Making Peace With Iran and North Korea Could Be Good for U.S. Workers

By Christopher Lawrence

When now-retired Republican Sen. Bob Corker put a hold on U.S. arms sales to Saudi Arabia in 2017, White House trade advisor Peter Navarro drafted a memo titled “Trump Mideast arms sales deal in extreme jeopardy, job losses imminent.” The memo, along with the Trump administration’s subsequent decision to lift the hold, is often framed as cynical trade-off: Billions of dollars’ worth of U.S.-made military hardware were helping to sustain a humanitarian crisis in Yemen, but those same dollars could help support thousands of American jobs. Faced with the choice between workers at home and human rights abroad, the Trump administration appeared to have put “America first.”

But bombs aren’t the only thing the American worker can build for the Middle East. Just as President Donald Trump was ramping up arms sales in the Gulf, he was also working to kill the Iran nuclear deal. A primary component of that deal was economic—as sanctions lifted, Western companies could help rebuild Iran’s aging civilian infrastructures by resuming trade and investment in Iran. One of the earliest contracts that Iran signed called for American aerospace manufacturer Boeing to build 110 jumbo jets—worth roughly $20 billion—to help revive Iran’s civilian air fleet. The estimated nearly 20,000 U.S. manufacturing jobs the civilian contract could have created was strikingly similar to number associated with the Saudi arms deal, yet it was terminated when Trump backed out of the Iran deal and reimposed sanctions.

These two episodes highlight what could be a turning point for U.S. foreign policy. Trump and his challenger Joe Biden both campaigned on promises to revitalize U.S. manufacturing and reduce U.S. military interventions abroad. Yet for the last four years, both Trump and his critics painted a false trade-off between those endeavors by overlooking the economic dimensions of U.S. diplomacy. Now that Biden is president, his administration can either accept that false trade-off or design new policies that pursue his domestic and diplomatic agendas in tandem. One of his biggest foreign-policy challenges is to reengage Iran and North Korea, two countries whose regimes have sought political and economic relations with the West for decades.

Under U.S. sanctions, Iran’s and North Korea’s infrastructures are in disrepair, their natural resource sectors are underdeveloped, and their populations are largely cut off from Western economies. But absent sanctions, Western firms could pursue untapped opportunities in such sectors as oil and mineral extraction, transportation, and port infrastructure, many of which would involve industrial equipment that U.S. workers could build at home.

Connecting diplomacy with domestic economics could help resolve a fatal defect of past nonproliferation agreements: They’ve generally lacked substantial domestic stakeholders in the United States with a vested interest in implementing America’s diplomatic commitments. In the case of the Iran deal, this meant that even though the Obama administration had sunk considerable political capital in crafting an effective solution to the Iran nuclear crisis, the subsequent Trump administration faced little political cost in abandoning it.

Another promising nonproliferation deal—the 1994 Agreed Framework, which substantially set back North Korea’s nuclear program—suffered a similar fate when a hostile George W. Bush administration entered office and scuttled it. In both cases, American negotiators focused on enforcing strict nuclear constraints to guard against cheating from the other side, but they neglected to ensure implementation of U.S. commitments or protect their diplomatic achievements from future U.S. administrations.

Had those deals been better connected with domestic economic benefits, they might have been more robust in the face of changing political tides. Today, now that the credibility of U.S. nonproliferation diplomacy is in tatters, other governments will expect a Biden administration to future-proof U.S. commitments by cultivating supporters of diplomacy at home.

But could economic development in a country help curb its nuclear program? History suggests that it can, and the Agreed Framework is an illustrative case. In that deal, North Korea agreed to dismantle its plutonium-production reactors in exchange for civilian power reactors from the West. North Korean negotiators explicitly described the civilian reactor project as an “indication of U.S. good faith” and a sign that the U.S. government might end its “hostile policy” toward North Korea. As construction on the civilian reactors commenced, the regime essentially gutted its plutonium infrastructure. This suggests that economic engagement can help a regime feel less committed to nuclear weapons.

