The Iran Deal: Folly, Blunder, or Something Worse?

The United States, and the other countries in the 5+1 group, have reached some sort of agreement with Iran which trades a relaxation in sanctions for some temporary limitations on Iran’s nuclear program.  Most of the discussion has focused on the specifics of this deal, but that is short sighted.  All parties admit that this is just an interim step along the path towards a more permanent settlement.  We need to look forward and try to anticipate where that path will lead.  It is unlikely to lead anywhere good, from an American perspective, and likely to be highly favorable to Iran.

The dynamic will favor Iran because it is easy for them to delay or evade any substantive cutbacks in their efforts to obtain nuclear weapons, and because it will be difficult for Obama to resist Iranian demands.  Look at the protracted and frustrating and largely futile attempt to stop the North Korean nuclear program: Obama’s personal investment in the Iran initiative will make the US even more likely to make concessions in order to keep the process alive.

Other news illustrates exactly how this process works. The Russians have repeatedly violated the Intermediate Range Nuclear Forces Agreement but the administration has refused to make these violations public because . . . well, you have to read it to believe it:

Inside the meeting, Kerry expressed anger and frustration about the Russian cheating and warned that if the violations became widely known, future efforts to convince the Senate to ratify arms control treaties would be harmed.

In other words, we can’t possibly acknowledge treaty violations because that would impede our ratification of treaties  . . . that would be violated. Treaty-making becomes an end unto itself, rather than a means of securing American interests.  That mindset gives anyone we are negotiating with a tremendous advantage: they know they can play us for patsies because we are so obsessed with the process, rather than the results.

And Iran is pressing its advantage.  It claims that the agreement recognizes its right to enrich uranium, which the administration denies: in response Iran released a statement calling the administration a liar.  Moreover, it announced that it is commencing talks with international oil companies, thereby signaling its belief-expectation, actually, or demand, actually actually-that sanctions will be lifted.

And why not?  They know Obama has entered the bazaar, and can’t get out.  It would be a humiliating setback for Obama to admit that his initiative has failed, and knowing that, the Iranians will keep upping the price for a deal.  They further know that Obama’s domestic political weakness, courtesy of Obamacare, makes him all the more dependent on claiming a major foreign policy achievement.  Obama’s approval rating is around 40 percent.  This represents rock bottom for him: these 40 percent would support him even if he mandated adoption of Swift’s A Modest Proposal by executive order.  Admitting failure would help cement his loss of power and influence.

The costs of this are already large, and will only grow over time.  In the short run, the biggest cost will be endured by Syrians, who have been consigned to the tender mercies of Assad and the jihadis: Obama cannot simultaneously pursue an agreement with Iran and confront Iran’s major ally in the region.  This casts Obama’s decisions regarding Syria in August and September into a whole new light.  Following through on his threat to attack Iran’s client Assad would have seriously complicated, and likely derailed, a deal with the Iranians.  Although political considerations and his incautious off-teleprompter “red line” remark forced him to make noises about attacking, he was desperate to find a reason not to, which the Russians graciously offered.

And no doubt the Russians were aware of his predicament, and the Iranian angle to that.  The Saudis found out about the US-Iran talks, and tipped off the Israelis.  It is inconceivable that the Russians weren’t aware as well, given all the potential sources of information.  No wonder they found it so easy to give Obama a deal he couldn’t, and wouldn’t, refuse, even though it made him look craven and feckless.

Viewed in retrospect, the administrations actions during the weeks leading up to the CW deal with Syria look all the more bizarre and discreditable.

The longer run consequences will be even more malign.  Iran, already an aggressive power with dreams of hegemony in the Middle East will be emboldened, and will have more resources to fund their ambitions.  And again, they know that Obama will be reluctant to push back, lest he admit that his initiative was ill-conceived.  In response, other powers in the region, notably Saudi Arabia, will take a more independent and aggressive posture, knowing their interests are no longer aligned with those of the US at least as long as Obama is president: Saudi Arabia may well go nuclear by placing a carry-out order with Pakistan.  Feeling threatened and abandoned, the risk of an aggressive Israeli response is also greater.   Iran’s Lebanese client, Hezbollah, will be strengthened, raising the odds of conflict in Lebanon and between Hezbollah and Israel. The diversion of Israeli resources to counter a more powerful Hezbollah will encourage attacks by Hamas.

This makes the administration’s response to those criticizing the rapprochement all the more disgusting.  Carney and some Congressional Democrats (like Nelson of Florida) have claimed that refusing the deal and increasing sanctions on Iran would actually be a “march to war.”  This is truly a false choice: particularly outrageous coming from a president who always accuses his political opponents of advancing false choices.  An emboldened, richer Iran increases rather than reduces the odds of conflict in the region.

Doubts about the prudence-and even sanity-of Obama’s initiative are only deepened by one of the justifications given for it: namely that it is a response to the strengthening of moderate elements in Iran, and will bolster the moderates’ strength going forward.  Unbelievable.  We’ve heard about “Iranian moderates” since 1979, and numerous previous US attempts to deal with chimerical Iranian moderates have ended in American tears, for the Iranians play American delusions about moderates like a violin.  Just ask Robert McFarlane.  Many defenders of Obama on Twitter harken to Reagan’s Arms for Hostages debacle, claiming “at least Obama isn’t selling weapons to the mullahs.”  This is a defense?  Fool me once, shame on you.  Fool me twice, shame on me.  The Reagan experience should be a stern warning of how treacherous the Iranians can be.  They responded to payments for releasing hostages by taking more hostages.  That should make one all the more reluctant to deal with the mullahs today.

Obama is also disregarding Iran’s long running and relentless terrorist  campaign against the US.  The attacks on the US embassy and Marine barracks in Beirut and on the American Air Force personnel in Khobar Towers are only the most egregious examples.

Khobar Towers is of particular interest.  After an extended investigation, US intelligence concluded the Iranians were behind the attack.  This was extremely awkward for the Clinton administration, because at the time it was in the midst of an attempt to open relations with the . . . wait for it . . . “moderate” Iranian president Khatami.  Clinton sent a secret letter to the Khatami demanding that Iran punish those responsible, which the then reigning Mr. Moderate dismissed with the back of his hand. Either the moderates aren’t really moderates, or the moderates don’t call the shots.  Either way, same result: basing strategies on the influence of Iranian moderates is as delusional as making plans dependent on the intervention of magical unicorns.

In sum, Obama has entered into an agreement that will not be honored, will subject him and the US to increasing demands that he cannot refuse, will strengthen and embolden a sworn enemy of the United States, will destabilize the region and increase the risks of conflict, and betrays and confuses our allies.

Given that this endeavor is inimical to American interests, reputation, and prestige (both of which affect our ability to advance our interests) one wonders about the motivation.  Folly or blunder based on a desire to achieve a legacy or a fundamental misunderstanding of reality are actually the least frightening alternatives.  The more sinister possibility is that Obama is acting on a view of American interests and proper place in the world that is at odds with the mixed idealist-realist view that has shaped US policy since at least WWII.   I usually adhere to the maxim not to attribute something to malice which can be explained by stupidity, but it gets harder to do that every day.

About Craig Pirrong 228 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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