Business monitor international. Iran Defense & Security report

62 Pages·0.647 MB·English

Published by BUSINESS MONITOR INTERNATIONAL LTD
Iran
Defence & Security
4 9
Report Q 200
ISSN: 1749-1444
Including 5-year industry forecasts
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Iran Defence & Security
Report Q4 2009

Including 5-year industry forecasts by BMI

Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Publication date: September 2009

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Iran Defence & Security Report Q4 2009

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Iran Defence & Security Report Q4 2009

CONTENTS
Executive Summary.........................................................................................................................................5
SWOT Analysis.................................................................................................................................................7

Iran Security SWOT...............................................................................................................................................................................................7

Iran Defence Industry SWOT.................................................................................................................................................................................7

Iran Political SWOT..............................................................................................................................................................................................8

Iran Economic SWOT............................................................................................................................................................................................8

Iran Business Environment SWOT.........................................................................................................................................................................9
Political Overview...........................................................................................................................................10

Foreign Policy.....................................................................................................................................................................................................10

Domestic Politics.................................................................................................................................................................................................12
Security Risk Analysis...................................................................................................................................14

BMI’s Security Ratings........................................................................................................................................................................................14

Table: Middle East And Africa Defence And Security Ratings............................................................................................................................14

Table: Middle East And North Africa State Terrorism Vulnerability Index.........................................................................................................15

Iran – Security Risk Ratings.................................................................................................................................................................................15

City Terrorism Rating..........................................................................................................................................................................................17

Table: BMI’s Middle East And North Africa City Terrorism Index.....................................................................................................................18
Middle East And North Africa Security Overview.......................................................................................19
Domestic Security Overview.........................................................................................................................23

MKO....................................................................................................................................................................................................................23

Kurds...................................................................................................................................................................................................................23

Sunni Extremists..................................................................................................................................................................................................23

Latest Developments............................................................................................................................................................................................24
Armed Forces And Government Spending.................................................................................................25

Armed Forces......................................................................................................................................................................................................25

Table: Regional Armed Forces, 2007 (including conscripted).............................................................................................................................25

Current Strength..................................................................................................................................................................................................25

Historical Strength...............................................................................................................................................................................................27

Equipment............................................................................................................................................................................................................27

International Deployments...................................................................................................................................................................................28

Table: Iran’s Foreign Deployments.....................................................................................................................................................................28

Weapons Of Mass Destruction.............................................................................................................................................................................28

Background Brief: Iran’s Nuclear Programme....................................................................................................................................................29

Delivery Vehicles.................................................................................................................................................................................................30
Market Overview.............................................................................................................................................32

Arms Trade Overview..........................................................................................................................................................................................32

Industry Trends And Developments.....................................................................................................................................................................33

Table: Key Players In Iran’s Defence Sector.......................................................................................................................................................34

Procurement Trends And Developments..............................................................................................................................................................36
Industry Forecast Scenario...........................................................................................................................38

Table: Iran’s Defence Sector – Army Size, 2004-2011 (‘000)..............................................................................................................................38

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Table: Iran’s Government Defence Expenditure, 2005-2012...............................................................................................................................39

Key Risks To BMI’s Forecast Scenario................................................................................................................................................................39

Macroeconomic Outlook......................................................................................................................................................................................40

Table: Iran – Economic Activity, 2007-2013.......................................................................................................................................................43
Company Profiles...........................................................................................................................................44

Indigenous Manufacturers........................................................................................................................................................................................44

Defence Industries Organisation (DIO)...............................................................................................................................................................44

Aerospace Industries Organisation (AIO)...........................................................................................................................................................46

Ammunition Industries Group (AMIG)................................................................................................................................................................47

Integrated Electronics Industries (IEI)................................................................................................................................................................48

Foreign Manufacturers.............................................................................................................................................................................................49

China Great Wall Industries Corporation...........................................................................................................................................................49

Sukhoi..................................................................................................................................................................................................................50

Ulan-Ude Aviation Plant.....................................................................................................................................................................................51
Country Snapshot: Iran Demographic Data................................................................................................52

Section 1: Population...........................................................................................................................................................................................52

Table: Demographic Indicators, 2005-2030........................................................................................................................................................52

Table: Rural/Urban Breakdown, 2005-2030.......................................................................................................................................................53

Section 2: Education And Healthcare..................................................................................................................................................................53

Table: Education, 2002-2005..............................................................................................................................................................................53

Table: Vital Statistics, 2005-2030........................................................................................................................................................................53

Section 3: Labour Market And Spending Power..................................................................................................................................................54

Table: Employment Indicators, 1996-2005..........................................................................................................................................................54

Table: Consumer Expenditure, 2000-2012 (US$)................................................................................................................................................55

Table: Average Annual Manufacturing Wages, 2000-2012.................................................................................................................................55
BMI Methodology...........................................................................................................................................56

How We Generate Our Industry Forecasts..........................................................................................................................................................56

Defence Industry..................................................................................................................................................................................................56

