Gambles that lie behind the Iran nuclear deal

The many skeptics of the Iran nuclear deal were wrong about the speed of Tehran’s implementation.

The International Atomic Energy Agency (IAEA) confirmed over the weekend that Iran has, in a little over three months, met all the criteria agreed to.

Now sanctions are set to be relaxed, meaning Iran will immediately receive $30 billion of the $100 billion worth of its assets that have been frozen worldwide.

Most of the barriers to Iran connecting with international business are due to come down. While U.S. businesses will still face limits due to ongoing sanctions related to Tehran’s sponsoring of terrorism and human rights abuses, European companies will not.

Iran will have access to the Swift global banking system, reconnecting its economy to the world. Initial sentiments about the deal coming to fruition are highly favorable - Iran’s stock market rose to its highest levels in 18 months on Saturday, as sanctions were due to be lifted.

This is vital for Iran’s government if it is to meet Supreme Leader Ali Khamenei’s goal of the country taking off economically. It aims to grow at a China-like 8 percent per year in the near term.

To achieve this, the government estimates Iran will require $30-$50 billion worth of foreign investment, a mighty hurdle to overcome. However, Iran amounts to just about the last sizable economy that has been cordoned off from international capital. This will prove a powerful enticement for foreign investment.

Domestic politics

However, lying behind this seemingly straightforward story are three desperate behind-the-scenes gambles that the lifting of sanctions sets in motion. First, Iranian parliamentary elections are due to be held by the end of February. Despite retaining Khamenei’s backing, President Hassan Rowhani’s technocratic reformers are a minority in the outgoing parliament.

Without this changing, it will be almost impossible for Rowhani to enact the structural reforms necessary to overhaul the sclerotic economy. He desperately needed sanctions to be lifted as soon as possible, creating a feel-good factor in his upcoming political struggle with conservative forces determined to derail his economic reform agenda.

Washington is betting that Iran’s greater exposure to the world will alter the nature of its regime.

Dr John C Hulsman

The second gamble relates to Iran’s vital energy policy. With the global oil price already down to a mere $29 per barrel, post-sanctions Iran aims to immediately place another 500,000 barrels per day onto the global market. This will exert significant downward pressure on prices, which have already fallen by a dizzying 70 percent from their June 2014 highs.

The obvious danger for Iran of pursuing such a plan is that as the energy industry is the only immediate vehicle for its economic revitalization, further depressing global prices could prove highly counter-productive. Without an oil bonanza occurring due to the end of sanctions, as has been confidently predicted by the government, Rowhani could quickly find himself in political trouble.

U.S. calculations

The final gamble behind the relaxation of sanctions belongs to President Barack Obama and the United States. A 15-year wager that the nature of the Iranian regime is bound to change for the better has begun. The short-term U.S. gain is that the Middle East is no longer on a nuclear hair-trigger.

However, the longer-term bet has yet to be won by either side. Iran hopes to pocket the economic gains it has just made, reform its economy, and grow stronger regionally. After 15 years, it will be under no strictures not to revive its nuclear program. Iran can then do so from a position of economic strength, with the overall character of its government unchanged but more powerful.

Washington is betting that Iran’s greater exposure to the world will alter the nature of its regime, making it a status-quo rather than a revolutionary power in the region. These narratives cannot both be correct. Which one prevails amounts to the greatest gamble of all.

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Dr. John C. Hulsman is the President and Co-Founder of John C. Hulsman Enterprises (www.john-hulsman.com), a successful global political risk consulting firm. An eminent foreign policy expert, John is the senior columnist for City AM, the newspaper of the city of London. Hulsman is a Life Member of the Council on Foreign Relations. The author of all or part of 11 books, Hulsman has given 1500 interviews, written over 510 articles, prepared over 1280 briefings, and delivered more than 470 speeches on foreign policy around the world.

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Last Update: Wednesday, 20 May 2020 KSA 09:49 - GMT 06:49
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