US Withdrawal from the Iran Nuclear Deal is a Major Mistake
US President Trump announced on the 8th of May 2018 that he is walking away from the 2015 nuclear Iran deal known as the Joint Comprehensive Plan of Action (JCPOA) into which the United States had entered with Iran and the five permanent members of the United Nations Security Council plus Germany (the P5+1) in order to exclude the prospect of Iran developing an indigenous nuclear weapons capability until at least 2028.
But the Trump decision is unlikely to bring about a meaningful improvement in the security situation of the US, Israel, or the Middle East generally, nor significantly damage Iran’s strategic capabilities. However, it changes some of the dynamics with regard to the President’s anticipated summit with North Korean leader Kim Jong-Un.
Source: National Review
The US-Iran disposition
This is a critical element in the options open to North Korea in its negotiations on a proposed agreement to “de-nuclearize” the Korean Peninsula.
President Trump had signalled to Tehran that the accord needed to be upgraded, re-negotiated, or that a supplementary agreement needed to be reached. However, the reason he never offered any new justification for how Iran was violating the nuclear accord is because he has no justification whatsoever. The International Atomic Energy Agency (IAEA) confirmed a week ago that Iran is in compliance of the nuclear deal.
Tehran responded, indirectly, that it was not prepared to re-consider any aspect of the accord, and presumably felt that the European powers could persuade the US President that a “work-around” policy could be developed.
Meanwhile, although there is no immediate evidence that the Trump decision would necessarily lead to an uptick of conflict in the near-term in the Middle East, it is possible that it could allow Iran greater latitude in developing its strategic capabilities, including taking a more open stance on its nuclear weapons programme.
The potential impact
Of significance is the projection that a re-introduction of US sanctions could impact the country’s ability to sell oil on the world market and that this could drive up oil prices.
Contrary to claims by banks and analysts, US sanctions on Iran will hardly impact on Iranian crude oil production and exports. Moreover, their impact on global oil supplies and prices will hardly be noticeable. Three cardinal factors lie behind my assessment.
One, Iran will not lose a single barrel of oil exports. More than 75% of Iran’s oil exports go to China and the Asia-Pacific region while the remaining 25% go mostly to the European Union (EU). China, India and other Asia-Pacific region countries as well as the EU are not going to comply with US sanctions and reduce their imports of Iranian crude. While most major buyers of Iranian crude will continue to do so, Japan, South Korea and a few others might decide to comply with US sanctions and either reduce their imports of Iranian oil or shun them altogether. However, this will be more than offset by increased imports of Iranian oil by China, India and other Asia-Pacific countries as well as the EU.
Second, sanctions before 2015 worked against Iran’s oil exports because of a combination of the EU’s sanctions on global insurance companies insuring Iranian oil cargoes and US sanctions on banking making it difficult for Iran to receive payments for its oil imports in petrodollar. The EU is not going to walk away from the Iran nuclear deal and therefore it will not be imposing any sanctions on Iran thus further weakening US sanctions.
Third, Iran will be using the petro-yuan for payment for its oil exports to China and other Asia-Pacific region, the euro for its exports to the EU and barter trade with countries like Russia and India thus bypassing the petrodollar altogether and nullifying the impact of the sanctions. What is also significant is that the sanctions would almost certainly hasten the use of the petro-yuan in Iran’s oil transactions and also the Russian rubles. And, with the prospect of Saudi Arabia also considering some oil sales in petro-yuan, the end of the total domination of the energy market by the petrodollar is looking increasingly likely after almost a half-century of total domination of the global economy by the US dollar as the global reserve currency. This will strengthen the economies of China and Russia and gradually erode US influence on global markets and adversely impact on the value of the dollar against other international currencies.
And while Saudi Arabia would welcome the opportunity to boost production to offset a so-called decline by Iranian oil exports, other OPEC and non-OPEC members such as Iraq and Russia respectively would like also to share in this benefit. In such a hypothetical situation, Saudi Arabia would have to balance the benefits from increased production against a possible collapse of the OPEC/non-OPEC production cut agreement. The production cut agreement buoyed by positive oil market fundamentals has pushed up oil prices to $80 a barrel. A collapse of the agreement risks bringing back glut to the market with very adverse repercussions for the Saudi economy which suffered most from the 2014 oil price. On balance, I believe Saudi Arabia will not risk the collapse of the production agreement which it worked tirelessly with Russia to bring into existence for a short-term benefit just to score points against Iran and also please President Trump.
The real strategic ramification would be on European corporations being forced in the coming six months to decide whether they wished to continue doing business with the US, or whether they would choose to continue to pursue the commercial opportunities in Iran. This would primarily impact Airbus, as far as the EU companies are concerned, but it would equally hit Boeing in the US. Boeing would have to forego the sale of 110 airliners some of which were being produced for 2018 delivery.
Iranian President Hasan Rouhani, however, said on May 8, 2018, in response to the Trump decision, that Iran would stay in the JCPOA with the other parties to the agreement. The question will be what meaning the JCPOA would have with the US in a position to impose sanctions on Iran which would effectively penalize non-US corporations if they attempted to do business with Iran, regardless of the fact that their domestic laws and their acceptance of the JCPOA permit such trade.
The underlying reality of the entire process — both the JCPOA and the subsequent Trump repudiation of it — was that it did nothing in reality to constrain Iran’s capability of developing and deploying nuclear weapons in the future but it did give Iran and its detractors the opportunity to end a period of mutual hostility which could have paved the way to a serious rapprochement
It could have been an opportunity for the US to seek influence again in Iran, something it has lacked since US President Jimmy Carter deliberately undermined the Shah of Iran in 1978-79. The US had the opportunity to offset some of Russia’s (and, to a degree, China’s) influence in Iran by beginning a process to normalize US-Iranian relations under President Obama. It did not do this under pressure from Israel and the Israeli lobby in Washington.
President Rouhani said, in response to the Trump move, that the U.S. “has never adhered to its commitments”; and there is some justification for that comment, given the history that one US administration will often contradict the commitments of predecessor administrations. President Trump’s decision to withdraw from the JCPOA undermines international agreements.
It is possible that the move will force Turkey further toward cooperation with Iran, thereby hastening US policy decisions as to how to deal with the fact that Turkey has become strategically hostile to the US and NATO. Indeed, events are pushing together mutually suspicious players: Iran, Russia, and Turkey. But there is no opening in any of this for the US.
If we now evaluate the balance sheet of President Trump’s move, we find that the ultimate losers are the United States and its allies in the Gulf particularly Saudi Arabia. The winners are China, Russia and Turkey but the ultimate winner at least in the short-term is Israel.
I would venture to suggest that real reason President Trump killed the Iran deal is to please Israel. The decision by President Trump to walk away from the Iran nuclear deal has the hallmark of having been made in Tel Aviv like the decision to recognize Jerusalem as the capital of Israel.
It is no secret that Israel has been prodding the United States to attack Iran’s nuclear installations thus risking war with Iran. Israel which possesses an estimated 80 nuclear warheads does not want Iran or any Arab country to acquire nuclear weapons as they would pose a threat to its security but it doesn’t mind if its own ownership of nuclear weapons poses a threat to the security of others.
If the major motivations for President Trump’s move seem to include fulfilling a campaign promise to end the JCPOA and introducing a new level of bargaining leverage in his upcoming talks with Kim Jung-Un of North Korea, his withdrawal from the nuclear deal is an eye-opener for North Korea not to trust any future agreement with the United States and also not to relinquish any of its nuclear weapons.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of ESCP Business School.
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