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Why both Iran and US have taken hits from nuclear deal withdrawal

Why We Wrote This

On the world stage, the use of economic or military might is value-neutral only in rare instances. More often it catalyzes opposition, resentment, or active resistance. Yet it is still used. 

Jonathan Ernst/Reuters
President Trump holds up a proclamation declaring his intention to withdraw from the Iran nuclear agreement after signing it in the White House Diplomatic Room, May 8, 2018.

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When President Trump withdrew from the Iran nuclear deal and re-imposed economic sanctions, angering some allies, he isolated both countries, Iran economically and the US diplomatically. But at least according to some foreign policy experts, the downsides for the United States, while not ideal, are less than expected and much less serious than those Iran is only beginning to feel. One reason for the Trump administration’s success in targeting Iran is the brute strength, relatively, of the US economy even as its slice of the global economic pie continues to shrink. This also offers a hint as to why the administration has shaped up as an avid user of economic sanctions to influence a range of adversaries. Supporters of the administration’s approach say it is simply presenting international companies with a choice between doing business with the US or with Iran. As former Sen. Joe Lieberman said in a TV interview, European businesses “are exiting Iran because if you give them a choice … between doing business with Iran, $500 billion GDP, and doing business with America, $21 trillion GDP, it’s an easy choice.”

As President Trump prepared to withdraw from the Iran nuclear deal last spring, a debate flared over who would wind up more isolated as a result of such a move: Iran, or the United States.

Four months after Mr. Trump pulled the US out of the 2015 seven-nation accord, the evidence is increasingly clear that not just one of the two principal antagonists of the landmark agreement is isolated, but that both are – though in different ways and to different degrees.

Simply put: While Iran’s growing isolation is economic, for the US the repercussion from exiting the nuclear deal has been diplomatic.

And at least for some foreign policy experts, the downsides for the US of being the odd man out among world powers are much less serious than the economic impact they say Iran is only beginning to feel.

“There are two dimensions to the isolation question, the market dimension and the political dimension, with the first dimension clearly the more critical of the two,” says Mark Dubowitz, CEO of the Foundation for the Defense of Democracies in Washington. “I see Iran as the much more isolated of the two, in terms of the market for sure,” he says. “In terms of the other dimension, I see the US far less isolated politically than anyone predicted.”   

That US actions have delivered a gut punch to Iran’s economy is clear. Iran is increasingly cut off from global markets as more and more (mostly European) companies cease operations in the country rather than run afoul of re-imposed US sanctions. The Iranian currency, the rial, has collapsed against the dollar, and mounting shortages of food and other basics have led to panic-buying and protests.

And the pummeling is almost certain to intensify in November, experts say, when a second round of US sanctions targeting Iran’s oil and gas industry takes effect.

The success the Trump administration has had in targeting the Iranian economy – and in persuading many multinational companies to flee Iran – underscores the prevailing weight of the US economy, even as its slice of the global economic pie continues to shrink. Moreover, that success offers a hint at why the Trump administration, hardly a fan of traditional diplomacy, is shaping up as an avid user of economic sanctions to influence (or attempt to influence) countries as diverse as Russia, North Korea, Myanmar, and Venezuela.

Vahid Salemi/AP
An Iranian salesclerk shows off his goods to Kiana Ismaili, center, while she shops with her mother at a kitchenware shop ahead of her wedding, at the Grand Bazaar in Tehran, Sept. 6, 2018. Fear over the economy and the declining value of the Iranian rial has brought many to the bazaar in recent days to buy what they can before their savings further dwindle away.

But even as the economic strangulation of Iran tightens, the US is finding that abandoning the nuclear deal has also left it alone on the diplomatic stage – not the ideal position to be in as it seeks to rein in what it calls Iran’s “malign activities” across the Middle East.

A US setback at UN

The Trump administration discovered last week how deep its diplomatic isolation on Iran runs when it had to backtrack on plans to have Trump chair a session of the United Nations Security Council focused on Iran during the president’s participation in the annual UN General Assembly next week.

By all accounts, Trump was itching to preside over a high-drama take-down of the Iranian government and what the administration sees as its subversive and destabilizing activities from Iraq to Syria, Yemen, and Lebanon.

But soon enough, the White House realized that such a Security Council session risked more than anything exposing the fissures between the US and other world powers – including allies France and Britain – over the US pullout from the nuclear deal.

