Testimony of Jon B. Alterman: Potential Implications in the Region of the Iran Deal
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All of that describes the region should the agreement go forward. It is also worth thinking deeply about what the consequences of a foiled agreement would be. One consequence would certainly not be a continuation of the current multilateral sanctions regime nor Iranian restraint on enrichment. Almost certainly, Iranians would feel betrayed and act out against U.S. demands. European and Asian partners would feel frustrated and misled. I would predict that Iran would aggressively seek investment in their energy sector, and countries such as China and India – likely followed by U.S. allies such as Japan and Korea and NATO allies such as France and Turkey – would move in. Broadly, the action would create distance between the United States and the world and diminish distance between Iran and the world after more than a decade when the reverse was the case. Further, it is hard to imagine any successful future U.S. negotiating effort with the Iranians on any topic for a decade or more. After all, Iran’s current political leadership has braved significant domestic criticism to pursue a deal with the United States, and it is hard to imagine that the collapse of the deal would not result in their being swept from office in favor of hardline figures. On other issues of tension between Iran and the United States, I would expect to see Iran turn even more aggressive, increasing support for proxies and attacking U.S. friends in the region.
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Those consequences pale in comparison, though, to what would almost certainly happen to the U.S. position in the global financial system. The United States is so deeply integrated into that system that there are few international entities that U.S. law cannot touch. It was the United States, after all, that was able to attack years of bribery and corruption in the international soccer organization FIFA—not because bribes were offered on U.S. soil, but because they passed through entities connected to U.S. banks. Even far-flung networks of informal money transfer agents in South Asia, known as “hawalas,” are part of the web.
If the robust secondary sanctions contained in U.S. law were applied in defiance of international consensus, there would surely be a rush to develop financial instruments that would be beyond U.S. reach. Computer experts talk about creating an “air gap” to ensure that sensitive information is never put on a computer that can in turn be exposed to the public Internet. One could easily see a drive toward financial institutions that are protected from U.S. scrutiny, and from U.S. law enforcement. They would have no connections to U.S. banks or U.S. networks, and the U.S. Treasury Department would be unable to touch them. China’s new Asian Infrastructure Investment Bank (which has 50 founding members, including many U.S. allies) could be part of the architecture for this parallel organization, and even many Asian allies of the United States with keen energy interests in Iran would be tempted to sign up.
The establishment of a parallel banking system would be a blow to U.S. prestige, but that would be the least of it. Its establishment would destroy an apparatus that has been painstakingly built—in large measure during the Bush administration—to give the U.S. government unprecedented visibility into criminal transactions around the world and to sanction individuals and institutions who abet terrorism. Americans would be at much greater risk.
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I would imagine that the nuclear deal will neither produce full Iranian compliance with the deal, nor will it mean the end of Iranian efforts to build influence in the Middle East, often at the expense of the United States and its friends in the region. Some of this will surely represent Iranian testing, to see just how much it can get away with and under what circumstances. Some will also represent an effort to demonstrate that Iran is not weak and has not surrendered. Some will represent the efforts of some parties in Iran to preserve what they have built as Iran has been ostracized, and some will represent the sincere efforts of some elements of the Iranian government to attack stability and undermine the status quo.
While I expect to see this, it is hard for me to imagine that there is not a consensus among the leadership that Iran no longer has the luxury of pursuing maximalist principles at the expense of the country’s very real material needs. All of Iran’s export partners seek stability and security of energy supply. Few companies will invest the billions of dollars Iran’s energy industry needs or lend the technology required to revive Iranian production if Iranian malfeasance raises the prospect of losing that investment. Iran has ample reason to improve its behavior, and those reasons multiply as long as increased production from Iraq and Saudi Arabia on the one hand, and flat demand curves in much of the developed world on the other, continue to suppress the price of Iran’s principal export commodity. In many ways, Iran must run hard just to keep from falling further behind.
For that reason as well, I would expect to see at least general compliance with the terms of the JCPOA. Strident defiance would have a chilling effect on trade and investment, and quiet cheating is likely to be difficult given the kinds of intelligence tools the United States has applied to the Iranian nuclear program for decades. We are unlikely to see the sort of standoff with Iran that occurred between Saddam Hussein and the UNSCOM inspectors in 1998. That standoff occurred at a time when Iraq was isolated from the world and heavily sanctioned, and it had little to lose. Iran has a great deal to gain from a host of risk-averse actors with long time horizons, and that will work in the direction of stability.