FSO Editorials

THE IRANIAN CYCLE: BOOK TWO
Iran: Land of Controversy and Confusion
by Joe Duarte, MD
Joe-Duarte.com & IntelligentForecasts.com
November 10, 2005

Editor�s note: From May 1, 2004, to July 19, 2004, Dr. Joe Duarte wrote a series of articles on Iran. The collected works titled �The Iranian Cycle� can be found by clicking this link, and paint a picture of a country whose intimate political and religious beliefs, and the interplay between them are at the core of the confusing array of policy that emanates from its capital Tehran.

This article, Iran: Land of Controversy And Confusion, is the continuation of this fascinating story, one of mysterious, cloak and dagger, and unfortunately, real life and very dangerous issues.

In this installment, Dr. Duarte fasts forward the dark conclusions reached in The Iranian Cycle and sets the stage for what may be coming in the near future.

Please read this article before proceeding to the Iranian Cycle, and stay tuned for the next installment: Brewing Crisis In Iran coming soon to FinancialSense.com.

This article appeared on October 31, 2005 on Joe-Duarte.com.

Today�s Analysis - Iran: Controversy And Confusion

A controversial conservative president, a ballooning budget deficit, and a widespread fight against drugs might be associated with the United States. But in fact, these are news items associated with the Islamic Republic of Iran.

On October 27, Iran�s President Mahmoud Ahmadinejad at a conference entitled "the World without Zionism", openly called for Israel's destruction. By October 30, the U.N. had condemned the statement, and Iran had stated that it had no plans to attack Israel.

But on the same day, October 30, he reportedly repeated and further clarified his remarks. According to a posting on the National Council of Resistance of Iran: �In a gathering of the Revolutionary Guards and the para-military Bassij this morning, President Mahmoud Ahmadinejad reiterated that his recent remarks against Israel, which drew international condemnation, had been said before. While threatening Arab and Muslim countries, he said, ["What was new in my remarks was that for 50 years, [the West] has tried to make people recognize the existence of a usurper country. Today, using the withdrawal from Gaza Strip as an excuse, they are trying to coerce other nations to break the taboo of recognizing this usurper regime. The Islamic Ummah (nation) will stand up to this effort."]

Also on October 30, according to Iran Focus: �Iran�s Ministry of Education announced on Sunday that 20 million students in primary and secondary schools across the country will chant [�Death to America�] on Wednesday to mark the anniversary of the seizure of the United States embassy in Tehran on November 4, 1979.�

On the surface, this looks as if Iran is turning back to the clock. But beneath the surface, there is more to this story, as several factors suggest that all is not as it should be in a country whose government places religion above all else.

Budget Deficit Balloons

Iran�s budget deficit grew by 70%, according to recent estimates. According to Iran Focus.com: �There has been a whopping 69 percent increase in Iran�s state budget deficit during the current year, according to an official government report. The report was based on estimates for the current Iranian calendar year, ending March 20, and the figure was expected to rise even further by the end of the year, the semi-official daily Jomhouri Islami wrote on Saturday. The sharp surge in the country�s annual deficit means that in the currently year the government will be lagging more than 71 trillion Rials � approximately 7.1 billion dollars. Last year, the state deficit figures were considerably lower, standing at 42 trillion Rials.�

What makes this an interesting figure is that �The widening deficit comes despite a large increase in revenue as a result of high oil prices on the international markets. �

Stock Market Tumbles

There are significant signs of a complete lack of confidence in the government from economic and financial circles. Iran Focus reported: �Hard-line President Mahmoud Ahmadinejad, who took office in August, had promised that he would reduce state deficit and work to increase the national turnover as president. But the rising tensions in Iran�s external relations since the hard-liners� power sweep in June have had a markedly negative impact on the economy. The Tehran Stock Exchange (TSE) has been badly affected, dropping 20 percent since Ahmadinejad�s election in June. Some experts have put the value of capital flight since June at a staggering 200 billion dollars.�

Capital Flight Reported

$700 billion have left Iran since 1980, and it�s getting worse, as government officials and even clergymen are reportedly preparing for the day when they have to flee the country.

Starting in June, 2005, reports surfaced that the wealthy in Iran were having major concerns about the new president. And by October, reports of significant amounts of capital flight were appearing in reliable sources.

