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What Happens if Iran Opens Up?

Stefan Antić
Research Associate at CIRSD and Associate Editor of the English-language quarterly magazine Horizons.

With only a couple of weeks having passed since the Vienna talks failed to deliver a comprehensive deal on Iran’s nuclear program, many are inclined to believe that the new June 30th, 2015 deadline set by the parties presents an even slimmer chance of producing an agreement. Perhaps this should not strike anyone as much of a surprise, given the decades-long stream of mutual mistrust and confrontation between Iran and the West. However, in the months approaching the deadline, Iranian and the P5+1 leaders often publicly expressed their hopes for a ‘reasonable outcome,’ always noting that the talks have begun to have a ‘positive overtone.’ And that was true. Since the first round of U.S. sanctions imposed on Tehran in 1979, Iran’s relations with the West have come a long way from warmongering rhetoric, threats of closing the Strait of Hormuz, Ahmadinejad’s constant saber-rattling against Israel, and even the threat of a U.S. invasion. The situation is far from rosy, but the preponderant messaging we are getting is about how the multilateral negotiations may actually succeed. There is no question about it, the constructive tone of the negotiations really is a sign of progress.

Obviously, the success of Iran’s bid to end the embargoes imposed by the UN, the EU, and the United States will depend primarily on the outcome of the recently extended negotiations. But even that may not be enough, because the scope and complexity of the U.S. sanctions regime, to dwell on the most obvious example, is truly overwhelming. Getting rid of them all, even with all the good will and engagement a present or future American administration could muster, surpass by far the authority of even the most robust interpretation of executive power: they will have to be repealed by the U.S. Congress. Therefore, it will likely take years of hard work and rallying unprecedented public consensus in order to lift all the sanctions introduced by Washington. Fortunately, the same set of rules do not apply when it comes to other international actors with histories of undertaking punitive measures against Iran. However that may be, my purpose is not to predict or determine the time at which the sanctions might get lifted, nor for that matter to assume that they ever will. Instead, I would like to examine some of the regional and global implications of a sanction-free Iran.

It is worth noting that the last two rounds of measures (introduced by the UN Security Council in 2010 and 2012), have largely been successful in leaving an indelible mark on the Iranian economy—for instance, the Rial has suffered the worst devaluation in decades. With sanctions out of the picture, the Iranian economy would obviously begin to stabilize, both in terms of putting a halt to a currency freefall, and allowing for the country’s reintegration into the global economy. There are many good reasons to believe that the official Tehran, alongside other regional and international actors, would greatly benefit from this scenario. Firstly, one of the main problems impeding the country’s development lies within its long-lasting inability to access its own funds held by foreign banks. Through grabbing hold of those funds, Iran would more easily put itself in a position to amortize the setbacks caused by currency devaluation, use the money for a much needed diversification of its oil-dominated economy, and direct investment in scientific innovation, education, as well as (lest we forget some hard-boiled realities) strengthening the country’s existing security structures.

Secondly, as the world’s third-largest holder of oil reserves, Iran would be able to generate new revenue-streams via oil exports, thus directly benefiting its own and several other major world economies, which presently find themselves in great need of this particular natural resource. For instance, Sino-Iranian trade relations have suffered greatly each time the scope of the sanctions expanded, with the last round causing a drop of 50 percent in the crude oil export-import balance between the two countries. In a way, this relationship makes China the most prominent international actor wishing for an open Iran.

The third point refers mostly to European and indirectly U.S. energy interests in Iran. It has become a cliché to repeat that Europe has long sought to attain sustainable and diversified sources of energy. Even before the commencement of tensions over Ukraine, it was clear that EU leaders had been experiencing a certain degree of discomfort due to their Member States’ overdependence on Russian energy reserves. Particularly in the EU’s eastern parts, reliance on Russian natural gas remains the only viable option—often exceeding 90 percent of some countries’ supplies. This especially goes for places such as Lithuania, Estonia, and Latvia—or Slovakia and Bulgaria, come to think of it.

Now, with tensions rising over the conflict in Ukraine, it seems as if the Europeans are becoming increasingly anxious about finding alternative sources of oil and gas—they know what they want, and they want plenty of it right now from as many sources as possible. Low and behold, it seems that Iran might just be the right solution for much of their troubles. As a country abundant with hydrocarbon resources, Iran could represent a viable alternative to the existing supply chain. With their known natural gas reserves being the second largest in the world—and the only ones comparable to that of the Russian Federation—an open Iran could benefit Europe in three critical ways. The first pertains to diversifying European energy sources. Secondly, increased supply should result in a further drop of natural gas prices, thus forcing the existing suppliers to compete, and hence benefiting the European buyers directly. Finally, the third revolves around the possibility of having an easy way out in hotly contested political issues. Again, the Ukrainian crisis serves as the most obvious example of this argument. Entangled in a worsening proxy war with Russia, the EU presently finds itself struggling against an opponent who has way too much hydrocarbon leverage. With winter already at their doorstep, most Europeans find themselves in a position of having to reach out to their Russian counterparts, and they will likely have to compromise on a number of pressing issues. In a sense, this Russian leverage undermines U.S. aspirations to fully align the EU with its policies, and therefore maintain its security interests in Eastern Europe and beyond. Should the United States and its allies decide to engage more actively with Iran, it might well be the policy that catalyzes the endurance of their power in an increasingly multipolar world.

