Security and Foreign Policy

The Iran Nuclear Deal: A Pipe Dream That Put Iran’s Economic Stability At Risk

The protests that began in Iran in December 2017 have fueled a lot of speculation about the Iranian economy. However, many have turned a blind eye to the effects of the Iran Nuclear Deal on the country's economy. Contributor Shermineh Salehi Esmati takes a closer look at how the Iran Nuclear Deal failed to provide the Iranian economy with the reprieve they were promised. 

BY: SHERMINEH SALEHI-ESMATI

When observing recent protests that began December 31st, 2017, the effects of the deteriorating socio-economic situation in Iran gripping the nation following a harmful sanctions regime are increasingly apparent. Despite the lifting of sanctions in January 2016, Iranians have not seen any economic boom as promised by President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif. A plethora of reasons have contributed to the economic woes of the country, but it is important not to overlook the failures of Joint Comprehensive Plan Of Action, which was sold to the Iranian public under the garb of economic reprieve. The agreement failed to improve the economic situation of the country particularly by providing immediate sanctions relief; whatever little economic boon Iran has received thus far has been monopolized by the government on foreign endeavors as opposed to improving the economic situation within the country.

Generally speaking, economic instability refers to when a community or nation experiences financial struggles due to inflation, consumer confidence issues, unemployment rates and rising prices. The current situation in Iran is representative of these larger economic woes that face the average Iranian daily. Instead of investing into the rundown infrastructure and other domestic endeavors, most of the funds released after the JCPOA have directly funded Iran’s regional foreign policy agenda. Yet, the promise of dismantling the nuclear program within Iran and allowing more authority to foreign actors was promising in the face of the $100 billion sanctions relief that was promised. Although the P5+1 agreement did bring greater authority to the International Atomic Energy Agency and the United Nations Security Council, it did not bring the steady flow of resources into the country. Instead, it brought economic instability within the country and political volatility in the region.

Prior estimates demonstrate that the foreign reserve Iran was to receive once sanctions were lifted, which were estimated to be well over $100 billion, was actually a much smaller amount mostly spent on projects in neighboring countries. For people living in Iran, endemic corruption within the government of Iran is partially what fueled the protestor’s frustrations, where they began gutting out banks, schools owned by the Iranian Revolutionary Guards Corps and chanting against the government’s investments in Syria. A report from Roubini Global Economics estimated the Iranian government had about $90-120 billion in foreign assets, of which $40-60 billion are currently being held in escrow accounts that have made the process of purchasing oil from Iran more difficult.

A direct fallout from the Iran Deal regionally was downward pressure on global oil prices following Iran’s increase in production. Professor Giancarlo Elia Valori, the current Chair of La Centrale Finanziaria Generale Spa, argued that multilateral efforts to combat the threat of nuclear proliferation in Iran were closely linked to the oil war in the Middle East region. According to him, the countries competing with Iran for the regions’ hegemonic power can only win if they have long-lasting oil wells. Iran has found its regional rival in the Kingdom of Saudi Arabia, which is at the helm of the oil market and the energy revolution in the Middle East. But given the fact that as members of OPEC, Saudi Arabia and Iran’s animosity is kept at bay in the oil market, it manifests itself in other forms of regional competition. Valori presented data explaining how the Iran Deal caused competition over regional leadership to accelerate resulting in a greater number of proxy wars. Iran’s re-entry into the global market further caused neighbouring states to enter into an anxious battle over oil. Now that regional powers and Iranian citizens have become aware that the revitalization of the oil industry of a post-sanctions Iran was an illusion and that a return to pre-sanctions oil production will be a long, drawn out process, President Rouhani has found himself increasingly isolated.

Domestically, the potential for Iran to be a more economically viable nation is partially owed to the P5+1 talks. It is important to keep in mind, though, that many in Iran point to regional nuclear-weaponized states such as Pakistan and India who have not faced international scrutiny to the same degree Iran has experienced. This has led to Iranians living in more rural areas to maintain their support for the Supreme Leader’s ideology, especially his anti-west sentiment.

Importantly, the Iran Nuclear Deal in many ways benefited the international community more than it did the average working-class Iranian. By constraining the ability of Iran to enrich uranium, blocking the plutonium pathway to a bomb and instating an invasive inspections and verification regime, Iran was brought to the negotiating table. Through the Iran Deal, Implementation Day meant international sanctions had to be lifted from $29 billion in frozen assets, which has still been a subject of scrutiny. On the international front, though, the Iran Deal opened the door to the universalization of the NPT’s supplementary safeguards agreement and Additional Protocol. Other states that have significant nuclear activities were particularly affected, such as Argentina, Brazil, Egypt and Venezuela. Most of all, the Joint Comprehensive Plan of Action Committee benefited the United States by strengthening the international nonproliferation regime, thereby reducing the number of nuclear threats the US would have to counter.

Moreover, there is now enough evidence to show that the P5+1 agreement greatly benefited members of the Iranian regime. For instance, there have been many cases where innocent Iranians struggled to pay their bills due to western sanctions designed to block banks from accessing services in the West. Multilateral member states haven’t acknowledged the interests of Iranian bank account holders when attacking owners of these financial institutions who have become more corrupt in their theft, laundering money and expending resources on revolutionary efforts to claim the territory of neighbouring states. Instead, the sanctions regime has been strengthened by the private sector making it difficult for businesses to operate within Iran without facing scrutiny abroad.

The counter-argument to the economic drawbacks of the Iran Deal includes experts who argue that a failure to stop the nuclear weapons program would have a myriad of direct and indirect consequences. Ambassador Dennis Ross, a Fellow at the Washington Institute, argued that an Iran with nuclear weapons had the potential to destroy Saudi Arabia’s energy facilities, domestic stability and had the potential to lead to a nuclear exchange with Israel. But the implementation of the agreement has caused Iran to become a larger military threat to Israel and Saudi Arabia, especially because they have allocated their resources to funding proxy wars and external forces in the region. In fact, Iran has posed more of a direct challenge to the interests of Israel and Saudi Arabia following the implementation of the Iran Nuclear Deal as opposed to before it.

In times of potential nuclear warfare, multilateral institutions should cooperate to achieve peace and security. The nuclear agreement has contributed to Iran’s economic malaise due to a slow revitalization process in terms of both economic reprieve and current oil prices. It is possible that President Trump’s non-interventionist approach will help financially frustrated Iranians through political sanctions and will impact only members of the regime through the targeted freezing of assets. Though instability might be inevitable in the early stages of a nuclear agreement, more work can be done to avoid risking the loss of a valuable regional ally and the trust of its innocent people, who have only suffered during the negotiations and continue to struggle today. In the coming days, it will be important to see whether President Donald Trump stands by the Iran Nuclear Deal or whether he will attempt another maneuver to block it. The timeliness of the protests call attention to the fact that the Iran Nuclear Deal is not working to improve the economic situation of the Iranian people. More importantly, they are sending the message that the promise of a more prosperous Iran is no longer enough to keep the Iranian people silent.

Shermineh Salehi Esmati provides strategic policy responses on countering threats to international security backed by an expertise in U. S. national security, Iran geopolitics and big data. She holds an honors bachelor degree from the University of Toronto, specializing in political science and history. At present Shermineh is finishing a master’s degree in international relations and a certificate in international security at Harvard University.

Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.

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