The Pandemic Depression
The Global Economy Will Never Be the Same
Just before the novel coronavirus pandemic struck, the United States and Iran appeared to be set on a collision course. COVID-19 quickly displaced such concerns from international headlines. But as the world prepares for further outbreaks of the disease in the months ahead, it should similarly brace for tensions between the United States and Iran to flare up again. Domestic political dynamics in the two countries risk fueling a cycle of escalation. Each side is digging in and making decisions based on flawed assumptions. Meanwhile, the odds of a diplomatic resolution dwindle by the day.
The administration of U.S. President Donald Trump fundamentally miscalculated when it abandoned the Iran nuclear deal two years ago and opted for a policy of “maximum pressure.” The bet was that sanctions on Iranian oil exports would compel Tehran to come to the negotiating table, where it would agree to far-reaching concessions on its nuclear program and end its aggressive policies in the region.
The strategy backfired badly. Instead of capitulating, Iran responded with a policy it called “maximum resistance.” It has ramped up its nuclear program, slashing its breakout time—the window required to advance its nuclear program to weapons production—from at least a year under the agreement to as little as about three months today.
Iran attacked oil shipping and infrastructure in the region, roiling energy markets last year. It downed a U.S. drone, and Iranian-backed militias launched rocket attacks against American troops stationed in Iraq. An American defense contractor was killed in such an attack, which led the Trump administration to target Iranian Major General Qasem Soleimani with an airstrike. Iran responded with a missile salvo that injured dozens of U.S. service members.
Tensions between the two sides have ratcheted up—and the Trump administration has found itself largely alone.
Tensions between the two sides ratcheted up—and the Trump administration found itself largely alone. The previous administration of President Barack Obama had assembled a broad coalition to successfully pressure Iran. That coalition is now in tatters. Today, even the closest American allies in Europe regularly voice their disapproval of U.S. policy.
Instead of trying to salvage a modicum of international support, the Trump administration is doubling down on its efforts to destroy the last vestiges of the nuclear deal, alienating the United States’ erstwhile partners even further. It has gone so far as to take the self-defeating step of revoking sanctions waivers, which it previously argued were necessary to advance U.S. nonproliferation objectives.
The Trump administration has added insult to injury by employing a controversial legal argument to seek an extension of a UN arms embargo on Iran that is set to expire in October under the terms of the nuclear deal. The United States’ major European allies agree that there is merit in extending the embargo. But the Trump administration has irritated them by threatening to invoke a “snap back” provision of UN Security Council Resolution 2231, which enshrined the nuclear deal; the provision would force the reimposition of all UN sanctions and restrictions on Iran that were to be lifted as part of the 2015 agreement, including the arms embargo and many other provisions. Given that it formally withdrew from the deal in 2018, the United States will find it difficult to convince other parties to the agreement to reimpose sanctions, making it even harder to forge international unity.
After more than 40 years without diplomatic relations, the United States and Iran don’t understand each other very well, and between them there is ample room for miscalculation. Neither side much appreciates how its actions may intersect with domestic political currents in the other country, potentially propelling both toward conflict.
The Trump administration believes it has Iran on the ropes. And Iran’s economy is indeed in deep trouble. The IMF reports that Iran’s GDP contracted 7.6 percent in 2019 and will decline another six percent in 2020. But bleak economic statistics don’t tell the full story. Ordinary Iranians may be hurting, but hard-liners in Iran’s ascendant Islamic Revolutionary Guard Corps (IRGC) and their allies are tightening their grip on power. Sanctions may actually be playing into their hands, given their control over the smuggling networks that Iran increasingly relies upon for revenue.
In response to antigovernment protests last fall, the hard-liners brutally killed hundreds of demonstrators. In February, the hard-liners swept the parliamentary elections, which featured record-low turnout. Their sights are now firmly set on the presidential elections next year. Their highest strategic priority, however, is ensuring that the successor to Iran’s 81-year-old supreme leader will preserve the IRGC’s prerogatives.
