In a Monday editorial, the Financial Times of London said that "it would be wrong and probably counterproductive" for "Western governments looking to raise the economic pressure on Tehran" to "deepen the shortages by limiting Iran's access to fuel."[1]  --  "Foreign intervention on fuel imports would hurt ordinary Iranians most, allowing Mr. Ahmadinejad to rally political support and successfully deflect the blame for the economic malaise onto outside enemies."  --  The Australian, meanwhile, reported that a senior cleric was assassinated in Ahvaz on Jun. 24.[2]  --  Ahvaz, a city of about 850,000, is the capital of Khuzestan, a province on the Persian Gulf, and is in the heart of Iran's oil region, and is an area where there have been many reports of U.S. support for opponents of the regime and even reports of U.S. special forces infiltrated into the western part of the province.  --  On Saturday, top leaders undertook a defense of the gasoline rationing introduced on Jun. 27, AP reported.[3]  --  An article published by IRNA, the Iranian state press agency, quoted Iranian President Ahmadinejad as saying that plans for a further reduction in gasoline consumption lay ahead.[4]  --  Meanwhile, in an unusual article, the Washington Post on Sunday published an interview with Mohsen Rezai, secretary of Iran's powerful Expediency Council, and former commander of the Revolutionary Guards, who "rarely speaks to foreign reporters — especially Americans."[5]  --  "[N]ew noises are clearly coming from Tehran.  Washington should listen," wrote Michael Hirsh of Newsweek....


1.

Comment & analysis

Editorial comment

IRAN'S OIL TROUBLES

Financial Times (UK)
July 1, 2007

http://www.ft.com/cms/s/b34ed3e0-2834-11dc-80da-000b5df10621.html

The sight of Iranians burning petrol stations in protest at petrol rationing might seem like an opportunity for Western governments looking to raise the economic pressure on Tehran. There are already moves in the U.S. Congress to deepen the shortages by limiting Iran's access to fuel: recently proposed legislation would punish companies involved in providing or helping Iran import gasoline by denying them access to U.S. customers. But it would be wrong and probably counterproductive to adopt such sanctions.

That the Iranian government is being forced into petrol rationing, a month after raising petrol prices, is a sign of the grave distortions in the Iranian economy, made worse by maverick President Mahmoud Ahmadinejad's populism. He may well end up paying a heavy political price for his policies -- that is indeed the bet of his domestic opponents. But not all economic weaknesses in Iran lend themselves to facile exploitation by outside forces. Foreign intervention on fuel imports would hurt ordinary Iranians most, allowing Mr. Ahmadinejad to rally political support and successfully deflect the blame for the economic malaise onto outside enemies.

Moves to cut consumption of gasoline were inevitable in a country that has plenty of oil and gas yet is forced to import about 40 per cent of its needs because of a lack of investment in refining capacity. The imported fuel has been given away at hugely subsidized prices, creating a staggering bill and encouraging smuggling.

The protests demonstrate to an Iran­ian public the inability of Mr. Ah­madinejad to follow through with his generous yet often unrealistic promises, even at a time of re­cord oil revenues. True, United Na­tions sanctions over Iran's nu­clear program have targeted re­gime entities, including a bank, while unilateral American measures have discouraged international banks from dealing with Iran, disrupting trade and investment. But its woes are largely the result of its own economic mismanagement.

Mr. Ahmadinejad has been on a spend­ing spree that has bolstered his popular appeal but also pushed up inflation and reduced the revenues that would have accrued in the Oil Stabilization Fund, designed to save for periods of low oil prices. It will not be long before voters are con­vinced that he cannot deliver.

That should not, however, encourage Western governments to move from sanctions that target the regime to broader based measures against fuel imports. Hitting the wrong levers risks strengthening Mr. Ahmadinejad instead of aggravating his vulnerability.

2.