Critics of engagement will reject any policy that appears to reward a country for simply abiding by the international nonproliferation norms that the rest of the international community already respects. But this misses the point of economic diplomacy. Experts have long warned that in order to truly resolve nuclear proliferation crises in Iran and North Korea, the United States must fundamentally change its relationships with those countries.

The trick, however, is that after decades of animosity and unpredictable policies, U.S. negotiators can’t simply promise to change those relationships. Instead, the U.S. government must commit some durable act that goes beyond mere words and written agreements.

In the case of the 1994 Agreed Framework, this was the point of building civilian power reactors in North Korea. In the words of one U.S. diplomat, nuclear reactors “are not the sort of things a country gives to an enemy,” and had those reactors been fully constructed, the United States and its regional allies would have been “hardwired” into the technological and economic relationships that would be required to safely operate those reactors in North Korea. Thus, reactor-construction steps helped signal that the United States would eventually normalize diplomatic relations with North Korea if the Agreed Framework were to survive, and this was just what the regime needed to feel secure in rolling back its nuclear weapons program.

A similar opportunity was missed with Iran in the 1990s, when Iranian President Akbar Hashemi Rafsanjani sought to collaborate with U.S. oil company Conoco to develop its oil infrastructure. His political goal was to facilitate a durable form of Iran-U.S. engagement to pave the way for broader reconciliation, and U.S.-based opponents of that reconciliation quickly foiled his plan. But the U.S.-Iran relationship might look different today if that project had gone forward.

Physical investments like these, if properly designed and carried out, could create a shared vested interest in preserving more positive relationships that might transcend partisan politics in Washington and regime politics in Tehran and Pyongyang. And they can send a more credible signal that nuclear rollback will lead to the secure and prosperous future that the U.S. government has promised in previous campaigns of nonproliferation diplomacy.

As Biden attempts to reengage Iran and North Korea, he should seek to establish a form of economic diplomacy that outlasts his administration. And infrastructure investments that promote both nonproliferation objectives and American jobs might finally do the trick.

Ironically, the Trump administration may have left Biden with the perfect tool for connecting diplomacy with U.S. manufacturing: a revived U.S. Export-Import Bank. While Trump reauthorized the Ex-Im Bank as part of his strategy to counter China’s Belt and Road Initiative, it could be the key to linking nonproliferation diplomacy with U.S. manufacturing.

When the Iran deal was signed and Western companies sought to do business in Iran, the main barrier they faced was that major banks did not want to finance their projects for fear that sanctions might be reimposed. The Boeing deal was among the contracts that were delayed for this reason. Facilitating some of these transactions will need to be a major part of resurrecting the Iran deal. Meanwhile, the Ex-Im Bank specializes in underwriting international transactions that benefit U.S. workers, and it has a long history of enabling U.S. businesses in exactly the sectors that need to be developed in Iran.

As for engaging North Korea, South Korean President Moon Jae-in has already proposed a series of ambitious development projects in North Korea under the heading of his “New Economic Map,” but these projects are currently barred under sanctions. If renewed U.S.-North Korea negotiations unfold, the Biden administration should not only put sanctions relief on the table but also offer Ex-Im Bank financing for some of those projects in exchange for nuclear rollback steps in North Korea. For example, if U.S. financing could help develop North Korea’s mining infrastructure to tap its deposits of rare-earth minerals, that could give North Korea a new and influential role on the world stage that doesn’t depend on nuclear weapons. At the same time, the U.S. government could tie ultimate completion of those projects to future rollback steps.

In both the Iran and North Korea cases, economic engagement that connects nonproliferation diplomacy to U.S. jobs offers the most promising path both for rolling back nuclear programs and for incentivizing future administrations to continue building on U.S. diplomatic achievements rather than squandering them and starting from scratch.

Christopher Lawrence is Assistant Professor of Science, Technology and International Affairs in the Walsh School of Foreign Service at Georgetown University. Follow him at @cclawr_law2.

