Are the Assumptions Underlying the JCPOA Still Valid? Were They Ever?
President Biden is going to try and do for the Iran nuclear deal (JCPOA) what all the King’s horses and all King’s men couldn’t do for Humpty Dumpty. He is going to try and put it back together again. Because of the hiatus, the decision to reactivate the JCPOA should not be treated by his administration as a simple continuation of Obama-era policy, but as a new decision taken in a different context. After all, the deal rests on significant assumptions, which may no longer be valid, if they ever were. The early collapse of the deal has prevented those assumptions from being stress-tested over a meaningful period of time. The resultant risk is a false sense of security. As such, any political leader worth his or her salt should revisit and critically scrub them.
The JCPOA allows for a sanctions ‘snapback’ on non-adherence by Iran. This assumes the rational response is Iranian adherence to the terms of the deal. That is a frightening assumption. In any contract, the rational response of the party making the promise is to immediately recognize that it has just acquired an option: to perform or not perform. If Iran breaches, the only appropriate remedy is to put the P5+1, the region and, for that matter, the world, in the position they would have been in had Iran performed. In binary risk terms, this means taking targeted enforcement action to then reduce the risk from close to 1 down to 0. A snapback does not do this. Instead, it puts Iran in the position it was in at the signing ceremony. That is not a remedy; that is a free option for Iran.
If the end objective is Iran’s steady reintegration into the global economy to encourage a permanent transition from enrichment of the uranium kind to enrichment of the dollar kind, that is also an astounding assumption. The idea that a regime intent on pursuing regional hegemony and exporting terrorism would be content with economic prosperity taking the place of - and not being additive to – a nuclear weapon, assumes the US dollar is the regime’s sole benchmark. Undoubtedly the IRGC is motivated by financial gain with its massive interest in the Iranian economy, but it is quite a leap to think that this completely displaces its interest in projecting power in its crudest sense.
Further, there is no rational basis for assuming that any new entrant (or returning entrant after a long period on the sidelines) can just plug-in to the global markets and play. An uncompetitive economy saddled with nationalised industries, widespread corruption, a weak rial, outdated oil industry infrastructure and downward pressure on power exports due to increased domestic demand, all amount to a drag on productivity.
The Barcelona Process-initiated project for a Union for the Mediterranean provides a salutary lesson. Faced with problems of migration from the Maghreb, it was assumed by Europe that regional economic development was the pill. Access by countries in that region to the global markets would, it was thought, be a win-win. The project has been a failure. The conditions imposed on those economies to adapt to free markets and the globalised economy have simply been too onerous.
The logic of access to globalised markets as a solution to the Iran nuclear threat is a hangover from the days when macro economists were consulted as if each was the Oracle of Delphi. The lack of foresight by economists of the 2008 crisis has devalued their stock.
Since the JCPOA was signed, global trends have also changed. The increasing global commitment to combatting climate change and the role of environmental considerations in investment decisions steer investors away from companies exporting motor vehicles, cement and heavy crude. This may be rational in the long term, but that won’t help Iran in the short term. Similarly, the sovereign debt attached to a government guilty of serious human rights abuses would fail to satisfy the social and human rights policies adopted by many institutional investors.
Removing sanctions to pave the way for integration does not simply involve a presidential signature. It is a complex and time-consuming process involving systems and operational changes at many layers within organisations and throughout interconnected markets.
The right approach to the Iran nuclear threat is a complex strategic analysis beyond the scope of this article, and no position is expressed. But it seems entirely possible that a failure to review and reset the original underlying assumptions could lead to long term risk ultimately going up, not down.