No Stopping Iran’s Economic Rebound

EghtesadOnline: A great deal of noise surrounds the fate of the Iran nuclear deal. It is going to be very difficult to roll back the agreement, announced a year ago. Therefore, it remains to be seen what the administration of US President Donald Trump can do to limit the extent to which Iran benefits from the respite in sanctions.

News ID: ۷۷۳۶۷۹

04 February 2017

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, reads an article published by Geopolitical Futures, a new online publication that analyzes and forecasts the course of global events. Excerpts follow:

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 as though it is trying to renegotiate the nuclear deal. In Iran, President Hassan Rouhani’s opponents 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. Undoing the agreement thus would entail a complex process that all major world powers should agree to follow, Financial Tribune reported.

Rhetoric aside, senior members of the Trump administration, particularly Defense Secretary Gen. James Mattis, do not want to reopen the proverbial Pandora’s box.

Similarly, claims from hawks within Iran’s various power centers are also disingenuous. Those claims are designed to undermine Rouhani, especially ahead of his reelection bid in May.

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

Iran’s Most Notable Geopolitical Development

Reports do suggest that ordinary citizens have yet to benefit from the financial gains of a respite in sanctions. But this is natural because a trickle-down effect takes time to materialize.

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.

During the 1394 Persian calendar year (from March 21, 2015 to March 19, 2016) before sanctions were lifted, Iran’s economy grew at a meager pace of 0.5%. In sharp contrast, economic growth in the six-month period ending on September 20, 2016, was 7.4% (5.4% in the spring and 9.2% in the summer). The bulk of this growth was due to Iran resuming crude exports as oil sector growth totaled 61.3% (55.4% and 67.2% in the first and second quarters, respectively).

Last week, Oil Minister Bijan Namdar Zanganeh announced that Tehran was producing 3.9 million barrels per day, slightly shy of the 4 million bpd mark before the 2012 sanctions went into effect.

In December, Iran secured an exemption from OPEC whereby it did not have to cut production per an agreement that includes members of the organization and non-OPEC producers such as Russia.

Iran has significantly benefited from the easing of sanctions. Because there likely is not a way for sanctions to be reimposed, this trend is expected to continue for the foreseeable future.

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

Building on Gains

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 “burn” the nuclear agreement in response to attempts by the Trump administration to “tear” it. But it is highly unlikely that Tehran will do anything to seriously violate the agreement. Instead, Iran likely will build on gains it has made so far.

Iran was a regional power even under sanctions. However, the 2012 sanctions, which crippled its ability to export oil, created a situation in which Iran had reached the limits of how much it could support its regional allies.

Sanctions also put the country’s domestic stability at risk. At the same time, its regional position was threatened by civil war in Syria.

Getting out from underneath the sanctions was critical to Iran’s national security interests. The agreement allowed Iran to regain the financial bandwidth to play a key role in the region, especially in Iraq and Syria, where it supported allies who staged a comeback. In many ways, Iran has gone from facing threats to trying to exploit opportunities.

Unencumbered by sanctions, Iran’s ability to project power is increasing. It will be expected to better exploit crises in the Arab world. Its economy is improving while its chief regional rival, Saudi Arabia, faces a declining economic situation.

Iran’s net strategic position has long been better than that of Saudi Arabia and this disparity is expected to grow.

The Iran deal [from the US perspective] 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 becomes difficult.

Nuclear weapons or even conventional military capabilities are not the real threat, but rather an Iran on the path toward 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 ensure Iran can be prevented from enhancing its influence in the greater Middle East.