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What Really Happens in Iran?

US New Sanctions amid Iran's Transition and Pivot to the East

By Dan Steinbock

Iran’s recent volatility reflects US effort to undermine the nuclear accord as Iran is amid economic transition and increasingly looking toward the East.

At the end of December, a series of protests against economic policies erupted in Iran. As they spread, their scope expanded to include political opposition against the government. As President Trump tweeted his support for the protesters and criticism of the government, pro-government marchers filled the streets.

According to Western media, the protests were the result of unfavorable economic policies by Iranian President Rouhani’s administration and popular dissatisfaction with the “theocratic regime.”

Supreme Leader Ayatollah Ali Khamenei accused unspecified “enemies” - reportedly, US, Israel, and Saudi Arabia - for the turmoil. On January 3, the head of Iran’s Revolutionary Guards, Major General Mohammad Ali Jafari, announced the defeat of the "sedition" in the country.

Next, the Trump administration placed sanctions on five subsidiaries of the Shahid Bakeri Industrial Group - a defense group that is a key producer of Iran's ballistic missiles and that is already under US sanctions.

What is going on in Iran?

US struggle for new sanctions and regime change

After years of diplomacy, the comprehensive nuclear accord (JCPOA, July 2015) offered Iran relief from US, UN and multilateral sanctions on energy, financial, shipping, automotive and other sectors. These primary sanctions were lifted after the International Atomic Energy Agency’s (IAEA) certification in January 2016 that Iran had complied with the agreement. Yet, secondary sanctions on firms remained in place, along with sanctions applying to US companies, including banks.

Then Washington opted for a U-turn. Following the House of Representatives, the Senate unanimously extended the Iran Sanctions Act (ISA) for a decade in late 2016. Despite the Obama sanctions relief, most Democrats reversed their positions surprisingly quickly.

As Trump arrived in the White House, he began developing a far more muscular policy against Iran. It is dictated by his effort to benefit from Saudi economic and geopolitical support. Last May, he signed a $350 billion arms deal with Saudi Arabia; the largest in US history. Afterwards, he began the push to counter Iran’s regional and strategic weapons programs.

In October - two months before the Iranian protests - the Trump administration designated for sanctions additional missile and IRGC-related entities, while threatening to cease implementing the JCPOA unless Congress and U.S. allies successfully address the agreement’s weaknesses.

By mid-January, Trump must decide whether to recertify Iran’s compliance with the 2015 nuclear deal with world powers (which he decided not to do in October), and whether to waive U.S. nuclear-related sanctions that were suspended under the landmark agreement. If Trump withdraws the US from the JPOA, his administration would have to revoke waivers, decline to renew waivers, or trigger a provision of the Iran Nuclear Agreement Review Act under which Congress might act on legislation to re-impose sanctions -all of which would penalize Iran’s economy, while alienating other JCPOA signatories.

Along with economic pressures, Trump seized covert operations, even though Western reports have suppressed the role of the highly controversial Michael D’Andrea. The CIA officer was named by the New York Times half a year ago. After Trump made the conservative Iran hawk Mike Pompeo the head of the CIA, the abrasive uber-hawk D’Andrea became the head of CIA's Iran operations.

After the 9/11 attacks, the D’Andrea, known as the “Dark Prince” or “Ayatollah Mike" in CIA, was influential in the capture of Osama bin Laden and deeply involved in the detention and interrogation program that was condemned as inhumane and ineffective in the 2014 Senate report. D’Andrea’s operatives, together with the Israeli Mossad, played key role in the 2008 assassination of Hezbollah’s operations chief Imad Mugniyah. He ramped up the drone program in Pakistan and later in Yemen, with the support of President Obama.

It is not difficult to see D'Andrea's covert-operation signature in Iran's recent events.

Iran’s quest for economic stabilization

Between 2010 and 2013, the sanctions hurt Iran’s economy contributing to the fall of crude oil exports from 2.5 million barrels per day to 1.1 million by mid-2013. That, in turn, was compounded by the plunge in oil prices since early 2014. Before stabilization in 2015, Iran’s economy shrank by 9% in two sanctions years.

Since 2015, Iran’s economy has been stabilizing. Sanctions relief enabled Iran’s oil exports to return to nearly pre-sanctions levels, allowed Iran to regain access to funds held abroad, boosting 7% overall economic growth in 2016. Foreign energy firms have begun making new investments in Iran’s energy sector and major aircraft manufacturers have sold Iran’s commercial airlines new passenger aircraft. The relief also contributed to the political victory of Iran’s President Hassan Rouhani in the May 2017 presidential election.

Growth has also begun to broaden to the non-oil sector. Real GDP growth is projected to reach 4.2% in 2017/18 and is expected to be sustained or even rise toward 4.5% over the medium-term if financial sector reform takes hold.

In the West, dire employment prospects are often seen as the key reason for Iranian protests, yet the geo-economic context is ignored. According to the IMF, Iran’s unemployment is almost 13%, with female and youth unemployment at 21% and almost 30%, respectively. However, in Saudi Arabia, unemployment is about 13%, youth unemployment exceeds 33% and a third of working-age women are unemployed. Indeed, most Arab countries suffer from excessive unemployment and high female and youth unemployment - not just Iran.

Unlike the 2009 protests in Iran, which were led by urban middle class, recent demonstrations have been fueled by discontent in rural areas and small cities; the core constituencies of former president Mahmoud Ahmadinejad, who seeks a political comeback and was arrested for inciting unrest against the government.

It is this economic unease that is being further stirred by new US sanctions and alleged destabilization efforts – which aim to undermine Iran’s ongoing policy recalibration in the Middle East.

Shifting toward East

Only two weeks before the protests, Iran’s media reported that the country would join the Russia-led Eurasian Economic Union (EEU) in early 2018. Turkey and Central Asia are shifting away from the Brzezinski Doctrine of a US-led Central Asia.

In addition to Russia, the EEU includes Kazakhstan, Belarus, Kyrgyzstan and Armenia. It is meant to guarantee free transit of goods, services, capital and workers among member states. The participation of Iran in the EEU would increase the Union’s population to 260 million and its GDP to close to $1.9 billion -which would make it the world’s eighth largest regional entity, right after India.

Even more important is Iran’s proposed role in the evolving One Road One Belt initiative (OBOR). Through the worst days of the 2010-16 sanctions, major Asian countries remained engaged in Iran’s economy. In the coming years, these countries are likely to support Iran to emerge from the sanctions isolation, to diversify its economy away from oil and gas and to become a major regional trading hub.

Recently, China and South Korea's oil imports have reached or surpassed pre-sanction levels, while purchases by Japan and other Asian countries have been slower to rebound. Iran has regained access to some $115 billion in hard currency held abroad (whose repatriation was restricted by foreign banks to comply with US sanctions). At the same time, China’s share of Iran’s global trade has climbed from 20% in 2010 to 31% in 2016. Moreover, foreign direct investment in Iran has soared, growing five-fold to 12.2 billion in 2016.

America's assertive sanctions policy is not just misguided but self-defeating. Since it penalizes rightful compliance, its credibility is crumbling across the Middle East. It is alienating US allies and strengthening US adversaries. It can slow Iran's participation in OBOR initiatives and its reintegration in the world economy but it cannot stop Iran from taking its rightful place in the family of nations.

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/

The original commentary was released by China-US Focus on January 15, 2018