Eurasia Group | Trump’s Iran policy achieves some of its aims

Trump’s Iran policy achieves some of its aims

7 May 2019
Iranian President Hassan Rouhani. Iranian President Hassan Rouhani. REUTERS.
On the one-year anniversary of the US's withdrawal from the nuclear agreement with Iran, bilateral tensions are rising again. The US ordered a carrier strike group into the Middle East, reportedly in response to Iranian threats, while President Hassan Rouhani's administration planned to announce steps to modestly expand its nuclear program. One year of President Donald Trump's maximum pressure campaign has severely damaged the Iranian economy and constrained its foreign policy. But Iran will likely remain defiant and try to wait out Trump's first term, avoiding either negotiations or war, Eurasia Group expert Henry Rome says.

How effective have the US sanctions been?

The US campaign has proven successful in a tactical sense. Iranian oil exports have already fallen in half and will likely decline further later this year. Compared to its predecessor, the Trump administration has removed more Iranian oil in a shorter period of time with much less international support. In part because of the sanctions, Iran is reportedly reducing its financial aid to Hezbollah and militias in Iraq and Syria. In that narrow sense, the tool is working. But sanctions have not moved the US much closer to its ultimate goal—either Iran's capitulation over its nuclear program and regional actions or the regime's collapse. The sanctions have also had severe economic and humanitarian consequences for the Iranian people, whom Washington claims to be supporting.

What has been the economic impact?

The sanctions have restricted trade and investment and exacerbated systemic weaknesses in the Iranian economy. GDP is expected to contract by 6% this year, the second-worst performance in three decades. Inflation potentially as high as 50% is whittling away the purchasing power and savings of average Iranians. Unemployment is on the rise and the currency's value has fallen by two-thirds against the dollar. The government has allocated billions of dollars to companies importing basic goods, but the largely unregulated plan has only engendered more corruption and rent-seeking. The auto industry, the most important sector apart from energy, has been hit particularly hard: auto production fell 40% in 2018 compared to the year prior.

Why has Iran not ramped up its nuclear program?

Supreme Leader Ali Khamenei said in June 2018 that Iran would not accept both economic sanctions and nuclear restrictions. Iran, however, stayed in compliance with the nuclear deal—according to international inspectors and the US intelligence community—even as sanctions erode whatever economic benefits Iran received from the agreement's implementation. Iran's patience is wearing thin, and Rouhani is expected to announce a modest expansion of the nuclear program when he addresses the nation on 8 May. Nevertheless, Iran is very unlikely to withdraw from the agreement outright. If it pulled out, Iran's partners in Europe and Asia would probably end economic and political support. Most importantly, the deal provides a shield against even more aggressive actions from the US or Israel, including military action, which Iran seeks to avoid at all costs.

Where do US-Iran relations go from here? Is there any prospect of talks in the near term?

Tensions will remain high for the remainder of Trump's first term, although at this stage limited US-Iran negotiations are more likely than a US-Iran war. Despite his bellicose rhetoric, Trump likely still has an interest in negotiations with Tehran to achieve a “better deal” than his predecessor. Iran remains stridently opposed to negotiating with Trump, but there are signs that this reticence is receding. In late April, Foreign Minister Javad Zarif said he had the authority to conduct bilateral negotiations with Washington over a prisoner exchange. Although Zarif was proposing talks with a very limited scope—the nuclear and missile programs and Iran's regional policy were not on the table—the statement amounted to a surprising public overture. Still, the issue is hotly contested in Tehran. Qassem Suleimani, head of the expeditionary Qods Force, responded that negotiations would amount to “utter submission” and the speaker of parliament, Ali Larijani, derided talks as a “strategic mistake.”
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