IRAN IN CRISIS AFTER CLERIC'S MURDER
By Marie Colvin

Australian (Source: Sunday Times)
July 2, 2007

http://www.theaustralian.news.com.au/story/0,20867,22000874-2703,00.html

The assassination of a prominent cleric in an oil-rich Iranian province, coinciding with violent protests in Tehran over the rationing of petrol, has plunged President Mahmoud Ahmadinejad into his biggest crisis since he was elected two years ago.

The murder on June 24 of Hesham Saymary in Ahvaz, the center of Iran's oil-producing province in the south, was a blow to a regime that is already under pressure because of international condemnation of its nuclear program and the prospect of economic meltdown.

The assassination, the third of a senior cleric this year, bore the hallmarks of a well-planned murder. According to witnesses, the gunmen waited outside Saymary's house for him to arrive home about 10:00 p.m. They called out to the cleric as he was about to open his door and shot him three times. He died instantly.

There have been other assassinations in Iran, notably in the Kurdish area, in the west near the Iraq border, but the Government is far more concerned about Saymary's death because stability in the province is crucial for its oil revenues.

Saymary was a member of the majority Arab population of Ahvaz, the focus of an Arabist separatist movement that follows the Wahabi sect of Islam, linked to Osama bin Laden.

He may have been targeted because he was a prominent supporter of the regime. Protests that followed shortly afterwards over the rationing of petrol convulsed Iran and its increasingly discontented citizens.

The rationing is particularly damaging to Mr. Ahmadinejad because those worst affected are the constituency that elected him, the poor and disenfranchised.

During his campaign he adopted the slogan: "Oil money must be seen on the table of the people." He increased Iran's public spending budget, and promised dams, streets, stadiums, schools, and hospitals. Few have been built.

His biggest headache is that Iran, awash with crude oil but desperately short of refining capacity, has to import 40 per cent of its petrol.

Faced with U.N. sanctions and pariah status over its nuclear ambitions, the regime lacks the foreign investment it needs to build more refineries.

On the streets of Tehran last week, housewives who are usually apolitical were throwing his slogans back in his face. "We have some of the biggest oil reserves in the world," said Fatima, 38, a mother of five. "Why do I have to worry if I can pick up my children? The President said he would put the oil money on the tables of the poor. It's all lies."

There was chaos last Tuesday when the Government gave just three hours' notice of fuel rationing. Drivers lined up at their local pumps and fought over the last drops of petrol in the face of a limit of 100L a month.

Worse still, the private taxis that carry more than half of Tehran's two million commuters a day were subject to the same restrictions and would have had to raise their fares accordingly, from about 10c to 50c.

Men set petrol stations alight in Tehran and security forces were called in for the first time since Mr. Ahmadinejad was elected. By the week's end, the protests had been stifled, but it was a clear indication of how fractious the population was feeling.

Mr. Ahmadinejad was opposed to the petrol rationing, but was overruled by the Majlis, the Iranian parliament. His objections centered on the timing of its introduction. He wanted stability while facing American plans to engineer regime change, either through military strikes or by a revolution from within.

Little noticed in the media, but keenly watched in Tehran, is the Bush administration's donation of $52 million to Iranian opposition groups. The worry now is that the regime will crack down on domestic freedoms to distract attention from its problems.

"They always do this," a university lecturer said.

Others predict Mr. Ahmadinejad will stand firm. "They bit the bullet," said an Iranian economist. "These guys have the ability to put people on corners with guns. They're not turning back."

--The Sunday Times

3.

Breaking news

International

IRANIAN LEADERS DEFEND FUEL RATIONING
By Ali Akbar Dareini

Associated Press
July 1, 2007

TEHRAN -- Iran's top leaders defended a new fuel rationing plan Saturday that sparked violence earlier this week, saying it will free up funding for development projects and make the country "invincible," state-run television reported.

The government began fuel rationing Wednesday, driving angry Iranians to smash shop windows and set fire to more than a dozen gas stations in the capital Tehran and several other cities.