Good-bye Iran session.

Trump will still chair a Security Council meeting while in New York, but the topic will now be nonproliferation writ large. It’s an issue all powers are broadly committed to, and one that will presumably allow Trump to tout before his Council colleagues the progress and reduced international tensions his approach to North Korea has delivered.

Moreover, US officials say, the new topic will also provide Trump with the opportunity to underscore not just his firm stand against the use of chemical weapons by Syria’s Bashar al-Assad, but also the united front the US and two other Council members, France and Britain, have formed to back up with force their insistence on no-CW-use in Syria.

Despite that show of unity with the US, however, the European powers, both individually and collectively as the European Union, remain committed to the Iran nuclear deal and are actively working to convince Iran not to pull out and cause the deal’s collapse.

Not only do the Europeans believe, unlike Trump, that the deal is working as intended to roll back Iran’s nuclear program. But some European officials say the US effort to further undermine the agreement by imposing secondary sanctions to force the hand of European and other international companies is an unacceptable assault on European sovereignty – especially coming from a US administration that has reasserted the inviolability of national sovereignty in its relations with the world.

$500 billion GDP vs. $21 trillion GDP

On the other hand, supporters of the administration’s aggressive stand against the deal say the re-imposed US sanctions are not telling other countries what to do, but simply presenting international companies with a choice: Do business with the US or deal with Iran, but you can’t have both.

“The fact is though even our allies in Europe seem to be clinging to that bad agreement, their businesses are exiting Iran because if you give them a choice, as President Trump and [Secretary of State] Mike Pompeo have now forced them to make, between doing business with Iran, $500 billion GDP, and doing business with America, $21 trillion GDP, it’s an easy choice,” said former Sen. Joe Lieberman on the Fox News program “Sunday Morning Futures.”

The Trump administration’s political isolation was underscored by revelations from former Secretary of State John Kerry – while promoting his new memoir – that he has continued to meet with various world leaders since leaving the State Department, including with Iranian Foreign Minister Javad Zarif. Mr. Pompeo rebuked Mr. Kerry for the “unseemly and unprecedented” contacts with Iranian officials in public remarks at the State Department last Friday – a day after Trump took to Twitter to blast Kerry for what he called “illegal meetings with the very hostile Iranian Regime.”

The president added, “He told them to wait out the Trump Administration!”

In any case, that is what other world powers are advising Iran to do, with Russia, China, and India making the case by continuing to invest billions in Iran’s oil and gas infrastructure.

Impact on ‘malign activities’?

Less clear is the impact of the US withdrawal from the nuclear deal on Iran’s “malign activities,” which after all was a primary goal of the US action.

Trump himself has sent mixed signals on how he thinks the US campaign to rein in Iran is doing. In June, just a month after exiting the deal, Trump said at a White House press conference that “Iran is not the same country that it was a few months ago.… They’re a much, much different group of leaders.” But then came this month’s reference to Iran’s “very hostile…Regime.”

Also this month the US ambassador to the UN, Nikki Haley, suggested to reporters that Iran’s behavior hasn’t changed much, saying, “President Trump is very adamant that we have to start making sure that Iran is falling in line with international order … and we continue to see them engage in things that are not helpful, whether it’s in Lebanon, whether it’s in Yemen, whether we’re looking at Syria.”

The US also lashed out at Iran last week for recent rocket attacks by Iranian-backed militias in the proximity of US diplomatic compounds in Iraq. Administration officials see Iran’s activities in Iraq as part of a continuing policy of funding extremist groups throughout the Middle East – with some regional experts speculating that the mounting US hostility toward Iran is prompting hardliners in the country to double down on the regional activities the US seeks to curtail.

Mr. Dubowitz of the Foundation for the Defense of Democracies says that while the US may differ with its European allies on some of the means of addressing Iranian behavior in the region, it is not alone as it seeks to rein in Iran’s provocative and destabilizing actions.

“The reality is that the French, the British, and the Germans as well are all constantly pushing on the Iranians over their missiles and funding of extremists and proxies,” he says. “They are on the same page with us in viewing Iran’s malign activities as a critical concern.”

That leads him to conclude that the US isn’t as alone after pulling out of the nuclear deal as many had predicted.

“The original idea was that the US would end up isolated and the sanctions would not work,” Dubowitz says. “Clearly that has not happened.”

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