City Terrorism Rating..........................................................................................................................................................................................57

Table: Methodology.............................................................................................................................................................................................59

Sources................................................................................................................................................................................................................60

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Iran Defence & Security Report Q4 2009

Executive Summary
Iran is likely to remain stable in the short-to-medium term, although June 2009's disputed elections and
the government's subsequent response has severely dented the latter's legitimacy. Fissures have opened up
within the regime hierarchy, posing risks to long-term political stability.
In the short term, the Iranian government is in little danger of collapse. While the scale of the protests and
the strength of feeling in the aftermath of June's disputed presidential elections appeared to have caught
the regime off guard, at least initially, a robust crackdown by security forces quickly quelled the unrest.
However, recent events could have considerable long-term implications. Indeed, the government's
handling of the election and the subsequent protests could well adversely impact the Islamic Republic's
long-term political stability. As such, we have lowered our long-term political risk rating for Iran from
50.2 to 46.8.
The protests that convulsed Tehran in the fortnight following June 12's polls mainly arose due to
widespread suspicions of vote rigging in favour of the incumbent, President Mahmoud Ahmadinejad.
They were the largest demonstrations of public discontent in Iran since the Islamic Revolution 30 years
ago – the strength of feeling was clear to see. However, while the protestors may have been united over
the perceived injustice of the election, they were by no means united over their desired vision for the
future. For this reason, above all, the protests ran out of steam once the government made a concerted
effort to break them up.
Events of the last several weeks have not only highlighted the deep animosity between the reformists and
conservatives in Iran, but have brought to light significant divisions within the conservative camp as well.
The public airing of these divisions does not bode well for long-term political stability.
One of the consequences of the mass protests in the wake of June's disputed presidential elections and the
subsequent robust crackdown by the security services is that elements within the regime hierarchy have
become far less inhibited when it comes to airing political grievances in public. Of course, this statement
most notably applies to reformists such as defeated candidate Mir-Hossein Mousavi (who as we have
repeatedly pointed out, is by no means a regime outsider, having served as prime minister in the 1980s).
Indeed, Mousavi continues to maintain that the victory of conservative incumbent President Mahmoud
Ahmadinejad is illegitimate, and he recently published a speech on his website that accused the
government of a catalogue of crimes and abuses.
However, hardliners are also becoming increasingly vociferous. Indeed, the decision by Ahmadinejad to
appoint Esfandiar Rahim Mashaie – a relative of the president's by marriage – to first vice-president, has
brought to light considerable differences within the conservative camp. The initial anger among
hardliners at the appointment of Mashaie (whose 'crime' was to say last year that Iran was a friend of the

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Israeli people) was compounded by the fact that Ahmadinejad initially defied Supreme Leader Ayatollah
Ali Khamenei when the latter ordered him to de-select Mashaie. Though Ahmadinejad eventually
relented to Khamenei's authority, the president's behaviour induced Iranian weekly Ya-Lesarat to threaten
to withdraw support for the president if he were to challenge the Supreme Leader again.
In spite of the ongoing political infighting within the top levels of the regime, we do not think that
Ahmadinejad's position as president is under threat. Ahmadinejad was sworn in for a second four-year
term on August 6 and it would take far more than the current controversy over Mashaie for the Supreme
Leader to actively remove him from power. Indeed, despite Ahmadinejad's recent defiance of Khamenei,
the latter likely realises that such a move would only empower the reformists, who themselves claim that
Ahmadinejad stole June's election in the first place.
For Q309, BMI updated the methodology of its Terrorism Rating and expanded it to cover 170 global
cities, as well as 130 states. As before, the Terrorism Rating incorporates our analysts’ qualitative view of
the terrorist threat. However, it also incorporates secondary analysis of data on global terrorist incidents
obtained from the US State Department’s Worldwide Incidents Tracking System, to provide a
quantitative assessment of the risks.

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SWOT Analysis
Iran Security SWOT
Strengths (cid:131) Strategic location between the Middle East and Central Asia, with access to the
Persian Gulf and the Caspian Sea
(cid:131) Rugged terrain along the western borders hinders invasion forces
(cid:131) Chemical and possibly biological weapons are available for defensive purposes

Weaknesses (cid:131) A sophisticated armed force could easily defeat Iran’s under-equipped military
(cid:131) Dominance of Shi’a Islam hinders warm relations with Sunni-dominated countries
such as Syria, Jordan and Kuwait
(cid:131) Poor air force and outdated air defence forces make Iran liable to lose air supremacy

Opportunities (cid:131) With the removal of Saddam Hussein, Iran’s external security has improved for the
time being
(cid:131) There is a possibility of regional dominance in the short term owing to the country’s
size and influence
(cid:131) Funding and support for Shi’a and pro-Iran factions in neighbouring countries could
increase Iranian influence and create a more stable security environment in the long
term

Threats (cid:131) US troops in Iraq and Afghanistan geographically surround Iran
(cid:131) There is a possibility of resurgence of insurgent groups hostile to Iran resident in Iraq
(cid:131) Instability in the Caspian region and Pakistan trouble Iran’s eastern and north-
western borders, presenting the possibility of more widespread violence