Photo: Wikicommons

Iran's Oil Sector is Breaking Out

In August 2019, Mike Pompeo took something of a victory lap. Speaking to MSNBC, he declared that the Trump administration had “managed to take almost 2.7 million barrels of [Iranian] crude oil off of the market.” A few months prior, the United States had reimposed secondary sanctions on Iran’s oil sector, revoking eight waivers that allowed Iran’s major oil customers to temporarily continue purchasing Iranian oil. Without the waivers, just one major buyer remained—China. At the time of Pompeo’s boast, China was buying a negligible volume of Iranian oil in direct violation of US sanctions. Beijing protested loudly about the extraterritorial impact of US sanctions, but proved unable or unwilling to instruct its major refiners, banks, and tanker companies to sustain the previous level of imports from Iran. 

In Tehran, the loss of oil revenues was adding to the political and fiscal pressures felt by the Rouhani administration, already reeling from the economic fallout following Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA). Iran’s oil minister, Bijan Zanganeh, vowed in October 2019 to “use every possible way” to sustain Iran’s oil exports. In the subsequent year, Iran made its tankers “go dark,” engaged in ship-to-ship transfers off the coast of the UAE and Malaysia to hide the provenance of its oil, sold to opportunistic new customers including Syria and Venezuela, and intensively lobbied China to resume purchases at higher volumes. 

Today it is Zanganeh who is taking a victory lap. He told reporters last week that Iran’s oil exports are “much better than many assume,” and the oil ministry has announced that it would begin ramping-up oil production. Data from TankerTrackers.com, which observes the number of tankers leaving Iran’s ports in order to estimate oil exports, suggests a steady uptick in sales. January 2021 will be the fifth month in a row that Iran has exported in excess of 1 million barrels per day of crude oil and condensates. The new monthly level marks a significant increase from the average of 695,000 barrels per day Iran managed in the 12 months following the Trump administration’s revocation of the oil waivers.

Should the Iranian oil industry recover in the first half of 2021, buoyed by the rise in oil prices from their pandemic lows, the sector would cease to be the deadweight holding Iran’s economy back. The second quarter of this Iranian calendar year marked the first in over two years in which Iran’s oil and gas sector was not in contraction. The International Monetary Fund, the World Bank, and the Institute for International Finance all project Iran’s economy to return to growth in 2021 on the basis of conservative projections for oil production and exports achieved in the absence of sanctions relief. Iran appears poised to match those projections. 

Iran’s rising oil exports pose a dilemma for President Joe Biden, who intends to bring the US back into the nuclear deal. There is a significant political constituency in Tehran that believes that allowing the US to rejoin the JCPOA would be a strategic mistake. The Biden administration has signalled that JCPOA re-entry would serve as the foundation for follow-on talks, a prospect that has Iranian hardliners concerned that the international community will try to force Iran into making painful concessions on strategic issues such as the country’s ballistic missile program.

The Rouhani administration remains strongly in favor of renewed talks and has indicated that it would welcome reentry into the JCPOA should the Biden administration decisively lift the sanctions imposed by Trump and thereby deliver Iran an economic uplift. But the attractiveness of Rouhani’s preferred approach depends entirely on the perceived opportunity cost should Iran fail to engage in new talks. This cost appears to be shrinking as Iran’s economic recovery picks-up steam and as the ferocity of political opposition Biden faces on the JCPOA becomes clear. Iran’s Supreme Leader, Ali Khamenei, presented “defusing sanctions and overcoming them” as the preferred alternative to Rouhani’s efforts for “lifting sanctions” in a important speech last November—a nod to the growing doubts that negotiations are necessary in the short-term.

For now, Iran’s political establishment remains open to negotiations because the country would be entering new talks from a position of relative strength. But that same strength will enable Iran’s hardliners to close the door on diplomacy should Biden dither.

Biden may be tempted to address the dilemma he faces be reasserting economic leverage. But attempting to drive down the oil exports with further sanctions would be a mistake. The only measures that might serve to stop China’s purchases of Iranian crude would require designations on China’s state-owned refiners such as Sinopec and CNPC, subsidiaries of which are widely represented in the portfolios of American and European institutional investors. Such a move would not only risk triggering a true economic war with China, but it would also cause a significant disruption to energy and financial markets.

