must not exceed that of 5,060 IR-1 centrifuges. It will also only be able to enrich uranium to a maximum 3.67 percent, which is well below the level needed for a nuclear weapon. Iran must also allow the IAEA increased access to monitor its facilities.

 

 

On February 26, Iran will hold elections for parliament and the Assembly of Experts. About 12,000 candidates--a new record for the Islamic Republic--have registered to run for parliament’s 290 seats. More than 1,200 of them are women, also a record. The candidates must still pass the Guardian Council’s vetting process. Hardliners have dominated parliament for the last decade. The Rouhani government could gain more leverage to implement social, economic and political reforms if centrists and reformists win more seats than hardliners. A change in the balance of power would leave hardliners in control only of the judiciary.

 

The Assembly of Experts election is also critical. The 86-member body, popularly elected every eight years, has the authority to appoint and dismiss the supreme leader. It has never seriously questioned the actions of the late Ayatollah Ruhollah Khomeini or the current supreme leader, Ayatollah Ali Khamenei. But given Khamenei’s advanced age, 76, the next assembly is likely to select his successor. The current assembly is made up largely of elderly clerics. Again, centrists or reformists are hoping to gain seats. Hassan Khomeini, grandson of Iran’s late revolutionary leader, has increased the buzz around the election by registering to run. He has close ties to both centrist and reformist political elites.

 

 

For Iran, the trajectory of the Syrian civil war is the most pressing foreign policy issue in 2016. In December, the U.N. Security Council endorsed a road map to end the five-year-old conflict. In January, representatives from the Syrian government and opposition are due to meet in Geneva. The goal is to broker a ceasefire and establish “credible, inclusive and non-sectarian governance” within six months. Elections are to be held, in accordance with a new constitution within 18 months.

 

 

The peace process has the potential to significantly impact Tehran. Syria and Iran have been close allies since the 1979 Iranian revolution. Iran has significant investments in the Syrian economy, and it has played a key role in training and equipping its military. Syria is also an important hub for Iranian influence in the Arab world. It is Iran’s conduit for sending arms and aid to its close ally Hezbollah, the Lebanese Shiite militia and political party. Additionally, Syria is home to several Shiite holy sites frequented by Iranian pilgrims. So Iran has an interest in ensuring that a friendly government, whether or not it includes President Bashar al Assad, continues to hold power in Damascus.

 

For Iran, fighting ISIS and other extremists groups is also a top priority. A ceasefire between the Syrian opposition and the Assad regime could potentially allow pro-government forces, aided by Iranian military advisors, to better focus on ISIS. Iran has lost at least eight generals in Syria in the past year and half. “That shows that we are serious about fighting Daesh. We consider ISIS and extremism to be a threat to all of us in the region,” Foreign Minister Mohammad Javad Zarif told The New Yorker in December. Iran has a strategic interest in destroying the group, which has come within 25 miles of its border and destabilized its western neighbor, Iraq.

 

Iran is also interested in countering ISIS off the battlefield. In December, President Hassan Rouhani stressed the importance of countering the group’s extremist interpretation of Islam. “Today, more than ever, it is necessary that Islamic countries cooperate with each other and with more effort provide the true face of Islam, which is based on beneficence, kindness, compassion, and respect for the rights of all,” he said, in a message to heads of Muslim states marking the birthday of the Prophet Mohammed. “In this regard, collaborative partnership of Islamic nations in fight against extremism and violence will be an inevitable necessity.”

 

Tehran also has stake in the ongoing war in Yemen. Iran has supported the Houthis, a Zaydi Shiite movement that has controlled the capital, Sanaa, since September 2014. In December, peace talks between the rebels and President Abdu Rabbu Mansour Hadi’s government, supported by Saudi Arabia and other Gulf states, ended with no resolution. They talks coincided with a fragile ceasefire that then collapsed on January 2. A new round of talks is planned for mid-January.

 

The recent row between Saudi Arabia and Iran over Riyadh’s execution of dissident Sheikh Nimr al Nimr has the potential to negatively impact both the Syrian and Yemeni peace processes. On January 2, Saudi Arabia announced the execution of the Shiite cleric along with 46 other individuals, mostly Sunnis convicted of al Qaeda attacks in the kingdom a decade ago. Nimr was an outspoken critic about Riyadh’s neglect of its Shiite minority; he supported anti-government protests launched in the Eastern Province during the Arab Spring. Nimr’s execution prompted protests in Iran, where protestors ransacked the Saudi Embassy and tried to attack the Saudi Consulate in Mashhad.

