Iran’s Strengthening Economy Is A Threat To The US—Not Nukes

By: John_Mauldin

BY KAMRAN BOKHARI : There is a great deal of noise over the fate of the Iran nuclear deal which we wrote about last year. It is going to be very hard to roll back the agreement announced a year ago. Thus, it’s unclear what Trump can do to limit Iran’s benefits from the respite in sanctions.

The issue is not a nuclear Iran or one with ballistic missile capability, but rather an economy that is improving because of the nuclear deal.

Two Different Tales

On Iran, one comes across two main types of stories, depending from where they originate—Washington or Tehran. In the United States, the newly installed Trump administration appears to be trying to renegotiate the nuclear deal.

Meanwhile, in Iran, President Hassan Rouhani’s opponents—largely from within the clerical and security establishments—continue to claim that the country has not benefited from the nuclear deal.

Reversing the deal would be difficult since it is a multilateral agreement. It would involve a complex process and require consent from all major world powers.

Rhetoric aside, senior members of the Trump administration, particularly Defense Secretary General James Mattis, do not want to reopen the proverbial Pandora’s box. That said, the rhetoric on this issue is useful in shaping Iranian perceptions and keeping them in check.

Likewise, the claims from hawks within Iran’s various power centers also are disingenuous. Those claims are designed to undermine Rouhani, especially ahead of his re-election bid in May.

The Iranian president’s opponents make a number of arguments. The main one is that Iran has not benefited from the nuclear deal because sanctions relief has not led to economic gains, especially for average citizens.

Reports do suggest that ordinary citizens have yet to benefit from the respite in sanctions. But this is natural because a trickle-down effect takes time. The agreement went into effect only a year ago. That said, the Iranian economy has improved, which is the most notable geopolitical development taking place in Iran.

Iran’s Economic Climb

Before sanctions were lifted, Iran’s economy grew at a meager pace of 0.5 percent. In sharp contrast, economic growth in the six-month period ending on September 20, 2016 was 7.4 percent (5.4 percent in the spring and 9.2 percent in the summer).

The bulk of this growth was due to Iran resuming crude exports as oil sector growth totaled 61.3 percent (55.4 percent and 67.2 percent in the first and second quarters, respectively).

In January, Petroleum Minister Bijan Namdar Zanganeh said that Tehran was producing 3.9 million barrels per day (bpd)—slightly shy of the 4 million bpd mark before the 2012 sanctions went into effect.

Iran has significantly benefited from the easing of sanctions. Because there likely is no way for sanctions to be re-imposed, this trend is expected to continue for the foreseeable future.

The Iranians are unlikely to do anything to undermine their current comfortable position.

Iran will cautiously engage in missile tests, which are not part of the agreement and help shape international perceptions.

Iranian officials also will continue to issue tough statements threatening to tear up the deal in response to the Trump administration’s attempts to renegotiate it. But Tehran is highly unlikely to do anything to seriously violate the agreement. Instead, Iran likely will build on gains it has made so far.

Iran’s Influence Is Not in America’s Interests

The Iran deal was part of the American strategy to create a balance of power in the region. With Saudi Arabia weakening and Iran strengthening, maintaining such a balance will be hard.

It is not in the US’ interest for Iran to gain a lot of power. Nuclear weapons or even conventional military capabilities are not the real threat. Rather, the real threat is an Iran on the path to international political and economic rehabilitation.

While the rhetoric from the Trump administration—like its predecessors—invokes the nuclear and missile issues, what Washington is really worried about is how to prevent Iran from enhancing its influence in the greater Middle East.

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