With armed guards protecting gas stations, the country calmed down the next day, but Iranians have continued to criticize the new measure, prompting Saturday's defense.

"Gasoline (rationing) is among issues that the government decided and implemented bravely," Iran's supreme leader Ayatollah Ali Khamenei was quoted as saying Saturday by state-run television.

Iran is one of the world's biggest oil producers, but it doesn't have enough refineries, so it must import more than 50 percent of the gasoline its people use. [NOTE: The figure usually given is 40%. —R.T.]

The rationing is part of a government attempt to reduce the billions of dollars it spends each year to import fuel that is then sold to Iranian drivers at far less than cost, to keep prices low.

"If this huge amount (spent on imported gasoline) is gradually reduced, definitely it will be spent on people's lives, employment, investment, construction of schools and roads," said Khamenei.

Hard-line President Mahmoud Ahmadinejad said Saturday that reduced reliance on imported gasoline would make the country less vulnerable to international pressure, at a time when Iran is at odds with the West over its nuclear program.

"Enemies have confessed to this important reality that if fuel consumption is contained and reduced, Iran will become invincible," Ahmadinejad was quoted by the broadcast as saying.

But a hike in gas prices last month and now the rationing are feeding discontent with Ahmadinejad, who was elected in 2005 on a platform of helping the poor and bringing oil revenues to every family. His failure to do so has sparked widespread criticism.

Iranians are accustomed to gasoline at rock bottom prices. After a 25 percent hike in prices imposed May 21, gas sells at the equivalent of 38 cents a gallon.

The rationing system allows private drivers only 26 gallons of fuel per month at the subsidized price. Taxis get 211 gallons a month. Anything more than that will have to be bought at a higher price, which officials say will be announced within the next two months.

4.

PRESIDENT SAYS FUEL CONSUMPTION REDUCTION IMPORTANT FOR ECONOMIC REFORMS

IRNA
June 30, 2007

http://www2.irna.com/en/news/view/line-24/0706304996224443.htm

President Mahmoud Ahmadinejad, by referring to [the] extremely high budget the government has to earmark for energy in the country, called [on the] people, experts, and industrialists to provide the ground for reduction of fuel consumption in order to create opportunities for big developments in industry and economics.

In an interview with an Iranian TV channel on Saturday afternoon, the president explained government measures to implement Majlis approval concerning fuel rationing, and said this is a complicated job and [the] Majlis wanted it to be done sooner, because gasoline consumption in the country was increasingly high and [the] country's resources could not allow more imports of the product.

Ahmadinejad went on, "National income from sales of oil, gas, and other oil products is about 50 billion dollars annually, while [the] country's total energy consumption is about 55 billion dollars.

The president said, "By executing fuel rationing, the daily consumption has decreased from 80 million liters to 70 million liters, and we plan to reduce the figure to less than 60 million liters."

He added, "If we can change our automobiles fuel from gasoline to gas during the next 3-4 years, we won't need gasoline anymore.

The president also said, "We will have constructed 550 CNG fuel stations in the country before the end of September and the figure will reach to one thousand before March 20, 2008."

He noted that consumption of CNG in the cars will make the environment cleaner and healthier, too.

5.

Opinions

Outlook

Time for a timeout

IRAN HAS A MESSAGE. ARE WE LISTENING?
By Michael Hirsh

Washington Post
July 1, 2007
Page B01

http://www.washingtonpost.com/wp-dyn/content/article/2007/06/29/AR2007062902318.html

TEHRAN -- I found the general at the end of a winding road in the Alborz Mountains 150 miles north of Tehran. He was sitting placidly at a table laden with cherries, nectarines, and other fruits. A stream flowed nearby. It was a pleasant and pastoral place to discuss an uncomfortable matter: the tension between Iran and the United States, and the looming possibility of war.

