Iran’s economy is set to plunge and the much strained JCPOA with it. But the Islamic Republic will likely remain defiant.
Iran’s announcement on May 8 that it will “partially” withdraw from the Joint Comprehensive Plan of Action (JCPOA) — aka the Iran nuclear deal concluded in 2015 between the Iranians and the P5+1 group — marks yet another step in the landmark accord’s slow death. The demise became inevitable a year ago when President Donald Trump pulled the US out of the agreement and re-imposed onerous sanctions on Iran and its economy.
In announcing his government’s action, President Hassan Rouhani said Iran will cease its sales of enriched uranium, meaning its stocks will begin to exceed set JCPOA limits. He also warned that if the other still-compliant signatories — clearly signaling the Europeans — don’t come up with a mechanism for Iran to recapture the economic benefits of the JCPOA in 60 days, then Tehran will resume production of highly-enriched uranium — likely above the 3.67% level permitted under the accord.
Desperate Gambit to Fight “King Dollar”
Throwing the future of the deal at the feet of the Europeans illustrates the desperation of Iran’s leadership and its economy. Iranian hardliners had always maintained that the JCPOA was a Western plot to undermine the Islamic Revolution, which was all but confirmed by the US withdrawal in 2018. Moderates are at whit’s end to prove them wrong. Bereft of options short of caving to the Americans, they are effectively beseeching, if not begging, the Europeans to save them and the JCPOA.
American sanctions have begun to bite deep into Iran’s economy with oil exports halved even before the May expiration of US waivers — from a high of 3.8 million barrels per day (bpd) at the start of 2018 to 1.1 million bpd by in March 2019. The waivers had been granted to major economic partners and allies of the US still importing Iranian oil, including China, India, South Korea, Japan, Italy, Turkey and others. With the expiration of those waivers, oil exports could now plummet by as much as another 50%. Losses to Iran already reach well into the tens of billions of dollars. Trump’s announcement also on May 8 to impose sanctions on Iran’s mining and minerals sectors, including copper, steel and others, will exact further pain on the country.
Iran’s leadership realizes the futility of fighting “king dollar,” the all-powerful currency in which most of the world’s financial and trade transactions take place. The facts are incontrovertible. The US dollar makes up nearly 62% of all known central bank foreign exchange reserves, making it the de facto global currency. According to SWIFT, the payment services company, in 2018, the dollar accounted for 90% of global trade based on the value of letters of credit issued, up from 81% three years earlier. (Even the European Union pays for 80% of its energy imports in dollars.) Any nation, financial institution or company doing business in dollars or with the US risks an effective death sentence in defying American sanctions.
But Iran’s gambit of dumping the problem on the Europeans effectively amounts to blackmail: You fix this or we’re gone. Read: we are helpless and you must help us or else. Yet the Europeans have already sought financial work-arounds to US sanctions — China made a futile attempt as well — but to little effect. Supplanting the dollar, which has been the global currency since the end of World War II, may be possible, but it would take extraordinary efforts and much time. Iran’s economy, now in a steep nosedive — from negative 3.9% last year to an estimated minus 6% in 2019 — doesn’t have time.
Iran’s Own Doing
The European signatories of the JCPOA — Britain, France, Germany and the EU — quickly rejected Iran’s hapless “ultimatum.” First, Europe recognizes the Islamic Republic’s vain attempt to drive a wider wedge between themselves and the US. Europe’s economic and strategic ties to the US, frayed though they may be in the era of Donald Trump, are simply too strong. Second, despite the Trump administration’s ill-considered withdrawal from the agreement, many of its justifications for doing so ring true.
Iran’s continued testing of intermediate-range ballistic missiles, backing for terrorist organizations like Hezbollah and Hamas, support for the brutal Syrian regime and the Houthi rebels in Yemen, interference in the internal affairs of regional nations like Iraq and Lebanon, threatening harangues against Israel and Saudi Arabia, and abysmal human rights record are all self-inflicted wounds, which the Europeans recognize and cannot fix. Only Iran’s ruling clique of clerics and toady henchmen, the Islamic Revolutionary Guard Corps, can right these and other wrongs.
Trump’s decisions — driven by hardliner Secretary of State Mike Pompeo and uber-hardliner National Security Adviser John Bolton — unfortunately play right into the hands of those same Iranian hardliners who complained all along of the JCPOA sell-out to the West. They and their master, the supreme leader, Ayatollah Ali Khamenei, have no intention of reversing the course of the revolution. They would rather see the economy tank first and with it the enormous potential and aspirations of the Middle East’s most capable population.
Exit JCPOA but Not the Islamic Revolution
Nevertheless, the capacity of Iranians for suffering, undergirded by Shia Islam’s martyr ethos, will suffer through this, just as they did for the 35 years prior to the JCPOA. And just as it did during that time, the leadership will blame all the woes of its own theocratic mismanagement and corruption on the “Great Satan,” aka the US. It will likely work again, sadly.
Iran may hold on to the JCPOA till 2020 in a false hope of change in US policy following the presidential election. But President Trump’s defeat is not assured — certainly not in the glow of America’s vibrant economy and low unemployment rate, two drivers in any election. Moreover, even a winning Democratic candidate would be loath to re-enter the JCPOA without changes. Such a candidate would wisely seek to avoid the division sparked by Barack Obama’s acceptance of the accord in the face of fierce resistance not only from the Republicans, but also many Democrats. A Democratic president would insist on Iran meeting conditions substantially higher than the current JCPOA stipulates before signing back on.
The JCPOA was always about the US and Iran. Including the other global economic powers was a solid strategy. But, in the end, it was always about the US and the long reach of its economic power embodied in the dollar. So, without the US, the JCPOA withers. Iran and the rest of the world revert to the pre-comprehensive sanctions period preceding 2007. History repeats itself and Iranians ultimately pay the price. The Islamic Revolution, crippled as it may be, blunders on.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.