According to Geostrategy Direct, in a report by Bill Gertz: �Iran might be talking tough, but the word on the streets of Teheran is that prominent Iranians are running scared. Iranian businessmen are smuggling their assets out of the country, fearful of a U.S. attack that would topple the Iranian regime.�

According to Gertz: �Iranian officials report a massive outflow of capital, much of it to Central Asia and the Gulf. Iranians are emptying their bank accounts and establishing companies for the day when they need to flee their homeland because of an economic collapse or U.S. invasion. The figures being reported by Iranian regime officials are astounding. In September, Hashemi Shahraudi, director of the Higher Judiciary Council in Teheran, said Iranians have sent $700 billion abroad since 1980. Shahraudi said the capital flight has turned from a trickle to a flood over the past year.�

Gertz continued, suggesting that there is a growing consensus which marks a complete lack of confidence in the Iranian government and economy. �The picture presented by Shahraudi and other officials portray an Iranian businessman without any trust in the regime. Iranians have established more than 10,000 companies in the UAE port of Dubai. Thousands of other companies have been established in neighboring Azerbaijan, Armenia and Turkey.�

The Iranian government is in full attack and damage control mode. �Already, Teheran has ordered government-owned banks to ban loans of more than 300 million riyals, or about $45,000. Teheran's fear is that private companies will borrow from banks to buy dollars and euros. Iranian businessmen are willing to invest in their native country only when Teheran pledges not to impose its laws. So, 3,500 Iranian companies operate in so-called free trade zones on the islands of Kish and Qeshm in the Gulf. In all of Iran, 18,000 private companies are registered with the Finance Ministry for tax purposes. Officials acknowledge that a key reason many others refuse to register their businesses is fear of government expropriation.�

Here is the kicker. �What officials don't say is that senior members of the Teheran regime own many of these offshore and foreign-based companies. Indeed, the trend seen by Iranian and foreign sources is that senior Iranian officials, regime figures and even clergy are preparing a nest egg abroad just in case.

Al Qaeda Roams Freely In Iran

The 9/11 Commission acknowledged that prior to 9/11, several of the suicide highjackers passed through Iran. There have been numerous reports that suggest a potential linkage between elements in Iran�s elite military corps, the Republican Guard, and Al-Qaeda, as well as other groups labeled as terrorists, including Hezbollah.

But, there is more recent information along those lines. According to Stratfor.com: in an article that �will be published in Cicero's November issue, cites unidentified Western intelligence sources as claiming that the free-ranging jihadists hail from Egypt, Uzbekistan, Saudi Arabia and Europe. The 25 reportedly include three sons of Osama bin Laden -- Saad, Mohammad and Othman -- along with al Qaeda spokesman Suleiman Abu Ghaith. Reportedly, the al Qaeda members are living in houses owned by the country's elite military unit, the Islamic Revolutionary Guard Corps, which also is providing them with logistical assistance and military training. Cicero quotes one intelligence source as saying, ["This is not incarceration or house arrest," because "they can move around as they please."]

Stratfor adds: �There have been rumors of an al Qaeda presence in Iran before, but the Cicero report provides perhaps the most detailed descriptions to date. It is the first report to claim that three of bin Laden's sons are sheltering there (rather than just one, Saad), and to name them all. Second, the report makes no mention of Saif al-Adel, the shadowy al Qaeda military chief who, there is reason to believe, has taken refuge in Iran. Nor is there any mention of Ayman al-Zawahiri, who in the past has reported to be present in Iran (though we believe him to be hiding somewhere in Pakistan).�

Iranian Agents Arrested In Baghdad

Iran continues to move into Iraq, likely still fueling the continued insurgency.

According to Iran Focus.com: �Ten Iranian agents have been arrested in Iraq, according to an Iraqi television channel. The agents were arrested along with 88 other insurgents, al-Diyar reported on Thursday, quoting the Iraqi Interior Ministry. The ten Iranians had entered Iraq illegally, the report added. Iraqi officials frequently accuse Tehran of dispatching undercover military or intelligence agents to Iraq disguised as pilgrims.�

The World Tribune.com, on 10-17 reported that Iranian insurgents are steadily infiltrating the Iraqi army: �Officials said the Defense Ministry and Interior Ministry have detected evidence of sustained infiltration in the Iraqi military and police. They said the infiltration was being conducted by both agents linked to Iran as well as the former regime of Saddam Hussein.�

Opium Portal

Iran remains a major opium portal in the Middle East. On October 30, According to London based IranMania.com: Deputy police Commander Colonel Mehdi Zeinali told IRNA that 9.7 kg were confiscated from a house, while 2.1 kg were found in a �suspicious automobile. In Hamedan. The total in the seizure was and �over 11.8 kg of opium total.�

According to the reports: �Two people are arrested and handed to local judicial authorities, he added. Despite its unceasing anti-drug efforts, Iran is still a key route for southwest Asian drugs on their way to lucrative markets in Europe and Persian Gulf countries. Domestic narcotics consumption continues to be a persistent problem with at least two million drug addicts in the country. Some 1.2 million people are addicted to narcotics in Iran while about 800,000 people use drugs occasionally. �

On October 25: �A Police official in Kerman province said that over two tons of illicit drugs were seized throughout the province in the past week, IRNA reported. He added that of the sum 158 kg were morphine. Also, large cache of ammunition were confiscated from the smugglers. �

On October 23: �Police commander in Kermanshah province said that over 51 kg of hashish have been seized throughout province in the past week. Colonel Ahmad Grovand told IRNA that the traffickers were active in provinces of Kermanshah and Khuzestan.�

World Increasingly Concerned

The Egyptians have �distanced� themselves from the Israel comments. And the European Union is struggling with efforts to continue nuclear related discussions with Iran. The U.N.�s nuclear watchdog, the IAEA, recently awarded the Nobel Peace price jointly with its director Mohammed El Baradei, is contemplating the referral of Iran to the U.N.�s Security Council for sanctions with regard to Iran�s nuclear program.

According to Iran Mania.com: Saeed Leylaz, a prominent Iranian analyst noted: ["Little by little and even among conservatives, there is a climate opposed to the government's foreign policy and the dangers to which the country is being exposed,"] warning that ["radical conservatives could be seeking to isolate Iran to preserve their revolutionary values."]

Conclusion

Stratfor.com postulated the following: Mahmoud Ahmadinejad is �relatively young and unpolished, having soared to the presidency directly from the mayoralty of Tehran, on the strength of Supreme Leader Ayatollah Ali Khamenei's endorsement. It is not unusual for Iranian leaders -- especially those rather right-of-center -- to make provocative statements against the United States and Israel, but they are usually adroitly calculated and less brazen in their rhetoric. Thus, it is quite likely that Ahmadinejad crafted his speech to cater to his own hard-line constituency.�

But, if the October 30 report, above, is true, Mr. Ahmadinejad, with his reiteration of his views at yet another forum, suggests that the demise of Israel is becoming a central policy of this government.

When a government decides to start rattling sabers, it�s usually for two reasons. Either it knows something, or it�s trying to divert public attention, inside and outside of its borders, away from a significant set of domestic problems. It�s a classic old ploy, which is also used by the Chinese on a regular basis, and other governments throughout history, especially preceding World War I and World War II.

In Iran�s case, we put forth a laundry list of issues, that when put together make for a compelling case for the government�s use of this old style strategy.

But, that only goes so far. The other likely reason for the sudden increase in anti-Israel, and anti-American rhetoric, is Iraq. Iran wants to make Iraq a satellite country, and the U.S. is in the way, not to mention the fact that the Iraqi people seem to be very interested in running their own country, without Iran or the U.S.

If we boil down the layers of complexity, one thing becomes clear. Iran is heading down a very dangerous path. Unless something dramatic happens, it does not look as if Mr. Ahmadinejad is going to back down. And if recent history is any guide, as in the case of Iraq, U.N. sanctions can be the prelude to war.

In a region where conflict is the rule, not the exception, and where U.S. and other coalition forces are already stationed, the fuse is already lit. If we�re not mistaken, Mr. Ahmadinejad is blowing on that fuse, hoping to make it burn hotter.

© 2005 Joe Duarte, M.D.
Dr. Duarte's Bio and Archive

joe duarteJoe Duarte M.D. is founder and Editor in Chief of Joe-Duarte.com. Dr. Duarte is a board certified anesthesiologist, a registered investment advisor, and President of River Willow Capital Management, where he manages individual client accounts. duarte iqHis latest books "Successful Energy Sector Investing" and "Successful Biotech Investing" (Prima/Random House) are available on line at amazon.com, barnesandnoble.com, borders.com, Traders Press, and all major online and brick and mortar bookstores in the U.S., U.K. Europe, and Australia.

Dr. Joe Duarte's Daily Market I.Q. is a subscriber service that provides daily intelligence, trading strategies, and technical analysis at www.joe-duarte.com.

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