The general, Mohsen Rezai, is secretary of Iran's powerful Expediency Council. He's also the former commander of the Revolutionary Guards. He rarely speaks to foreign reporters -- especially Americans. I was surprised when, during a recent visit to Iran, I learned from one of Rezai's aides that he would be willing to meet me at his vacation villa in the mountains.

Given Iran's complex, nearly impenetrable politics, it is difficult to say whether Rezai wanted to deliver a semi-official message, or was freelancing. But it seemed like the former, especially because the government also arranged rare interviews with other senior officials, including Ali Larijani, the main negotiator on Iran's nuclear program.

Rezai's intention was clear: No matter what question I asked, he somehow managed to bring the discussion back to Tehran's need to find its way out of its dangerous stalemate with Washington. President Bush "has started a cold war with Iran, and if it's not controlled, it could turn into a warm war," he said.

Rezai suggested that Iran is searching hard for a face-saving way to end the standoff over its ever-advancing uranium-enrichment program. He endorsed, in a more forthright way than I have heard from any other senior Iranian official, a "timeout" proposed by Mohamed ElBaradei, the director general of the International Atomic Energy Agency. "What it means is for Iran to stay at the [enrichment] level it has reached, with no further progress. By the same token, the U.N. Security Council will not issue another resolution," said Rezai, who indicated that the idea is gaining support inside the Iranian regime. "The Iranian nuclear issue has to be resolved through a new kind of solution like this."

Rezai also suggested that the talks recently begun in Baghdad between Ryan Crocker, the U.S. ambassador to Iraq, and his Iranian counterpart, Hassan Qomi, had taken the edge off the sense of threat felt in Tehran. The talks amounted to a long-overdue acknowledgment by Bush that he must deal with the regime, Rezai contended, sounding pleased.

In his late 60s, Rezai doesn't look as formidable as his résumé. A soft-spoken man of medium height, he commanded the élite Revolutionary Guards during most of the brutal Iran-Iraq war in the 1980s, and he helped lead the Iranian offensives that secured Iraqi territory by the end. ("Iran doesn't succumb," Rezai told me proudly when I asked what might happen if the United States ever attacked.) He was also one of five senior Iranian officials whom an Argentine judge named as suspects late last year in the 1994 bombing of a Jewish community center in Buenos Aires that killed 85 people. (Iran called the charges "baseless.")

Rezai's effort at outreach suggests that the policy of diplomatic coercion being pursued by the United States, Britain, France, and Germany is working, at least to some degree. Iran has grown weary of its economic and political isolation, and senior officials in Tehran remain preoccupied with the possibility of a U.S. military strike. Now Iran is eager to satisfy ElBaradei's demands for further clarity on the illicit history of its program -- so much so that Larijani met twice with him last week.

What is not clear is whether the Bush administration will accept a "timeout," as opposed to a full suspension of Iran's enrichment activities. It also is not clear, despite Rezai's hopes, that Bush has given up on regime change; hence the "presidential finding" Bush recently signed that authorizes the CIA to conduct non-lethal operations to harass the Iranian regime. Having isolated Tehran diplomatically, the Bush administration seems content to simply wait until it "caves."

But my 10-day visit to Iran in late June, mostly spent in Tehran, convinced me that any hopes that Iran will just give up are badly misguided. Yes, the regime is under pressure, but it isn't close to having its back to the wall economically, despite its recent move to ration gasoline, which provoked violent protests. Stores are well stocked, the streets are thronged with shoppers, and flower stores and luxury goods abound, indicating that people in this oil-rich economy still have plenty of disposable income. The U.N. sanctions and the quiet pressure on international banks to cut off business with Iran inflict some pain, but they are generally nuisances and not deal-breakers. And the sanctions are shot full of holes: European businesses do vibrant trade with Iranian counterparts, and Iranians have just shifted their business dealings from dollars to Euros.