Iran Defence Industry SWOT
Strengths (cid:131) Iran’s excellent reverse engineering capabilities and technical innovation has
allowed for the modification of existing weapons platforms
(cid:131) A highly successful missile technology sub-sector exists
(cid:131) Iran has significant military expenditure as a percentage of GDP

Weaknesses (cid:131) Bureaucracy constricts entirely state-run industry
(cid:131) There is little international or multinational involvement

Opportunities (cid:131) Tehran’s long-term aim appears to be self-sufficiency in conventional weapons to
eventually free it from reliance on foreign suppliers
(cid:131) The development of new weapons systems, including an armoured vehicle and
maritime cruise missile, is underway
(cid:131) The potential for international interest in missile and space programmes exists

Threats (cid:131) Insufficient funding will lead to greater disparity between Iranian and overseas
defence industries
(cid:131) The lack of privatisation will continue to stifle the industry
(cid:131) A concentration on high-profile programmes will detract from more essential ground
forces research

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Iran Political SWOT
Strengths (cid:131) Since the overthrow of the Pahlavi family in 1979 there has been some reduction in
the level of political corruption and wealth distribution has improved marginally
(cid:131) The Revolutionary Guard and Basij militia are fiercely loyal to the Supreme Leader,
helping to maintain social stability

Weaknesses (cid:131) The Republic has one of the poorest human rights records in the region and the
authorities do not hesitate to quell dissidents. A number of journalists are being held
in custody
(cid:131) While ultimately decision-making rests with the Supreme Leader, the regime is
heavily fragmented and consensus is hard to reach
(cid:131) Widespread perceptions of electoral fraud during the course of June's presidential
elections have damaged the regime's legitimacy in the eyes of many Iranians

Opportunities (cid:131) The majlis (parliament) is more than just a rubber stamp – the move by 150
parliamentarians (out of 290) to hold the president accountable for his handling of
the economy is a positive indication that checks exist

Threats (cid:131) Ongoing nuclear tensions raise the prospect of further US and UN Security Council
sanctions and the, albeit very limited, possibility of a military strike by the US or
Israel
(cid:131) Ethnic tensions are on the rise
(cid:131) High youth unemployment
(cid:131) The rising influence of the Revolutionary Guards within the political and economic
arena may present a challenge to the status quo over the long term

Iran Economic SWOT
Strengths (cid:131) Iran has the world's second-largest proven oil reserves after Saudi Arabia, and the
world's second-largest proven gas reserves after Russia
(cid:131) Oil and gas aside, the republic is rich in other resources and has a strong
agricultural sector

Weaknesses (cid:131) Local consumption of hydrocarbons is rising rapidly and this, coupled with ageing
technology in the oil and gas sector, will have a negative impact on its oil and gas
exporting capacity
(cid:131) After a concerted effort to reduce public debt in recent years, there are signs that it is
once again rising

Opportunities (cid:131) The gas sector remains underdeveloped and there is considerable room to
maximise this source of revenue

Threats (cid:131) A decline in world oil prices will have a marked impact on the economy. Although an
Oil Stabilisation Fund (OSF) exists to protect the economy at times of weaker oil
prices, it has increasingly been used to fund government overspending and could be
close to empty
(cid:131) A further deterioration in Iran's relations with the international community over its
nuclear programme could result in the imposition of more extensive economic
measures by the UN Security Council or the US
(cid:131) There is a serious risk of capital flight owing to fears of conflict or sanctions

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Iran Business Environment SWOT
Strengths (cid:131) The Foreign Investment Promotion and Protection Act (FIPPA) does give some
protection to foreign investors and now allows relatively good terms for the
repatriation of profits
(cid:131) Although stifled in the years since the Islamic revolution, Iranians have traditionally
been renowned for their entrepreneurial skills, a factor that is potentially a strong
pull for foreign investors

Weaknesses (cid:131) Progress on the privatisation front remains slow, despite some recent encouraging
signs
(cid:131) Foreign firms are currently unable to own Iran's hydrocarbon resources. The
resultant 'buy back' deals offer less advantageous terms than those elsewhere,
limiting hopes of new investment

Opportunities (cid:131) As part of the fourth Five-Year-Development Plan (FYDP) 2005-2009, the
government will end tax and customs concessions currently afforded to the
country's quasi-statal bonyads, or foundations
(cid:131) The government has inaugurated the first phase of an oil swap project with Russia,
Kazakhstan and Turkmenistan. The project will compete with the rival US-backed
pipeline which will run to the Mediterranean from Baku in Azerbaijan, through
Georgia, to Ceyhan in Turkey

Threats (cid:131) UN and EU sanctions on the Islamic Republic pose a significant threat to the
participation of foreign firms in the oil and gas sector
(cid:131) Central bank supervision of charitable funds will be stepped up sharply, after it
emerged that a number of these funds had collapsed due to indiscriminate lending
practices

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