Iranian banks feel the heat

InsideAbroad

It has been a long time coming, but unmistakable cracks are beginning to appear in the edifice of Iranian President Mahmoud Ahmadinejad's autocratic regime.

Ever since the ayatollahs overthrew the Shah and seized control of the country in the bloody revolution of 1979, the government of the Islamic Republic has owed its survival to a combination of brutal repression and a highly effective security infrastructure controlled by the Revolutionary Guards.

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Most of the country's professional and middle classes were wiped out after Khomeini's takeover, and subsequent attempts by more moderate elements to tone down the revolutionary rhetoric have been repressed. A campaign by the Iranian Reform Movement in 2000 to make the country more democratic and the government more accountable collapsed when its leader was shot in the face by a young religious fanatic.

More recently, Mr Ahmadinejad, a former commander in the Revolutionary Guards, has quashed any hint of dissent, closing newspapers and censoring access to the internet.

Which all makes the recent riots over the introduction of petrol rationing most heartening. Here we have a country that is awash with oil - Iran produces 4.3 million barrels a day and possesses the world's second largest known oil reserves - and yet it cannot provide sufficient quantities of refined material to meet the needs of its 65 million people.

The reason for this ludicrous state of affairs is simple. The regime's insistence on diverting too much of its energy and resources in pursuit of the holy grail of nuclear enrichment, and the subsequent UN economic sanctions that policy has attracted, means the ayatollahs are unable to maintain the oil-refining facilities.

Mr Ahmadinejad, of course, still clings to the fiction that the sanctions have made no impact on the Iranian economy, insisting that they are merely part of a campaign of psychological warfare being waged by the Bush Administration to provoke dissent.

But the reality of Iran's economic condition - inflation is running at 17 per cent and the government has failed to meet any of its growth targets - was brought home to the country's long-suffering populace when the government announced it was rationing petrol to 100 litres a month for each household - the equivalent of two full tanks for the average family car.

For once, the regime was unable to contain the anger of ordinary Iranians, who took to the streets in their tens of thousands to vent their rage. It is estimated that 30 per cent of the nation's petrol stations have been destroyed in the orgy of violence and destruction that swept the country, the worst outbreak of anti-government protests for more than a decade.

However much Mr Ahmadinejad tries to dismiss the effect the sanctions are having, the fact is they have brought the Iranian economy to its knees and will continue to do so, particularly if Britain and America are successful in persuading the UN to toughen them to punish Teheran for refusing to curtail its nuclear enrichment programme.

The UN first imposed sanctions in January, aimed at restricting the development of its nuclear programme. The sanctions were increased in March with a limited freeze on assets and an arms embargo.

There are encouraging signs that the sanctions have thrown the regime into panic. The latest evidence that Mr Ahmadinejad is feeling the heat comes from banking experts advising the UN, who say Teheran has recently ordered the withdrawal of millions of dollars worth of deposits from Iranian-owned banks based in Europe, a pre-emptive move to prevent the funds being frozen by any toughening of UN sanctions.

One official told me this week that the Iranian government had ordered the transfer of "significant cash deposits" to Iran.

British diplomats at the UN want a new resolution that would place tight restrictions on the movement of Iranian aircraft and shipping, as well as freezing the assets of Iranian banks suspected of providing funds for the illicit nuclear programme.

Two banks have already been blacklisted by the US Treasury Department: Bank Saderat, because of its alleged involvement in financing Hizbollah, and Bank Sepah, because it is suspected of providing the finance for the nuclear programme. Another Iranian bank with offices in Europe, Bank Melli, is also under scrutiny by UN and American officials over allegations that it is involved in financing Iran's nuclear programme.

As with imposing petrol rationing, withdrawing funds from Europe to Iran smacks of desperation. "Make no mistake, this is a frantic money transfer operation," explained one official advising the UN. "If Iran withdraws all its funds from these banks, they could fold."

The money retrieved from Europe may help to ease the Iranian government's difficulties in the short term, but it will not be enough to restore its reputation for economic competence.

Which is good news for those who believe that regime chan