Bush's feeble $75 million effort to promote democracy in Iran also is not gaining traction. While much of the Western media in recent weeks have focused on the detention of four Iranian Americans who made the mistake of traveling back to their homeland at a time when the government is even more paranoid than usual about American plots, they scarcely make news in Tehran. Indeed, the Bush program's most notable impact has been giving the regime justification for a new crackdown on dissent.

Even so, the comments by Rezai and Larijani indicate that, with 18 months left in Bush's presidency, Iran may be offering his administration a last chance at a new relationship. At least twice before, the administration has slapped down such overtures. In late 2001, Iran provided invaluable assistance in stabilizing the post-Taliban government led by Hamid Karzai in Afghanistan, pledging $550 million worth of assistance (about the same amount promised by the United States) at a January 2002 donors' conference. A week later, Bush declared Iran part of the "axis of evil" during his second State of the Union address -- a stinging rebuff that Iranians still talk about bitterly. Then, in the spring of 2003, Iranian officials used their regular Swiss intermediary to fax a two-page proposal for comprehensive talks to the State Department, including discussions of a "two-state approach" to the Israeli-Palestinian issue. That, too, was ignored.

The Bush team is in danger of letting the current opening from Iran pass it by as well. The administration doesn't seem to recognize that diplomatic coercion by itself can't work -- not with a country that has turned its nuclear program into a national crusade. And one hears little acknowledgment from senior U.S. officials that the United States and Iran share some critical interests. Secretary of State Condoleezza Rice, in a June 8 roundtable with the Wall Street Journal editorial board, called the U.S.-Iranian relationship "overall rather zero-sum" and confessed that she couldn't figure Iran out. "I think it's a very opaque place, and it's a political system I don't understand very well," she said.

It is this impression of inevitably clashing interests that Rezai was trying hard to dispel. He pointed out that his is the only country that can help Washington control Shiite militias in Iraq, slow the Taliban resurgence in Afghanistan, and tame Hezbollah's still-dangerous presence in Lebanon all at once. "If America pursues a different approach than confronting Iran, our dealings will change fundamentally," he said.

My conversations with hard-liners and reformers inside Tehran also suggested something deeper: that under the right circumstances, Iran may still be willing to stop short of building a bomb. "Iran would like to have the technology, and that is enough for deterrence," says S.M.H. Adeli, Iran's moderate, urbane former ambassador to London.

And what of other overlapping interests? Let's start with Iraq, the one area where Washington does seem to acknowledge it needs Tehran's help, even as the administration continues to accuse Iran of delivering sophisticated makeshift bombs to Iraqi militants. Iraqi Prime Minister Nouri al-Maliki's Shiite-dominated government "is of strategic importance to us," Rezai said. "We want this government to stay in power. Rival Sunni countries oppose Maliki. We haven't." It also stands to reason that in Afghanistan, Lebanon and the new "Hamastan" in Gaza -- all places where Tehran wields enormous influence -- an Iran that is encouraged to play a broader regional security role could become more cooperative.

Of course, the elephant in the room is Iran's toxic relationship with Israel, especially President Mahmoud Ahmadinejad's denial that the Holocaust happened and his threats toward a U.S. ally. But several Iranian officials hinted that Ahmadinejad crossed a red line in Iranian politics when he pushed his rhetoric beyond the official hope that Israel would one day disappear to suggest that Tehran might help that process along. A new Iranian president would rebalance that position, they indicated.

Still, the Iranians themselves recognize that a more dramatic shift in policy is unlikely to happen on Bush's watch. "Mr. Bush's government is stuck at a crossroads" between confrontation and engagement, "and it can't make a decision," Rezai said. "We have a saying in Farsi: When a child walks in darkness, he starts singing or making loud noises because he's afraid of the dark. The Americans are afraid to negotiate with Iran, and that's why they're making a lot of loud noises." Whether or not that's true, new noises are clearly coming from Tehran. Washington should listen.

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Michael Hirsh is a senior editor at Newsweek.