Is it true that President Trump has little choice but to stick with the Iran nuclear deal or else risk harming poor and middle-class Iranians who would be most hurt by reimposed sanctions?
That's the seemingly common-sense view prevailing as a crucial deadline to renew the deal approaches on Friday amid widespread unrest in Iran. But some Iran experts say that conventional wisdom reflects a profound misunderstanding of that rogue nation’s economy.
They say the ruling class there has so successfully turned the economy into a slush fund for their own needs that renewed sanctions will hit the mullahs and their allies the hardest.
Indeed, the street protests now underway are ordinary Iranians' direct response to that cronyism and self-dealing. They are also a powerful rebuke to proponents of the 2015 nuclear agreement who for more than two years have argued that it would spur broad economic growth and political reform.
Not only is it doubtful that the deal has frozen Iran's nuclear weapons ambitions, however temporarily; the current protests are evidence it has failed as a means of peacefully reordering Iranian society.
If Trump again waives sanctions on Tehran, "it sends a bad signal: He’s telling the protesters he’s not going to put pressure on the regime,” said Saeed Ghasseminejad, who specializes in Iran’s financial sector at the Foundation for Defense of Democracies, a center-right think tank.
Called the Joint Comprehensive Plan of Action, the deal was President Obama's signature foreign policy achievement. Under it, Trump has until the weekend to decide whether to renew a waiver of sanctions on the Iranian financial sector, including the Central Bank of Iran. The deadline, which comes every 120 days, falls at a particularly fraught time as protests continue throughout dozens of Iranian cities that were driven, at least originally, by economic duress caused by the country’s corrupt financial sector.
Many Iran watchers note that the protests are about more than simply bread. And indeed protest slogans condemning the top leadership show that the demonstrations — in which dozens of protesters have been killed by regime authorities and thousands have been arrested — are expressly political. But that doesn’t mean the economy is a secondary issue.
Economies under authoritarian regimes like the one in Tehran always reflect the country’s political architecture. The allocation of financial resources and privileges is how an authoritarian regime dispenses political favors and indicates its political preferences. Protests about the economy are by definition protests against the political structure of the regime.
At the top of the Iranian regime sit the clerics and, even more important, the Islamic Revolutionary Guard Corps. The IRGC is ultimately responsible for the regime’s internal security as well as Iran's expansionary foreign policy, which includes arms and drug smuggling as well as terrorism, now reaching beyond the Middle East to Europe, Latin America, Asia, and Africa. The IRGC is also a business concern, which, according to some estimates, controls more than 40 percent of the Iranian economy, dominating “the oil industry, infrastructure development, construction, manufacturing, electronics, and the most lucrative import-export contracts.”
According to some experts, the IRGC and other regime officials are responsible for the collapse of Iran’s financial sector. “Associates of the current regime took out huge loans from well-established banks, and they’re not paying them back,” says Ghasseminejad. In other words, the regime essentially took the money out of the pockets of ordinary Iranians; their deposits floated regime associates and they are now unable to secure similar loans.
Not only that, the regime targeted the money of middle-class Iranians directly as well, says Ghasseminejad: “Starting a few years ago … credit or saving institutions sprang up all over Iran. Many of them were unregulated, and many were owned by regime figures. In fact, the Iranian judiciary itself opened up one of these credit institutions. These institutions offered enormous interest rates to investors, middle-class people who deposited much of their savings and expected a huge return.”
When they tried to close their accounts and withdraw their deposits, there was nothing there. “It was like a huge Ponzi scheme,” said Ghasseminejad. “When these institutions went bankrupt, the government did nothing. Hundreds of thousands of people lost their savings. They were middle-class, and still are culturally, but the chain bankruptcies made them lower-income. Many of them are on the streets now.”
Why didn’t the Central Bank monitor the enormous loans to regime officials from the well-established banks, and close down the non-regulated, Ponzi-like financial institutions? “Because they’re corrupt,” says Ghasseminejad.
Now it is evident that the Trump administration faces a dilemma. In signing a sanctions waiver, Trump would send the message that the White House has taken sides with the regime, against the protesters. If he doesn’t sign, as he is sorely tempted, in part to send a message of support to the protesters, it will likely force Iran from the nuclear deal, a result viewed as destabilizing by many, including the agreement’s co-signers in European capitals.
Similarly, while the president has repeatedly expressed contempt for the deal, which Congress is working to revise more to his liking, important administration officials hold to the prevailing view in the foreign policy establishment that it’s better to stick with it than risk untested waters. These include Secretary of State Rex Tillerson and Defense Secretary James Mattis.
“They say they’re worried about alienating European partners who want us to stay in the deal,” says a senior congressional adviser involved in deliberations. “But what the administration is really worried about is the unknown. With everything else on their plate, perhaps especially North Korea, they don’t want to have to deal with Iran’s nuclear file as well.”
Last week Mattis told the press, “I just don’t think the protests will have any influence over my advice to the president one way or another" on sanctions.
By contrast, says a senior administration official, “the protests are affecting the president’s thinking for sure.” Trump, says a foreign policy expert close to the White House, “is disgusted by seeing this regime dragging protesters off to jail and shooting people in the streets.” The president may see the Friday deadline as an opportunity to leave a deal he never liked.