Trump's Sanctions May Save Israel a War in Syria

Iran’s economy is in too desperate a shape to survive another round of sanctions. Cutting off Syria may be one response

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Iranian demonstrators burn representations of the U.S. flag during a protest in front of the former U.S. Embassy in response to President Donald Trump's decision Tuesday to pull out of the nuclear deal and renew sanctions, Tehran, Iran, Wednesday, May 9, 2018.
Anti-U.S. protest in Tehran, May 9, 2018Credit: Vahid Salemi/AP

This time America is going it alone with imposing sanctions against Iran, which has raised doubts about how effective they can be.  Europe has already said it will stick to the nuclear agreement that Trump effectively tore up on Tuesday. China says it’s staying on board, too, as has Russia. Iran, so far at least, says it is prepared to suffer the slap in the face administered by Trump and abide by the agreement, too.

But what does this all mean?

For Iran, it means that it will apparently continue to observe the terms of the Joint Comprehensive Plan of Action, as the 2015 nuclear accord is known, and keep its nuclear ambitions on ice. The inspection regime will remain in place.

For the other signatories to JCPOA, it means they won't be joining America in imposing sanctions against the Iranian economy - formally speaking.

In practice, for most of the world it will come down to a stark choice of “Do I want to do business in America, use dollars and tap the U.S. financial system? Or, do I think there is so much opportunity in Iran that I’m willing to risk being penalized by Washington?”

For most of the world’s leading economies, it’s a no-brainer. An angry U.S. -- and Trump’s America is angrier and more self-interested than ever -- can make the cost of doing business with Iran very expensive.  When the French bank BNP Paribas was found in 2014 violating sanctions against Iran, Cuba and Sudan it was socked with a $9 billion fine.

European leaders are pleading for waivers, and they have a few tools at their disposal to counter the American sanctions, including so-called blocking statues that ban companies from observing American sanctions.  

But why should a big multinational risk getting caught in a legal crossfire between the U.S. and Europe? Iran isn’t worth it.

Thailand has more economic clout

The Islamic Republic’s gross domestic product was about $430 billion last year, putting it behind Thailand and Belgium in the world rankings. It’s not exactly an economic powerhouse that the world can’t sacrifice.

Even in the world oil economy, Iran is not as big a player as you might think. It accounts for only about 4.5% of world exports at a time when there is overcapacity; alone, the Saudis could fill the gap left by a sanctioned Iran.

In any case, Iran never became the next gold rush for world business after the sanctions were mostly lifted in 2016 as part of JCPOA. Airbus and Boeing made multi-billion dollar deals to sell jets to the Islamic Republic, and the French auto makers PSA Group and Renault have joint ventures there. The French energy company Total is developing Iran’s South Pars gas field with the Chinese.

But the list pretty much ends there. No one has much at stake in Iran. Lingering sanctions and Trump’s tough rhetoric on Iran can take some credit for this, but the real problem is that the Iranian economy is not the most attractive place to do business. It may be a market of 80 million people but the regime is corrupt, the Revolutionary Guard Corps is not business-friendly and has the nasty of habit of arresting binationals even after the sanctions were lifted.

But while the world can live without Iran, Iran can’t live without the world.

Snake food

Iran's economy enjoyed a brief surge of growth right after the sanctions were lifted as part of JCPOA because oil exports revived. But the rest of the economy remains in the doldrums. Unemployment is in the double digits, inflation is around10% and will now accelerate because of the depreciating rial, and the banking system is weighed down by bad loans.

Now oil exports, the one thing that kept the economy afloat, are endangered by Trump.

Iran reacted to Trump’s decision with defiance. “This man will turn to dust and his body will become food for snakes and ants, and the Islamic Republic will still be standing,” Supreme Leader Ayatollah Ali Khamenei said the morning after.

But the truth is the other way around. Economically, Iran is toast. In the previous round of sanctions, which only became really serious in 2012, Iran was in a stronger position that it is now, and still the economy shrank in three of the four subsequent years.

Ordinary Iranians have already registered the distress in street protests earlier this year and are telling the government what they think the Iranian currency is worth under the Trump sanctions -- about 25% less than it was before, according to the exchange.  The regime may have no choice but to renegotiate, or face the prospect of Trump’s unspoken agenda of regime change.

Israel has a stake in America’s success.  We can confront Tehran militarily in Syria and -- if the evidence of the last 24 hours is the test -- we can even prevail.

But my guess is that the Iranian Revolutionary Guards won’t concede so quickly: They have too much invested in Syria and Lebanon to give it all up without a good fight. However – an Iran beset by economic woes and an angry populace may not only stage a humbling retreat on JCPOA. It may have to do the same in Syria, which is exactly what Israel wants.