As has been the case over the last month, the future of U.S.-Iranian relations has been subordinated -- except when the President announced we were backing out of the Iran nuclear deal ("JCPOA") - to the higher profile issues of North Korea, China trade, and steel and aluminum tariffs.
- Yet the decision by Mr. Trump to ease the U.S. away from our obligations under the JCPOA has far-reaching consequences - for our alliance relationships as well as for dollar-based global financial institutions; these consequences have been masked by statements from Secretary Pompeo that the US has a "Plan B" in the wake of the withdrawal.
- Pompeo's plan? In his words, "unprecedented sanctions" against Iran, and a "new treaty” (after Iran returns to the negotiating table), “ratified by our Congress;” these would be coupled with efforts to "crush" Tehran regime proxies in the region.
As necessary as changes in the JCPOA are - and it was far from a perfect deal - Pompeo's plan won't get us either to changes in the original 2015 agreement or to alterations in the regime's behavior.
Why not? Fundamentally, Pompeo seems to have ignored major shifts in the geo-strategic environment that undermine his chances for success:
- First, the coalition that President Obama and Secretary Kerry cobbled together, to impose sanctions and force the JCPOA on Iran, will not be resurrected. China and Russia are certain to continue to do business with Iran, especially in the energy sector.
And India, Iran's third-largest oil export market, recently announced that they will abide by UN/multilateral sanctions, not those announced unilaterally (read: Trump's!)
- Second, the announcement by the president on withdrawal, in the wake of personal appeals to delay by leaders of France, German, and the UK, sent U.S.-European relations, already low, to depths not seen since the stationing debate in the 70's and 80's of U.S. nuclear missiles on the continent. Denying exemptions to the EU on aluminum and steel tariffs surely hasn't helped.
To no one's surprise, the EU has pushed back, threatening blocking legislation, legal action, and support by the European central bank for EU firms doing business with Iran.
These three countries, along with China and Russia, were of course the signatories (along with the U.S.) to the JCPOA; antagonizing them is not the wisest course to secure a re-negotiated nuclear agreement!
- Finally, as is becoming increasingly clear, and as Bloomberg Businessweek recently headlined, "U.S. sanctioning power may have reached its limit."
Already Russian and China are increasing their payments in yuan; and it would be no surprise, commented the Economist magazine, if China didn't ask Iran to accept the yuan in future oil sales.
Unlike steel/aluminum tariffs and China trade issues, which have immediate economic impact, the U.S. withdrawal from the Iran deal will have business and financial consequences that are unlikely to be fully manifested for years; yet they are every bit as significant for the future of the U.S.-led, dollar-dominated global order as the outcome of unfolding, historic events in East Asia.
- Former Treasury Secretary Jack Lew summarized this risk well in 2016: "The more we condition use of the dollar and our financial system on adherence to U.S. foreign policy, the more the risk of migration to other currencies and other systems in the medium term grows."
CONFERENCE CALL WITH GENERAL CHRISTMAN THIS TUESDAY, JUNE 12 AT 10:00AM ET
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Join us on Tuesday, June 12 at 10:00 AM ET as we span the geopolitical hotspots with General Dan Christman. With growing uncertainty and conflicts on the horizon, we will cover the geopolitical challenges impacting business investment and operations. General Christman will outline what he sees as a small group of top risks, and where the U.S. needs to be vigilant on a broader range of secondary issues. Participating Dialing Instructions: Toll Free: Toll: UK: 0 Confirmation Number: 13680557 |
