Good Regional Vibrations from a Nuclear Deal with Iran

Paul Pillar

The negotiations between Iran and the consortium known as the P5+1 (the five permanent members of the United Nations Security Council plus Germany) about the future of Iran's nuclear program are inching back into the news after being largely obscured by other diplomatic tasks and events over the past couple of months. The two sides will be fully engaged in the talks during the remainder of this month, in anticipation of a late-November target date for completing a deal. We are hearing again technical and numerical details about centrifuges and capacity for enriching uranium that represent much of what evidently needs to be resolved for a final agreement. But the significance of an agreement, and thus what is at stake in whether or not one is reached, go far beyond the nuclear minutiae. They extend to the capacity of the United States to address fully and effectively many problems in the Middle East and South Asia.

This week The Iran Project, a group led by former U.S. ambassadors and dedicated to supporting U.S. interests through diplomacy on matters that involve Iran, released a report on likely regional implications of a nuclear deal with Iran. (I am involved with The Iran Project and participated in preparation of the report.) The report has some thirty signatories and endorsers, including former national security advisers and other former senior officials. A premise of the report is that a successful nuclear agreement, by resolving the issue that has so heavily dominated for years the U.S.-Iranian relationship in particular, is likely to have other repercussions in the Middle East. This is partly because it would open up opportunities in the U.S.-Iranian relationship itself to address other problems of mutual concern. It is also because, given the importance of the United States to many states in the region, there are apt to be secondary effects involving the relations of those states with Iran.

In anticipating any such regional changes, it is important to distinguish actual interests and likely post-agreement behavior from what regimes may say disingenuously for effect today. This is most obviously the case with Israel, where smart people concerned about a possible Iranian nuclear weapon realize that the object of their concern is much less likely to materialize with an agreement than without one, but where the right-wing government is doing everything it can to kill a deal in order to keep Iran in the international doghouse, suppress it as a competitor for regional influence and U.S. attention, and retain it as an all-purpose bogeyman to distract attention from things the Israeli government would rather not talk about.

To a lesser degree there is some of the same divergence with the Gulf Arabs and especially Saudi Arabia, whose preferences regarding Iran have long been subject to misinterpretation. Certainly the Saudis have long seen Iran as a competitor for economic and political influence, going back to the days of the shah. But the Saudis also have their own history of rapprochement with Iran, including with the Islamic Republic. The two big Persian Gulf states, along with the smaller Gulf Arab monarchies, share an interest in not letting instability in their neighborhood spin out of control and threaten, among other things, the oil trade. Over the last several months the Gulf Arabs, probably stimulated by the prospect of better U.S.-Iranian relations, have once again moved toward their own rapprochement with Tehran, as reflected in some high-level visits.

Iran's own perspectives toward the region have evolved significantly since the first few years after the revolution. In those early days of the Islamic Republic, there was a view that the revolution would not survive if it did not spawn like-minded upheaval in nearby countries. Three and a half decades later, Iranian leaders know that is not the case. There still is an Iranian sense—more ostentatiously apparent under the shah—of Iran as a nation with a glorious history and rightfully exercising a regional leadership role. But right now the main Iranian goal is to get out of the doghouse and enjoy full and normal relations with the rest of the region. That means all of the region, not just a Shia crescent. As Iranians know, there are more Sunnis that Shiites.

Some of the irreconcilable hardline American opponents of an agreement have been putting a few more of their cards on the table in the last few months and in effect admitting that what they don't want is not just a “bad” deal but any deal at all with Iran. Sign an agreement with Tehran and start lifting sanctions, they say, and Iran will exert more influence in the region—as if that were ipso facto bad. But whether it really would be bad, good, or neutral depends on what that influence would be used for, and how the Iranian objectives relate to U.S. interests.

In fact there are conspicuous parallel interests that the United States and Iran share in the region, and they have just gotten more conspicuous and parallel with the surge of alarm about ISIS. The parallel interests are most apparent in the countries immediately adjacent to Iran, to its east and its west. To the east is Afghanistan, where after 9/11 and the beginning of Operation Enduring Freedom, U.S. and Iranian officials worked very effectively together in forging a new and moderate Afghan political order under Hamid Karzai—until the George W. Bush administration slammed the door in the Iranians' face by declaring them to be part of an axis of evil. The United States and Iran continue to share interests in a stable Afghanistan in which extremists such as the Taliban do not rule, religious and ethnic minorities have their rights respected and share in political power, violence is not exported, and the drug trade is curtailed.