Even though one could argue that the globally beneficial implications outweigh the problems that might rise from lifting sanctions on Iran, some issues do exist, or are at least perceived to exist by a number of important stakeholders. Needless to say, maintaining low oil prices for a particularly prolonged period of time does not work in everyone’s favor. This applies mostly to the remainder of large oil-producing countries as well as multinational corporations specializing in this particular field. The scenario discussed in this article has often been cited as one that does not sit well with Iran’s key regional competitor: Saudi Arabia. Reasonably so, since the Saudis happen to have a couple of well-founded reasons to oppose such a turn of events.

Oil prices aside, the kingdom has a long history of relations with Tehran which have been improving and worsening in a back-and-forth fashion. Much of this is to be attributed to the goal held by each to act as regional leaders of Shiite and Sunni Muslims, respectively. While the Islamic Republic’s capacity to better secure the rights of the Shia minorities in its immediate neighborhood would almost certainly grow along with the country’s improving economy, as would its ability to use these minorities to effectively control internal affairs of the Gulf states. Such a shift in the Middle East’s already fragile and evolving environment would primarily affect developments in Iraq, further enabling Iran to lock its western neighbor into its own sphere of influence. This would be seen as a crushing blow in Riyadh, whose officials have been working hard to exert political influence over Iraq by strengthening ties with the local Sunnis. Moreover, Iran’s growing regional dominance could destabilize the Sunni-ruled but Shia majority Kingdom of Bahrain. It could also cause the United Arab Emirates—Tehran’s largest regional trading partner—to drift away from Saudi Arabia, which as a consequence might succumb to various sorts of retaliatory actions in an attempt to cause instability to its disloyal neighbors.

Conversely, the Saudis could choose to shift their focus to internal issues as their hydrocarbon-dependent revenues start to plummet and then (admittedly significant) reserves begin to deplete, hence abandoning the goal of becoming the regional leader. And with Saudi Arabia giving in, Iran would easily find itself in a position to enjoy dominance over too much of Middle East. The Iranosphere would certainly encompass Syria, whose president’s survival in power is already dependent enough on Iran. Whatever the outcome of the conflict in Syria turns out to be, the devastated country will have no other choice but to turn outward for help—and with sanctions lifted, Iran stands the best chance of becoming the prevalent power that everyone needs to address for help in the Middle East.

Any such development should certainly concern Israel, the country that had already found itself a few times on the brink of war with Iran. Remembering Ahmadinejad’s words, which often and openly advocated for the destruction of Israel, Tel Aviv has very real grounds for concern in case Iranian power rises significantly. In the Middle East’s present state of play, Israel enjoys a wide range of options to counter Iran, including air and missile strikes. As its opponent rises, Israel would in all likelihood have much less space for maneuver (and less support in Washington), thus taking comfort only in the fact that an economically powerful Iran could have fewer reasons for belligerent behavior in the region.

Over the years, the role of the Russian Federation in the Middle East—Iran’s most reliable partner on Syria—has been much debated. It seems that a completely rehabilitated Iran would not serve Moscow’s interests, especially considering the expected further drop in energy prices, which continues being the main catalyst of Russian economic growth. Still, the political elite in Moscow has been nothing but supportive of Iran in the context of previous initiatives to settle the terms of its nuclear program—perhaps because it thought the talks would fail. Quite recently, the Russians have been seen as the ones leading the charge in support of Iran’s prospective membership in the Shanghai Cooperation Organization. This is in a way understandable, since it allows Russia to strengthen its block of allies internationally, and further institutionalize its relationship with Iran. Now, the Russian approach to the Islamic Republic has been carefully observed by many for the past decade, some of whom were often keen on sharply criticizing it. Some of the criticism included Russia’s readiness ‘to arm a rogue state,’ while others even went that far to argue that Moscow is trying to incentivize Iranian belligerence toward the West. The logic behind the latter argument is the following: the more belligerent Iran becomes, the better chances are that the West could fiercely retaliate, thus creating the sort of tumults in the region that could lead to skyrocketing energy prices, which would benefit the Russian economy (while also causing economic pain to the EU, to take the most obvious example).

I have intended for this essay to help us gain a better understanding of the range of positions that regional and international stakeholders might assume in future dealings with Iran. For the time being, we are where we are—not really stuck, but hardly moving forward. The U.S. Secretary of State John Kerry has said that the negotiations on the nuclear program have reached a point where it would be “foolish to give up now,” notwithstanding the fact that the last round did not produce a tangible outcome. Whether further efforts will eventually result to a comprehensive agreement remains to be seen. Meanwhile, we are left to forecast based on existing trends, and analyze whether Iran’s prospective opening will be followed by a mainstreaming of the way it conducts its foreign relations.

* The views and opinions expressed in the articles posted on this page do not necessarily represent the views and opinions of CIRSD

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