The Pandemic Depression
The Global Economy Will Never Be the Same
Just five years ago, it looked as though Iran and the United States were moving toward more open relations. In 2015, the United States and five other world powers negotiated an agreement that markedly reduced Iran’s capacity to develop nuclear weapons and established the most intrusive nuclear inspection regime in the history of the International Atomic Energy Agency. As a part of that deal, the United States unfroze some Iranian assets and removed some sanctions, allowing Iran to export oil and seek foreign investment to revive its crippled economy.
But the situation abruptly changed in May 2018, when U.S. President Donald Trump unilaterally withdrew from the agreement, even though all U.S. partners to the deal agreed that Iran was in compliance. Trump demanded that Iran eliminate both its civilian and military nuclear programs, halt missile testing and production, and end support for terrorist proxies. He also punished European companies doing business with Iran with secondary sanctions designed to cut them off from U.S. markets.
Since then, events have spiraled in a dangerous direction. In January, the United States assassinated Iranian General Qasem Soleimani, provoking a retaliatory attack on Ain al-Asad airbase in Iraq that injured more than 60 American soldiers. The United States responded by imposing sanctions on Iranian industries and on senior Iranian officials involved in the attack. Then in April, Iranian boats swarmed U.S. naval vessels in the Persian Gulf, eliciting warnings of forceful retaliation by Trump. Iran has also taken steps to increase its enrichment of uranium, activate centrifuges that were mothballed as part of the 2015 agreement, and block access to its nuclear sites.
We do not view Iran’s malevolent actions through rose-colored glasses, and they must be matched by a combination of powerful leverage and diplomacy. But with the nuclear deal no longer a curb on Iran’s aggression, Washington must look for other ways to prevent conflict. The novel coronavirus pandemic offers one such avenue to de-escalate: humanitarian assistance. Iran has been extraordinarily hard hit by the virus, creating an unexpected opportunity for Washington to leverage aid and sanctions relief in exchange for strategic concessions from Tehran. If Washington does not take advantage of this opening, the risk of mutual misunderstanding erupting into violence will continue to increase.
Iran has fared the worst among Middle Eastern countries during the pandemic. As of mid-June, Iran had approximately 200,000 cases of COVID-19 and over 9,500 deaths, although the real numbers may be higher. The pandemic has overwhelmed the country’s health system and left its already reeling economy—plagued by mismanagement, corruption, and U.S.-led sanctions—in a more perilous state: the outbreak has significantly disrupted trade, tourism, and business, and virus-related lockdowns have caused oil prices to decline sharply, eliminating a vital source of revenue for the Iranian government. As a result, unemployment has soared from 10.6 percent in March to above 20.0 percent today, and GDP is predicted to contract by a further six percent in 2020.
To combat the virus’s economic devastation, Tehran has requested a $5 billion loan from the International Monetary Fund (IMF), but the Trump administration has blocked it. Making matters worse, most multinational companies and banks have radically reduced or stopped their business with Tehran for fear of being sanctioned by the United States.
Rather than stand in the way of recovery, the United States should leverage humanitarian aid to ease tensions and encourage concessions from Iran. The first action the United States can take is to set aside its opposition to the IMF loan. In exchange, the United States should require Iran to ensure that its proxies join the Saudi-declared ceasefire in Yemen, which would enable the delivery of vital aid, end a humanitarian disaster, and reduce tensions between Saudi Arabia and Iran. Approving the IMF loan would have the added benefit of undercutting Iran’s Islamic Revolutionary Guard Corps, which has been supplying Iranian health systems with medical equipment and blaming U.S. sanctions for shortages of the same, boosting its popularity at the United States’ expense.
The United States should leverage humanitarian aid to ease tensions and encourage concessions from Iran.
In addition to unlocking funds from the IMF, the United States should encourage the UN secretary-general to propose removing preconditions for aid to virus-affected countries—including Iran. The U.S. Treasury Department’s sanctions unit could signal its support for this initiative by providing a fast-track assurance that efforts by the secretary-general will not be blocked by U.S. red tape. In return, Washington could press Iran to stop exceeding the limits of the 2015 nuclear agreement, roll back its uranium enrichment measures, and cooperate fully with nuclear inspections. Iran has already signaled that it is open to taking these steps in exchange for sanctions relief, but heightened tensions with Washington have given little incentive for either side to move forward.
By opening the door with humanitarian-related assistance and following with other confidence-building measures—such as continuing the exchanges of prisoners—the United States might be able to push Tehran to decrease military aggression in disputed regions. One such area of conflict is the Persian Gulf, where the United States and other countries have long accused Iran of attacking tankers. The United States should leverage its humanitarian assistance and sanctions on the trade of medical necessities to press Iran to cease its attacks on tankers, interference with GPS signals, and harassment of U.S. ships. To prevent further misunderstandings from spiraling into conflict, Iran and the United States should also establish a military hotline. Such a direct communications channel, with a neighboring country such as Oman serving as an intermediary, would allow for fast action in a moment of crisis and the building of trust and understanding over time.
The United States’ leverage with its allies and competitors evaporated when Trump withdrew from the nuclear deal.
The United States’ humanitarian actions will go only so far with Iran; further steps to de-escalate tensions may necessitate the support of U.S. allies—which in turn may require the United States to make concessions of its own. Just consider the UN embargo on Iran’s purchase and sale of conventional arms, which is set to expire in October. The Trump administration and Congress are seeking to extend this embargo, which will require the approval of the UN Security Council. But that approval is far from guaranteed, because the United States’ leverage with its allies and competitors on the Security Council evaporated when Trump withdrew from the nuclear deal. To extend the arms embargo, the United States will have to give something to Europeans nations, Russia, and China—perhaps removing some secondary sanctions against their companies and getting Iran to roll back its recent violations of the original terms of the nuclear agreement as a precursor to its full compliance. Although such a package would not amount to a full restoration of the nuclear agreement, it might extend part of the embargo on sophisticated weapons, prevent Iran from further violations of the nuclear deal, and support the European, Russian, and Chinese efforts to block Iran from acquiring nuclear weapons.
A combination of humanitarian and other confidence-building measures, implemented in stages, can lay the groundwork for de-escalating the conflict with Iran. Such measures might even help bring the United States and Iran back to the negotiating table to improve and extend the nuclear deal. But even if they don’t, easing the economic and humanitarian crisis in Iran will leave both countries better off by helping slow the spread of the coronavirus and smoothing the path toward more cooperation in the future. If any progress is to be made, Tehran and Washington must both set aside their pride and cooperate. The alternative—increased tensions and reciprocal military jabs—will only make the pandemic worse and an unintended and perilous war more likely.
Stop Strangling Iran While It Fights the Pandemic