To the west in Iraq, the principal Iranian objective is never again to see a regime that would, as did Saddam Hussein in 1980, launch a war of aggression. The Iranians do not want endless instability on their western border. They want Iraqi Shiites to have power commensurate with their majority numbers, while they realize—as indicated by their welcoming the departure of former prime minister Nouri al-Maliki—that narrowly sectarian or authoritarian rule does not serve either Iraqi stability or their own interests. They definitely oppose the rise of Sunni fanatics such as those of ISIS, as indicated by the very active support that Iran is giving to the Iraqi government in opposing ISIS. All of these objectives are consistent with and even supportive of U.S. interests. And on the last topic, they are directly supportive of what has come to be seen in the United States as a pressing policy priority.

The potential for—and the need for—greater coordination and communication between the United States and Iran should be obvious, and a nuclear agreement would open the door to more such coordination and communication. Evidently it is not obvious, however, to some of the members of the Senate Foreign Relations Committee who questioned Secretary of State Kerry this week and wanted to make darned sure that the United States was not coordinating with Iran about confronting ISIS. Evidently some members, however much they may be fired up about anti-ISIS measures, believe that uncoordinated measures are better than the coordinated variety. Iran is more evil than ISIS, explained one member. Such attitudes are directly detrimental to the pursuit of important U.S. interests in the Middle East.

If the negotiators succeed in reaching a deal, by all means let us evaluate it according to the specific declared purpose of making an Iranian nuclear weapon less likely, and let us discuss whether the agreement does a better job of that than the absence of an agreement would. But let us also weigh an agreement versus no agreement according to all the other U.S. interests in the region that might be affected. Movement toward a more normal U.S.-Iranian relationship would be a step toward making possible the practice of U.S. regional diplomacy without having one hand tied behind our back—tied by ourselves because we have subordinated so much else to the nuclear obsession.                        


TopicsIran Iraq terrorism RegionsMiddle East

The Federal Reserve Will Never Be Dull Again

The Buzz

Much is being made of the Federal Reserve beginning to normalize its policy. It sounds as though the Federal Reserve is getting back to its old, boring self. While labor market progress is debatable with too many part-timers and a low participation rate and inflation remains subdued, the Fed is set to cease its quantitative easing (QE) stimulus program. The federal funds rate or “fed funds”, the primary tool of monetary policy, is set to re-emerge as the favored instrument.  The Fed will wind down QE in October, and begin to raise interest rates sometime thereafter. The theory being that the US economy can support normalized policy without stumbling—at least too much. It seems the Fed will once again become the dull and subtle institution.

But this is simply not the case. Monetary policy is not going to be “normal”—and the Fed is not going to be boring, dull or subtle—anytime soon. At nearly 0 percent, the fed funds rate must move much higher to reach pre-recession levels. From January 1993 (the trough in fed funds after the 1990 recession) through the end of 2007 (before the Fed dropped it to nearly 0), the monthly average was about 4.4%. This would be no small move from current levels. The Fed itself sees rates of around 4 percent in the longer run, but does not agree on how quickly to move towards it. The Fed is also up against the downward trend in the fed funds rate since the late 70’s, early 80’s inflation was broken—each business cycle saw increasingly lower Fed Funds to combat an economic slowdown, and lower peak rates to cool an expansion.

Aside from the time it will take to move Fed Funds back to a more normal level, the side-effects of quantitative easing will take time to work out. The Fed’s balance sheet is currently sitting at about $4.4 trillion as QE led to the rapid accumulation of assets. The Fed should stop adding to its stockpile soon, but that does not imply that it will stop its purchases.

Much attention has been paid to how quickly the Fed purchased additional assets, but little given to the “rolling of maturities”. The Fed is currently maintaining the size of its balance sheet by purchasing new securities with the proceeds of those that mature. This keeps the balance sheet the same size, but does not increase it. A critical part of Fed guidance will be how quickly—if at all—they shrink the balance sheet. There are options. The Fed could stop rolling entirely, roll a portion, maintain the current policy and allow the balance sheet to stay large, and tweaking around the amount of mortgage-backed securities and treasuries among other options. The Fed has stated it intends to reduce the balance sheet to only what is necessary to operate, will hold mostly treasuries, and will let them roll-off, but has not provided guidance on when or how rapidly. The key here is that the Fed will be purchasing securities after it “ends” its QE program—just not growing the balance sheet.

It is worth asking whether Fed policy will ever approach something equivalent to a historical norm. For the moment, the answer appears to be no—at least for a very, very long time. Even if the Fed is able to raise fed funds moderately over the next couple years, it is unlikely it will be able to move them higher quickly enough to get them “off the ground” in any real way. There is also the question of how effective monetary policy can be in this type of environment. If there is a shock to the economy in 2016 and the Fed Funds rate is sitting at 1.5%, how will the Fed react? With little room to move rates lower, the Fed would likely resort to QE or halt shrinking the balance sheet (or both). Unconventional monetary policy is becoming much more conventional.