Moreover, the risks of Iranian retaliation remain high. Iranian leaders have consistently warned that it would seek to deny oil exports by neighbors should it be prevented from selling its own oil. The September 2019 cruise missile attacks on Saudi Aramco’s Abqaiq and Khurrais facilities, which caused production capacity to drop by half, serves as an example of the very real nature of that threat. 

Clearly, Biden has no easy means to bring Iranian exports back down. So long as China continues buying, Iranian persistence will ensure the barrels reach the buyers. A few more months of sustained recovery in exports may be enough to convince Iran’s ascendent hardliners that the country’s economic outlook under sanctions is no longer so negative as to be a political or practical liability, meaning their opposition to the JCPOA will carry no real cost. Biden needs to move fast if he is to save the basic quid-pro-quo that underpins the nuclear deal. 

To do so, Biden must take steps to widen the opportunity cost between diplomacy and defiance once again. His administration ought to immediately issue new, temporary oil waivers in order to enable Iran to export oil without directly contravening US sanctions. Such a move would benefit US allies such as Italy, South Korea, Japan, and India, which count among Iran’s historical oil customers—US sanctions policy would no longer be at odds with their energy security.

The waivers would also help de-escalate tensions with China enabling cooperation on the creation of a stronger non-proliferation framework for the Middle East. The Trump administration used Iran sanctions as a means to target major Chinese enterprises including telecommunications firms Huawei and ZTE and shipping giant COSCO. These designations and the systemic threat their proliferation posed to the Chinese economy have spurred Chinese authorities to begin development of an alternative to the SWIFT bank messaging system and to instruct state lenders to prepare contingencies for further US sanctions pressure. Similar measures have even been contemplated by European governments. These moves foreshadow how the overuse of US sanctions threatens their long-term efficacy. Issuing new oil waivers would see Biden remove the primary impetus for these mitigation efforts in China and other countries. 

Restoring the waivers would also be welcomed by Iran, which could expect to see oil exports double, rising above the level possible through the complex and expensive methods of sanctions evasion currently in use. The additional foreign exchange revenue afforded by the waivers would help Iran more fully address its balance of payments crisis, easing pressure on the country’s currency and thereby reducing the rampant inflation that has led to hardship for millions of Iranians. The Biden administration can be confident that the additional revenues would have this effect because of the restrictions in place around their use. The waiver system, first designed during the Obama administration, sees revenues accrue in escrow accounts carefully monitored by authorities in the countries which have been granted the waivers. This oversight ensures that the funds are used for the purchase of sanctions-exempt goods and not for what the Trump administration termed “malign activities.” The funds cannot be transferred to Iran nor any third country without specific approvals. 

Despite these restrictions, for Iranian stakeholders, the issuing of new waivers would represent an important gesture, indicating Biden’s seriousness about restoring the economic benefits originally envisioned under the JCPOA, and setting the stage for US-Iran talks on the sequencing of steps to restore mutual compliance with the nuclear deal. Should those talks fail, Biden would surely revoke the waivers and Iran would return to selling oil in defiance of US sanctions. But should the talks succeed, the early provision of the waivers will have served to accelerate the reestablishment of Iran’s sales to oil customers, helping the country win back coveted market share. 

Iran’s oil industry is breaking out. Issuing new oil waivers is the best way to ensure Iran ceases to seek leverage by reducing its compliance with the nuclear deal and begins to believe again in the potential for “win-win” diplomacy with the United States.

Biden needs to give up some pressure in order to gain back control.

Photo: SHANA

U.S. Hostility With Iran Only Serves Hardliners on Both Sides

By Barbara Slavin

In the aftermath of President-elect Joe Biden’s election victory, U.S. and European think tanks and pundits are flooding the internet with papers about how to fix this or that aspect of U.S. foreign policy after four years of President Donald Trump.

The Atlantic Council and the European Leadership Network, with an assist from the top Iran hand at the European Council on Foreign Relations, just put out a roadmap for Europe to act as a bridge between Iran and the incoming Biden team. The recommendations seek to salvage the 2015 Iran Nuclear Deal—the Joint Comprehensive Plan of Action (JCPOA)—by returning the United States and Iran to compliance, promoting regional conflict resolution, and reviving people-to-people engagement.

