07 Aug 2018 19:39 IST

Iran’s recent struggles are only likely to worsen

US sanctions kicking in today, and another round in November, will deliver a body blow to its economy

In March, I had written about how volatile the West Asian countries had become. This was before President Trump’s announcement in May that the United States was withdrawing from the P5+1 JCPOA, also called the Iran Nuclear Deal, and was imposing sanctions on Iran. These sanctions are set to start today, August 7, and a second round of even tougher sanctions on November 5.

President Trump has been consistently critical of the Iran Nuclear Deal, criticising it throughout his campaign. The deal, which was agreed to by the Obama administration along with the four other permanent members of the United Nations Security Council — China, France, Russia, United Kingdom — and Germany, called the P5+1 nations, had the full support of the European Union.

The agreement was a classic “cash for promise-of-future-good-behaviour” deal. Iran would agree to not pursue a nuclear weapons program by systematically eliminating its uranium stockpile and not build any new facilities to process uranium. In return, Iran would recover approximately $100 billion of its assets frozen in overseas banks.

Market access

The EU saw the deal largely as a potential market to expand access and lift its ailing economy after years of poor growth following the Great Recession of the last decade and the financial excesses of the PIIGS countries. The big three of the EU — Germany, France and the UK — had a huge incentive, in particular, to sell to Iran, being geopolitically closer to the Persian nation, and not in as adversarial a position as the US, which has not had an embassy in Iran in nearly 40 years. All US diplomatic business in Iran, to the extent that there is any business at all, continues to be handled through the Swiss embassy in Tehran.

On the other hand, sceptics of the deal were concerned that it went too soft on Iran. Nothing really prevented Iran from pursuing a weapons programme after ten years. Worse, Iran could use the cash not to bolster its economy but meddle in the affairs of neighbouring nations. President Trump, in particular, saw little benefit to his “Make America Great Again” vision. US companies don’t do much business in Iran to begin with, so withdrawing from the deal wouldn’t hurt American enterprise. To Trump, Iran’s continued meddling complicated diplomatic and security matters in many nations.

And Iran has indeed been active outside of its borders, extending its influence in the region. Its militias are a constant presence in Iraq. The Iraqi army regularly strategises and executes attacks on dissidents and terrorists by coordinating with generals of the Iran Revolutionary Guard. Iran is a critically huge presence in Syria, having helped Bashar al-Assad hold on to power by supplying Hezbollah fighters from Lebanon, a country that is already under heavy Iranian influence. Yemen’s civil war is now in its third year. The fighting sides are propped up by Iran and Saudi Arabia.

So intense has Iran been in its interference that both Israel’s PM Netanyahu and the Saudi Prince have compared Iran’s moves to that of Hitler — a rare time when the two sworn enemies agree on one thing, the power of a third enemy.

EU reaction

When Trump decided to unilaterally withdraw from the Iran Nuclear Deal in May, the long-established rules-based international order, which has been the foundation of such complex agreements, cratered towards a collapse, infuriating liberal nation states. After all, Trump had already delivered a massive body blow to this order when he had withdrawn the previous year from the Paris climate accord and Trans Pacific Partnership.

The reaction of the EU nations was immediate. They cried foul saying that the US had no moral authority to withdraw from an agreement which had taken nearly three years to put together. They couldn’t hold the US accountable under international law, because the deal was never ratified by the US senate as a treaty. Executive orders signed by presidents can be overturned by the next president.

When EU criticism didn’t move Trump an inch and actually emboldened him, the EU nations huddled with the remaining parties and Iran to save the deal. Iran was massively in favour of this move because it had too much to lose. The EU’s strategy of ploughing ahead without the US backfired badly because it did not appreciate the sheer strength of US economic sanctions.

Impact of sanctions

Consider this. The first round of sanctions is set to be activated on Tuesday. But the mere threat of sanctions in the last three months has hit the Iranian economy hard. Its rial has fallen in value by over 50 per cent. The price of most imported products has virtually doubled. Real incomes have fallen by more than 60 per cent. Traditional jobs in the export sector are drying up.

Iran’s economy is about the size of the US state of Maryland’s. In the second round of sanctions which will be enacted in November — which will include restrictions on Iran’s huge oil and gas exports — the US Treasury will ban foreign companies which trade with Iran from doing business with the US.

Why would a big German company like Siemens do business in Iran if, as a consequence, it is forced to shutter its business in all of America? Indeed, in an interview to CNN in May, Joe Kaeser, the chief executive of Siemens, said the company would stop all new deals in Iran. “We are a global company. We have interest and values and we have to balance both,” said Kaeser.

John Bolton, the US National Security Advisor, said in TV interviews this week that the sanctions were designed to hurt the Iranian regime and force it to change behaviour. He went to extreme lengths to assert that the sanctions were not designed to hurt the people of Iran — although, clearly, it is Iran’s people that are being impacted.

What he left unsaid was that there is a desire on the part of the Trump administration to engineer public acrimony towards the Iranian government, acrimony that is strong enough to bring about regime change, as during the Arab Spring of 2011, when multiple nations ousted their leaders.

If there’s one lesson in all of this, it is that the US, the only remaining superpower, can become exceedingly dangerous to confront if it decides to flex its muscle. Meanwhile, in Pyongyang, 6,300 km away, the North Koreans know what will happen to them if they violate the spirit and the terms of the historic Singapore meeting between Chairman Kim and President Trump.

Interesting global times are definitely ahead.