The Fed is nearing the conclusion of its latest round of QE, but this does not mark the end of an era. The balance sheet will remain inflated for a long time—even if an effort is made to reduce it. The balance sheet will become a more important  tool of monetary policy (shrinking the balance sheet is a form of relative tightening). QE will likely be used in the future to stimulate the economy as moving the fed funds rate has less of an effect. A once simple to understand institution—moving interest rates up or down—has become an increasingly difficult one to understand. Monetary policy may someday return to the simplicity of old, but normal will not return anytime soon.

Image: Flickr/Creative Commons. 

TopicsEconomics RegionsUnited States

A World of Scotlands

The Buzz

Regardless of how the Scottish referendum on independence turns out, it’s worth putting the event into context by recalling some basic facts concerning the rate of state proliferation. That’s not a topic that gets a lot of attention in news media. But how many countries do you think there are in the world today? Actually, the answer depends on how you define “countries,” but “about 195” wouldn’t be too far from the truth. Given there were 68 in 1945, the number of countries in the international community has—roughly—tripled over the past seventy years. In short, state proliferation has been a powerful force, even during those Cold War years that we like to think of now as a veritable model of strategic stasis.

Moreover, there’s no reason to think the number of countries in the world has peaked. In his work on geopolitics, Saul Cohen, for example, argues that “the creation of up to fifty additional quasi- or fully independent states over the coming decades will change the territorial outlines and functions of many major and regional powers.” Indeed, political disaggregation will likely continue despite—indeed, partly because of?—the centripetal forces of globalization, as testament to the strength of what we might call “identity politics.”

These days, there’s a popular myth that state boundaries tend to be fixed and inviolable—witness the recent outcry over the de-facto annexation of Crimea by Russia. In reality, though, state boundaries are not nearly as fixed as many might imagine. Take a look at this brief three-minute video (see above) of how borders have changed in Europe over the last thousand years. It requires no great act of imagination to believe that an independent Scotland might arise—nor that it might, at some point in the future, be reabsorbed into the United Kingdom. Over long time frames, change seems normal.

The map’s not good at depicting the global growth in the number of states over the last seventy years—not least because decolonization was a strong driver of state proliferation and most of that happened away from European shores. Nor is the map a good indicator of strategic angst. Seen at a distance—on a computer screen or from the other side of the world—state proliferation is an interesting phenomenon to watch. Seen close up, it’s highly unsettling and strategically unnerving. Consider the attempts by the Bougainville Revolutionary Army to force Bougainville’s secession from Papua New Guinea. Or remember when East Timor gained its independence from Indonesia and the effects that had on the Indonesia-Australia relationship? Similar effects, perhaps more severe, would attend any move towards independence by West Papua.

And so far we’re only talking about relatively small cases of state proliferation. While some might think the prospect a Black Swan event, a broader break-up of the Indonesian archipelago, for example, would have major geopolitical consequences—indeed, it would fundamentally reshape Australia’s strategic environment.

Whether Scotland votes for independence or not, the big message is that state proliferation remains an important driver in international politics.

Rod Lyon is a fellow at ASPI and executive editor of The Strategist where this first appeared

TopicsDomestic Politics RegionsScotland

If Scotland Bolts: What Happens to the UK’s Security Council Seat?

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As Scotland approaches its independence referendum on Thursday, desperate unionists are groping to bolster the “No thanks” cause. There is no shortage of compelling reasons to stick together. But one claim being advanced is truly far-fetched: that Scottish secession endangers the United Kingdom’s permanent seat on the United Nations Security Council (UNSC). Last week former British Prime Minister John Major alleged as much, warning, “We would lose our seat at the top table in the UN.” This ignores geopolitical realities and historical precedents.

The fear-mongers have concocted the following story: The UN Charter has no provisions for succession to UNSC permanent seats, and this legal void provides a potential opening for diplomatic chaos that spoilers and troublemakers may fill. The UK achieved its permanent seat in 1945 as the United Kingdom of Great Britain (England, Scotland, and Wales) and Northern Ireland. Its dissolution will result in two successor states, the rump UK and Scotland, neither of which—or, alternatively, either of which—is eligible to claim that seat. The result will be political turmoil and jockeying, perhaps spurred by Russia or China, over which country should occupy the UNSC’s permanent fifth seat. The diplomatic crisis will also embolden major emerging powers like India and Brazil, and perhaps longtime aspirants such as Germany and Japan, to stake renewed claims.

This is not going to happen. The near-certain outcome, if the Scots unwisely choose to go it alone, is that the authorities in Edinburgh will immediately recognize the UK government’s UNSC claim. A newly independent but closely integrated Scotland has everything to lose and nothing to gain by disputing the UK’s permanent seat. (Nationalism may be “political romanticism,” in Isaiah Berlin’s words, but even the most starry-eyed Scots understand that a country of fewer than six million has no permanent slot on the UNSC). Perhaps more surprisingly, the attitude of the remaining permanent four UNSC members will be identical: they will quickly recognize the rump United Kingdom as the state entitled to permanent membership.

