Saturday, May 5, 2018

JCPOA's Uncertainty Exacerbates Iran's Worsening Economic Problems

The Joint Comprehensive Plan of Action (JCPOA) agreement between Iran and the P5+1 was, at the time, widely believed to be a turning point for the Iranian economy, but this has not borne out. Even though it is just one piece of a complex iranian economic situation, the JCPOA is so significant that uncertainty over the fate of the deal has curtailed potential progress. With the shale oil boom keeping the price of petroleum significantly below previous highs, and even minimum budgetary breakeven expectations, Iran’s leading industry is on unsteady ground. The French oil company Total signed a significant oil deal with Iran, but many other firms in the oil industry, and in other sectors, remain hesitant. Boeing and Airbus have committed to major deals, but despite this, Iran’s economic outlook has not improved as expected. Much was made of the stream of foreign trade delegations in Iran following the implementation of the JCPOA, but there has not been a rush to invest in Iran. Substantial geopolitical risks, in addition to pre-existing issues, remain unaddressed, in large part due to uncertainty over the fate of the JCPOA, which faces a considerable test next month.

In May, President Trump will decide whether he wishes to certify Iran’s compliance with the JCPOA under the Iran Nuclear Agreement Review Act, or to refuse to certify, and to withdraw the United States from the accord. He has attempted to be the “anti-Obama” whenever possible - at least rhetorically - but is often hamstrung by either a failure to act decisively, or by the various distractions and domestic and foreign political dilemmas. With pressure on Trump building as the Mueller investigation continues, he will feel increasingly cornered and is likely to lash out in some manner. This is just as likely to be in the form of an angry Twitter rant as in anything substantive, but leaving the Iran Deal remains a realistic possibility. Trump has demonstrated a stubborn persistence on several issues, and the relative ease of an executive decision means there are fewer barriers between him and nullifying the United States’ involvement in the JCPOA, as much for domestic appeasement as over legitimate grievances with the deal.

The Iranian economy has faced a series of hardships in recent years; many self-made. Iran’s ongoing economic mismanagement has led to significant protests - most recently this past winter when nationwide demonstrations rocked the country - but so far such events have lacked any momentum and do not present a serious threat to the government. On April 9th, the Iranian government took a bold - and perhaps desperate - step to halt the slide of the Iranian rial by setting a new “official” exchange rate with the American dollar. At the same time, the government also outlawed the use of any other (black market) rate. Following the 35% drop in value in a week, any further instability would be dangerous for a regime facing an already restive populace.

While alluring as a potentially large and lucrative market, Iran remains as risky, if not more so, than other developing countries. Much of this is due to the uncertainty as to what President Trump may do in May, but other domestic and regional issues, including the IRGC’s influence in important commercial sectors, and the ongoing conflict in Syria, are also important. For firms wishing to invest in Iran’s potentially lucrative modernization, the decision over the JCPOA’s fate will signal either a cautious yellow light, if the deal is upheld, or a steadier red light, if President Trump yet again refuses to certify the accord. Refusal to certify the deal for a third time makes not only American firms, but also European and Asian ones, much more wary of doing business in a country that exposes them to American censure. Congress would be likely to further sanction Iran, increasing barriers to trade and business. Further prolonged uncertainty over the fate of the deal and the implications for the Iranian economy and populace puts additional pressure on an already strained Iranian financial system.

Tuesday, May 1, 2018

Questions about the Iranian Nuclear Weapons Archive

Yesterday, Israeli Prime Minister Benjamin Netanyahu made a dramatic announcement about a daring Israeli intelligence operation to steal over 100,000 documents from a secret Iranian nuclear weapons archive. The documents confirm what we have known for years, and what the IAEA has known since 2011 - that Iran had a nuclear weapons program. Netanyahu did not provide a straight answer on whether Iran continues to have an active nuclear weapons program—something that would clearly violate the JCPOA—or if Iran paused the program at some time. The IAEA has said that Iran's program is not active.

The reaction to Netanyahu's press conference was predictable. Once again, I find myself disappointed as the good questions, the PMD agreement questions, remain an afterthought.

The IAEA, in their report about Iran's PMDs, stated that "all the activities contained in the "Road-map" were implemented in accordance with the agreed schedule". The organization effectively gave a thumbs up to Iran, saying that things are ok from the past, and that we can move forward. The new documents raise questions about what the IAEA okayed, what they knew about Iran's nuclear weapons research, and what the separate agreements referenced in the Road-map include. Did the IAEA agree to let Iran store its previous work? Was the IAEA aware that work had been saved? Did the IAEA order Iran to destroy their research? The PMD report, released in 2015, is very detailed, but without the original documents (from both the IAEA and Iran), it is nearly impossible to compare the report to what Netanyahu revealed yesterday.

While the focus of the JCPOA critics rancor about PMDs has mostly revolved around the Parchin agreement, all of these issues are important, and any obfuscation by Iran and/or the IAEA would be of interest. As I noted in 2015, the IAEA is facing a crisis of confidence; if they cannot be trusted to do their job, what is their utility?

It does not help that many critics are either lazy or deceitful. Then Representative and current Secretary of State Mike Pompeo, along with Senator Tom Cotton, claimed that they had not heard about side deals when they met with IAEA Director-General Yukiya Amano days after the accord was signed. The "Road-map" containing the reference to these side deals is noted explicitly in the text of the JCPOA, and they were all announced and made public on days before this meeting.

There are real and serious questions to ask, but instead, superficial questions, gross insinuations, politicking, and deceptive bombast are all the critics seem able to come up with.