It’s facile to criticize Donald Trump’s ham-fisted diplomacy. The president takes pleasure in declaring trade wars, insulting allies and pulling out of agreements, but doesn’t have the intellectual depth to articulate what he wants to achieve from all this. Perhaps he doesn’t know himself. Trump acts as if the presidency is a reality show writ large and his role is to keep the audience excited.
But vis-à-vis Iran, the president may have a chance of succeeding, if his ugly instincts don’t get the better of him.
Iran is trapped in an economic pincer. One jaw is its moribund economy that has led to street protests, most recently in June. The other jaw is the sanctions re-imposed by Trump, the first of which kick in on August 6. The Iranian regime has no way of extricating itself from the pincer; the only real question is what will result from the squeeze.
Desperate in Tehran
Tehran sometimes talks tough, but the reality is that it’s showing signs of real anxiety. The threat earlier this month to close the Strait of Hormuz, where nearly a third of the world’s oil exports pass, was one sign of its panic. Closing the strait would put Iran at war with the world and just make its problems worse. Firing the central bank governor on Wednesday, as if he was responsible for the 25% depreciation of the rial in the last three months, was another sign of desperation.
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The fact is, Iran has no good choices. President Hassan Rohani’s strategy of reaching a nuclear accord and opening the Iranian economy to trade and foreign investment never really worked, because the Iranian economy is too weighed down by corruption and inefficiency, a banking system teetering on collapse, drought, and the stifling grip of the Revolutionary Guards and religious foundations on business. Trump’s renewed sanctions just hammered the final nail into the coffin.
The alternative Iran’s hardline faction offers, a “resistance economy” that goes it alone, is destined for failure. If Iran can’t generate growth with foreign help, it certainly can’t do it without. Iran’s oil industry, for example, can’t ever hope to maintain production, much less ramp up, without Western technology.
Europe’s strategy of ignoring the U.S. sanctions as much as possible is proving almost impossible to implement. European companies have been pulling out of Iran; even the European Investment Bank, which EU leaders were counting on to mitigate the sanctions by investing in Iran, said this week it doesn’t want to take on the job. All that’s left is a statute that punishes companies for observing a third country’s sanctions, which won't achieve a thing, except maybe to horsewhip some small and medium-sized businesses.
Bellicose in Beijing
What’s left is China, the third of the world’s three great economic engines.
Beijing isn’t the slightest supportive of Trump’s sanctions and is certainly in no mood to be helpful now that it has been Target No. 1 in the president’s trade wars.
But Chinese companies aren’t going to be flocking to Iran, for the simple reason that they don't want to run into America’s secondary sanctions on companies doing business with Iran, any more than European companies do.
China may step up imports of Iranian oil, but that won’t save the Tehran regime’s skin. China is sensible enough not to become too reliant on a country like Iran for critical energy resources, so there is a hard ceiling to how much it will be able to make up for Iran’s lost exports. China also will drive a hard bargain on price, as it has in the past, undercutting Iran’s profits.
In any case, oil exports won’t be enough to keep the Iranian economy from deteriorating even further. Tehran learned that after the sanctions were lifted in the wake of the 2015 nuclear accord: Exports climbed 25% and GDP grew 12.5%, thanks to renewed oil exports. But unemployment remained high and Iran’s non-oil GDP grew a paltry 3.3%.
Oil brings top-line growth, but it doesn’t trickle down to the broader economy as foreign investment or economic reforms would. And without that trickle-down, economic growth is going to continue to stagnate or decline, and ordinary Iranians are going to remain angry and rebellious.
How rebellious is the question of the hour. U.S. Secretary of State Mike Pompeo all but said this week that the U.S. wants regime change: “While it is ultimately up to the Iranian people to determine the direction of their country, the United States ... will support the long-ignored voice of the Iranian people.”
The White House could use the sanctions to bring Tehran back to the bargaining table. And Rohani might be willing to come, because, trapped in the pincer’s jaws, what choice does he have.
But Pompeo included the moderate Rohani and his Foreign Minister Javad Zarif in the same boat as the hard-line mullahs, meaning there is no one in power now Washington will talk to.
America suffers from recurring amnesia on the issue of regime change. Giving a toppling push to a government is the easy part, maybe even easier than winning trade wars, but ensuring the next government to come to power is better (or that there even is a government) is much tougher. The record in recent years hasn’t been very good in places like Libya and Yemen.
Regime change smacks of the same of nihilism that characterizes much else of its foreign policy. Pincers are a useful tool in carpentry, but they are also used as a painful instrument of torture and that seems to be how the Trump team sees them.