 

On January 3, Saudi Arabia severed its diplomatic relations with Iran. Bahrain and Sudan followed suit. The United Arab Emirates downgraded its relations and Kuwait withdrew its ambassador. Both Riyadh and Tehran traded barbs as officials from European countries, the United Nations, the United States and regional powers urged calm. The U.N. envoy for Syria, Staffan de Mistura, flew to Saudi Arabia to assess the impact of the dispute on efforts to end the Syrian civil war. Foreign Minister Adel al Jubeir assured him that Saudi Arabia would not allow its dispute with Iran to interfere with the peace talks.

 

 

Iran’s economic outlook for 2016 is positive overall. In December, the International Monetary Fund (IMF) predicted that its real domestic product (GDP) could grow 4 percent to 5.5 percent from March 2016 to March 2017, Iran’s next fiscal year, if sanctions are lifted. The nuclear deal’s implementation, expected as soon as January, will trigger the lifting or suspension of nuclear-related U.N., E.U. and U.S. sanctions.

 

Iran is expected to reap economic benefits from sanctions relief in the near term. It will likely try to quickly repatriate its frozen assets. The U.S. Treasury estimates Iran will have $56 billion in available funds. Some countries, including major E.U. countries, will take steps to boost trade, while companies will try to develop consumer markets as soon as possible. Iran received some 60 foreign delegations between March and November, according to deputy economy minister Mohammad Khazaei. But some risk-averse European companies may hold off on investing in or building an Iranian market to until they are confident that the nuclear deal will hold. U.S. companies will still be prohibited from trading with Iran. So Iran’s economy is unlikely to recover overnight.

 

The IMF has also warned that “comprehensive reforms to the business environment” will be needed to “ensure that the expected lifting of economic sanctions has a significant impact on confidence and investment and places the economy on a higher and more inclusive growth trajectory.” The World Bank has also highlighted the need to reduce influence of state-owned companies and reform the finance sector.

 

Low oil prices are likely to be a key obstacle to significant economic growth for Iran in 2016. Oil Minister Bijan Zanganeh has said that Iran would boost its production by about 1 million barrels per day--to 3.8 or 3.9 million--within a few months after sanctions are lifted. But even with an increase in market share, oil profits may prove sparse if prices remain low. In December, the price of Iran’s heavy crude oil fell below $30 a barrel for the first time in almost 20 years. Brent crude oil futures, the international benchmark, were down to $37.22 per barrel in early January. And prices are expected to remain low in 2016.

 

One of the factors behind the slump is Saudi Arabia’s flooding of the market. By producing more than 10 million barrels per day, Riyadh is ensuring that Iran’s profits from oil sales will be relatively minimal. Given the heightened tensions between Saudi Arabia and Iran, the dynamic is likely to continue into 2016.

 

Another factor will be the implementation of Rouhani’s six-month stimulus package, approved in October. It aimed to inject cash into the stagnant economy and stimulate growth before sanctions are lifted. Some experts have warned that the move could increase inflation and jeopardize Iran’s economic recovery. But government officials have outlined precautionary measures to avoid a rise in inflation.

 

Unemployment, which stood at 10.8 percent at the end of 2015, will be a key challenge for the government. Youth unemployment was 25 percent. Some 40 percent of women with higher education were jobless. Foreign investment could, however, help create some jobs.  

 

The following are some key events expected during the first half of 2016.

 

Early January: Syrian President Bashar al Assad is reportedly scheduled to visit Tehran.

 

January: Iran expects to complete the preliminary steps necessary to begin implementation of the nuclear deal sometime in January. The United Nations would terminate nuclear-related sanctions. The European Union and the United States would terminate, suspend or cease application of certain sanctions as well.

 

Mid-January: Yemen’s government and Houthi rebels are scheduled to reconvene for another round of peace talks.

 

January 25: U.N. Syria mediator Staffan de Mistura will convene peace talks in Geneva. Representatives from the Syrian government and opposition are to attend. 

 

Late January: President Hassan Rouhani is scheduled to visit the Italy and the Vatican. 

 

Feb. 11: Iranians will mark “Revolution Day,” which commemorates the day Iran’s army sided with the people against the shah in 1979. Hundreds of thousands of people turn out each year to celebrate the victory of the Islamic Revolution.

 

Feb. 26: Iran will hold elections for parliament and the Assembly of Experts, the body tasked with appointing and dismissing the supreme leader. A second round of elections is expected in March.

 

March 20: Iranians will celebrate Nowruz, or Persian New Year, which marks the first day of spring. Iran will also begin a new fiscal year.

 

May 5-8: Iran is scheduled to holds its 20th International Oil, Gas, Refining and Petrochemical Exhibition in Tehran.