Abstract
The two-fold underlying fundamental tension between Iran, on the one hand, and
the US and key UN
Security Council members on the other, over Iran’s
nuclear enrichment programme, combined with its
aggressive stance towards
Israel, remained essentially unchanged during the course of last quarter.
A
letter of congratulations sent by Iran’s President Mahmoud
Ahmedinejad to then president-elect Barack
Obama in the wake of the
latter’s decisive electoral victory in early November raised the
possibility of a
rapprochement between Iran and the US. However, the
Iranian government is not co-operating with the
international community in
relation to the development of its own nuclear industry.
While it is not
our core scenario, a military conflict in the Gulf would send serious
shockwaves across the
globe. In a political sense, any attack would
destabilise the fragile Middle East, and potentially cause a
deep power
split in the region between pro-US and pro-Iran governments, which could
potentially hamper
regional stability in years to come. Furthermore, on an
economic level, Iran remains a vital oil and gas
producer – the
fourth largest in the world for both resources – and any attack on the
country would be
disastrous for global oil markets.
In terms of its
defence industry, Iran has the capability to supply its own armed forces, and
many other
armed groups, with significant amounts of a variety of military
hardware. While state investment in the
Iranian defence industry remains
almost unheard of, given a range of international sanctions, non-state
actors do not face the same restrictions. This became apparent in the types of
weapons being used by
Hizbullah during the recent conflict with
Israel.
International sanctions and the global economic slowdown, in
addition to lower oil prices and elevated
inflation levels, will conspire
to slow economic growth over the forecast period, from 4.9% in 2008-2009,
to 3.6% in 2013-2014. In addition, the ongoing stand-off between Iran and the
West over the former' s
nuclear programme will continue to have negative
implications for foreign investment. However, from
January 2009 a new US
president has taken over from George Bush and relations with Iran could
feasibly
take a turn for the better. In this scenario, the Islamic
Republic could emerge from relative economic
isolation, resulting in
upside risks to our growth projections.
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