Iran does not see negotiations with the United States as a prize.
The Trump administration appears to have underestimated the difficulty of restarting talks with Iran after withdrawing from the nuclear agreement. Iran’s hard-liners, including the supreme leader, remain ideologically hostile to the United States. Trump’s penchant for public spectacles such as the Singapore Summit with North Korea are anathema to them. Unlike North Korea, Iran does not see negotiations with the United States as a prize. A government forged in a revolution for which anti-Americanism was a core principle feels more threatened by the perception that it has capitulated to the United States than it does by economic hardship.
Iran’s authorities, too, risk basing policies on costly misreadings of their adversary’s intentions—particularly if they take Trump’s words literally. The U.S. president has promised to end “endless wars” and has often reiterated his desire to withdraw from the Middle East. He has even made repeated overtures to Iran—such as a recent tweet offering “a better deal” before the November election. Tehran takes such gestures as confirmation that its policies are succeeding.
Iran has sought to build leverage by advancing its nuclear program and attacking American partners in the Persian Gulf. It is also keen to avenge the slaying of Soleimani, an impulse that could lead it to contemplate dangerous gambles. Iran does not want war, but it may believe that Trump wants one even less. Iranian authorities may not fully comprehend that Trump can ill afford to look weak before his base, especially during an election year.
Officials in both capitals may assume that they can quickly contain a military skirmish, as they did in January, and perhaps even derive domestic benefit from a limited clash. Some of Trump’s top advisers reportedly advocated military strikes in March to push Iran into negotiations. Such fanciful thinking is dangerous and no substitute for a sober assessment of the situation.
The reality is that the Trump administration appears to lack a diplomatic strategy to halt Iran’s dangerous nuclear progress. And although sanctions have made Iran poorer, the country has escalated its aggression in the region through relatively low-cost operations. The two countries remain on a collision course.
Is there a way out of this morass? Maybe, but only if the United States breaks from its current failed approach.
During the Obama administration, in 2012 and 2013, I played a central role in secret talks with Iran, the result of which was that Iran agreed to constrain and roll back its nuclear program in exchange for limited sanctions relief. This agreement set the stage for the 2015 nuclear deal. Then, as now, pressure was a key component of our approach. But two additional elements also were critical to success and are missing today. The first was that we presented a realistic diplomatic proposal, centering on the recognition that Iran’s most significant threat to U.S. national security was its nuclear program. The second was that the United States had the backing of a largely unified front of major powers.
Now, Iran refuses to talk with the Trump administration so long as U.S. sanctions remain in place. The only remaining diplomatic option is thus to work through an intermediary. French President Emmanuel Macron made progress last year toward brokering a deal. Prime Ministers Shinzo Abe of Japan and Imran Khan of Pakistan have also attempted to mediate. Trump could use these or other intermediaries to convey a proposal for an interim agreement in which Iran rolls back its nuclear advances, ends attacks against American troops and partners, and gains limited sanctions relief.
The only remaining diplomatic option is to work through an intermediary.
Such an agreement would not solve every problem with Iran, nor would it provide Trump with the kind of grand public spectacle he craves, but it could address the most urgent U.S. national security concerns. It could also put valuable time on the clock for broader discussions, which promise to be demanding.
Humanitarian gestures are morally justified and could help lower tensions. Trump should expand sanctions carve-outs for medical exports to help Iran battle COVID-19, as a group of former American and European officials and leaders has urged. Iran and the United States could further build on a recent prisoner exchange to make a broader deal that brings home all Americans held in Iran on bogus charges.
Taking these steps, and aligning them to a diplomatic path forward, would be the sensible thing to do. Unfortunately, neither side is likely to embark on such a course, given the extraordinary level of mutual mistrust and the belief each country holds that its strategy is working. Instead, one should expect tensions between Iran and the United States to simmer—and intermittently boil over—in the months ahead.
Washington Can Trade Humanitarian Relief for Strategic Concession