Weekly actual topics in Azerbaijan (June 16 - 21)

Analysis Materials 23 July 2012 11:49 (UTC +04:00)

Azerbaijani manat gains confidence

The fall of the dollar and the euro rates does not provoke panic among the Azerbaijani population. It became clear long ago how to keep savings.

According to the Azerbaijani Central Bank, as of June 1, about 56.4 percent of the Azerbaijani population's deposits in local banks were placed in the national currency, while the rest were in free convertible currency.

The imbalance of the economies of U.S. and euro zone weakens the positions of the two world currencies, while disappointing forecasts of influential Western experts on the fate of the dollar and the euro arouse even greater confidence in their own currency. Today one can say with confidence about sufficient high reliability of the national currency - manat. It will definitely rise compared to the dollar and the euro.

Besides external factors, such an internal factor as a positive foreign trade balance of the country contributes to strengthening manat. It reached $8.25 billion during the first half of 2012. The greater the volume of exports, the higher the exporting countries' demand for domestic currency to pay their costs for production of goods or services they supply to the world market and, consequently, the rate of the manat will be higher.

The influx of dollar revenue from selling export oil at world prices higher than that in the state budget, as well as the flow of foreign capital invested in fixed assets in the country continue.

However, the overly abundant strengthening of the official exchange rate of national currency compared to foreign currencies is fraught with consequences for the country's economy. Thus, the Azerbaijani Central Bank carried out a monetary sterilization to the amount of $639 million in the first half of 2012 to maintain the stability of manat in terms of large balance of payment. As a result, the rate of manat compared to the U.S. dollar during the period increased by 0.11 percent.

It is known that the rates of strengthening the national currency compare to the U.S. dollar during the year must not exceed 5-6 percent, as the excess of this figure represent a danger to the economy as a whole, in particular foreign exchange reserves, and bank depositors because about 43.6 percent of deposits of Azerbaijani population have been placed in freely convertible currency.

Strong strengthening of manat is disadvantageous to Azerbaijan as this hits the national production, reduces the competitiveness of domestic products abroad and worsens the position of sectors oriented to domestic demand. This does not correspond to the non-oil sector development strategy. But at the same time, the steady decline of manat rate deprived the country's economy of the stimulus to the savings required for investments. Therefore, one thing remains. It is to ensure the stability of the manat.

Strait of Hormuz: Repetition of the past

After a relative lull, when three rounds of talks between Iran and the "six powers" on its nuclear program were held with a short interval, the situation exacerbated again.

A number of oil fields is closed, extraction and exports of oil are falling in Iran, weakening of the national currency has increased prices of goods and food due to sanctions imposed on it, such allies as the regime of Bashar Assad is in a bad condition, and in addition the charges of organizing terrorist acts in Bourgas also sounded against it.

Despite all that Iran continues to resist the sanctions by all means.

In this regard, the closure or threatened closure of the Strait of Hormuz remains one of the most effective countermeasures of Iran.

Article 38 of the UN Convention on the Law of the Sea stipulates that the right of transit passage, which is used by all ships, including warships covers the straits that connect the parts of the high seas or exclusive economic zones and partially or completely cut by the territorial sea of coastal states. It is said that the States, bordering straits, shall not hamper transit passage, or to suspend it.

Nevertheless, a number of Iranian MPs believe that Iran has right to receive payment for the passage of vessels through its territorial waters. They put forward a bill to prohibit the passage of oil tankers of countries that use or support the anti-Iranian sanctions. In particular, it is the United States and European countries. The bill provides 14 preconditions for the opening of the Straits, two of which were made public: the lifting of all sanctions, as well as payment of fee in the amount of 3% of the value of transported oil during the passage through the territory of Iran.

Adoption of such a decision will the situation even more, and its practical application would mean the operation of mining of the Strait with leaving the passage for ships, known only to the Iranian side.

Such a decision by itself worsen the situation even more, and its practical application would mean the operation of mining of the Strait of leaving the passage for ships, known only to the Iranian side. An Islamic Revolution Guard Corps (IRGC) General Mahmoud Fahimi has said Iranian military force has mastered handling, designing and producing mines, and the U.S. Navy will be unable to clear mines and to open the Straits.

The U.S continues to increase its military forces in the region, and, in particular, the components of mine clearance. There are eight minesweepers, MH-53 helicopters for detecting and clearing mines, small self-submerge vessels with remote control in the Gulf of Aden. In September, the U.S. with twenty countries plan to conduct large-scale exercises to clean the offshore area from mines in conditions close to the combat ones.

The events which occurred 25 years ago threaten to occur again. A Kuwaiti tanker, sailing under the U.S flag in the Strait of Hormuz in March-April 1988, and after a short time, and U.S warship USS Samuel B Roberts were blown up by the mines, placed by Iran in the waters of the strait. In response, Praying Mantid operation was conducted, which resulted in the destruction of several Iranian warships.

Chief of Staff of the Iranian Armed Forces Hassan Firouzabadi said that the strait will be closed in case of a threat to Iran's national security. When may such a moment come? Is it possible to avoid it?

Closing the Strait of Hormuz is a "red line" for the U.S that must not be crossed. Iran believing, that the U.S. makes lawless actions toward it, is ready to violate the law in a response.

The situation could lead to the coercive solution. It is impossible even for the United States to completely forecast the consequences. Is each party ready to go further along this way, if it knew in advance that it would suffer big losses?

The only reasonable step for ensuring full transparency of Iran's nuclear program is to find solutions through negotiations.