In the longer run, however, U.S.-Iranian relations need a more radical rethink. For about 40 years, they’ve been going in circles, with occasional flickers of détente interrupting longer periods of economic warfare, cyber-attacks, and loss of life from direct and indirect military confrontation. Just last week, Trump reportedly asked for options to bomb Iranian nuclear sites—a reckless escalation that even Mike Pompeo, his hawkish secretary of state, is said to have opposed. The mutual hostility serves hardliners on both sides—and the arms dealers that cater to their respective regional partners—but also hurts U.S. national interests and, most especially, the Iranian people. It also hobbles Iran’s ties with European and Asian democracies.

The first order of business for a Biden administration may well be to freeze Iran’s slow walk out of the JCPOA in return for calibrated sanctions relief. But the Bidenites should be thinking of something much bolder, to be conveyed to Iran through back-channel talks in the region or in Europe.

The United States’ ability to advance its interests in the Middle East has been severely undermined by its lack of a functioning diplomatic relationship with Iran, the largest, most populous, and most scientifically advanced (apart from Israel) country in the region. Estrangement has left successive U.S. administrations reliant on Arab autocrats and an increasingly undemocratic Israel, which has in turn boosted Iran’s influence among Arab Shias and handed Russia and China increasing economic and strategic power.

Twice, U.S. and Iranian interests have actually coincided to a surprising extent—in post-2001 Afghanistan and post-2003 Iraq—but the George W. Bush administration put Iran in its crosshairs as a charter member of the “axis of evil” rather than building on Washington and Tehran’s shared animosity toward the Taliban and Iraqi leader Saddam Hussein. Instead, Iran exploited the power vacuums created by U.S. military interventions and the chaos that followed the 2011 Arab Spring to build new Shia militias in Iraq and to deepen ties with Yemen’s Houthi rebel groups. Despite that success, though, Iran has dramatically underperformed in economic terms compared to countries that 40 years ago were at similar stages of development.

As long as the United States and Iran are at so deeply at odds, Iran will continue to thwart U.S. interests while also failing to achieve its potential—and its government will remain chronically unpopular and insecure.

So what to do? The Biden administration should propose a serious rollback of U.S. sanctions—including over the use of the U.S. dollar—in return for diplomatic relations, a JCPOA 2.0 that indefinitely extends restrictions on Iran’s nuclear program, and a nonaggression pact.

Critics will no doubt call such a proposal naïve and unattainable. They may point out that Iran’s leadership needs continued animosity with the United States to survive. But the prospects for a big breakthrough between the two countries are bolstered by the fact that the American people are sick of U.S. military confrontations in the Middle East, and Iranians are fed up with being isolated.

Iran, of course, has long sought a reduction in U.S. forces in the region, which it perceives as part of a provocative containment regime. As Iranian Foreign Minister Javad Zarif put it to American journalists a few years ago: “Have you seen that map with all the US bases around us and said, ‘Why are these Iranians putting their country in the middle of all these bases?’”

Since the 1980s, when the United States escorted Kuwaiti tankers down the Persian Gulf during the Iran-Iraq war, the U.S. military has had a large presence on Iran’s flanks. Since 2003, tens of thousands of American troops have been based to Iran’s east and west and the U.S. navy remains a near constant presence near the Strait of Hormuz, the main chokepoint for Iranian and Arab oil exports.

The value of that oil is declining, however, as the world confronts the need to deal with climate change. Iran’s Arab neighbors have learned that the United States, with its rotating administrations, can be a fickle friend, while Iran, as Zarif put it in a recent tweet, will be there “forever.” All of the parties involved, more than ever, need to focus on their own domestic problems and divisions, which have only grown more acute and worrisome thanks to this year’s pandemic and accompanying economic crisis.

It isn’t guaranteed that a grand bargain with Iran will work when it has not in the past. But it is still worth an effort. And even if such overtures only result in a tenuous détente, it would be better than where the world is now.

Barbara Slavin directs the Future of Iran Initiative at the Atlantic Council. Follow her at @BarbaraSlavin1.

Photo: Wikicommons