These decisions would be consistent both with historical precedent and the national interests of other Security Council members. When the Soviet Union dissolved in 1991, the Commonwealth of Independent States (comprising the states that broke away from the Soviet Union) endorsed the Russian Federation’s claim to the permanent UNSC seat. Russian President Boris Yeltsin transmitted a letter to this effect to the UN secretary-general, who shared it with the broader UN membership. He received no objections, as UN members sought to avoid a UN constitutional crisis. The other permanent members quickly recognized the Russian Federation as the successor state on the Security Council. All this occurred even though the Russian Federation’s population (149 million) was 48 percent smaller than the Soviet Union’s (285 million). Russia also became the only former Soviet Union nation to earn recognition as a nuclear weapon state. Belarus, Kazakhstan, and Ukraine all proceeded to eliminate their arsenals.

In proportional terms, Scotland’s departure from the UK would represent far less of a demographic and economic hit, reducing its population by 8 percent, from 64 to 58.7 million, and its GDP by approximately the same percentage. The two successor governments would have little difficulty negotiating new arrangements allowing the rump UK to retain control over its nuclear arsenals parked on Scottish soil, as well as military bases there.

The disintegration of the Soviet Union may be the most obvious historical precedent, but it is not the only one. Across the Channel, France provides another—albeit more violent—example, in the case of French Algeria. Unlike the majority of French imperial acquisitions, Algeria was no mere colony. After 1848, Algeria was constitutionally part of metropolitan France, administered as a French département. After a bloody civil war, the government of President Charles de Gaulle eventually agreed to independence in the Evian Accords, confirmed in an Algerian referendum of July 1962. Although this departure significantly reduced the territory of “France,” it had no impact on France’s status as one of the five permanent UNSC members.

So the past is the prologue. Unless, some argue, the other P5 members want to kick out the UK? Washington and Paris, obviously, will be solidly in London’s camp, anxious to (re)consolidate the Western triumvirate on the UNSC. But why wouldn’t Vladimir Putin, angered at Western “meddling” in Ukraine, seek to flex his muscles by opening up the question of UNSC membership? Might China, too, seize the moment to shift the balance of forces on the Council away from the West?

No. Neither Russia nor China will do anything of the sort. Russia is as much a declining as a rising power, given its dismal long-term demographic, economic, technological, and military prospects. A permanent seat on the UNSC, along with the world’s largest nuclear arsenal, are its two central claims to great power status. Moscow has zero incentive to open up the Pandora’s box of permanent membership, and it has been most vocal among the P5 in opposing various recent proposals for UNSC enlargement. Beijing has been content to hide behind Russia’s position. At a rhetorical level, China claims to favor an expanded UNSC, but only in its “elected” (as opposed to permanent) membership. Beijing adamantly opposes the permanent membership candidacies of both Japan and India (its ostensible BRICS partner).

The upshot? The rump UK might face some diplomatic complications. But it is unlikely to find its permanent UNSC seat in jeopardy.

During its first term, the Obama administration declared itself open in principle to limited UNSC enlargement, including additional permanent members. But despite a flurry of diplomatic excitement in 2010 (including an oblique endorsement of India’s eventual membership), the White House has done zero to follow up on this diplomatic tease. And it is not about to do so now, at the expense of its closest ally. Indeed, a “yes” vote for Scotland’s independence would doom any prospects, however remote, of U.S. leadership on UNSC membership reform.

This is understandable. But in a larger sense, it is also unfortunate. With each passing year, the composition of the UNSC, particularly its permanent membership, diverges further from the global distribution of power. With no periodic reset to accommodate rising nationsprepared to contribute to international peace and security, and with some current members (notably Russia) devoting themselves to obstruction, the perceived legitimacy and practical efficacy of the UNSC will decline, and dissatisfied nations may increasingly ignore or bypass it in pursuing national security interests.

But this is a struggle for another day, when minds are not so focused on long-ago battles from Bannockburn to Culloden Moor.

This article first appeared in The Internationalist blog on the Council on Foreign Relations website here

Image: Flickr/Creative Commons

TopicsSecurity RegionsScotland

Australia and India: A Nuclear Alliance?

The Buzz

Recently Australian Prime Minister Tony Abbott signed a nuclear safeguards agreement with India, allowing Australia for the first time to export uranium to India for civil nuclear purposes. The agreement is touted as a win for Australia’s small uranium sector and a needed step towards improving Australia–India relations. India’s refusal to sign the NPT constrained relations for decades. It’s widely understood that the uranium deal is more directly related to diplomacy than boosting Australia’s mining sector, so what’s next now that the safeguards agreement has been signed?

The uranium deal is first and foremost a diplomatic gesture meant to jumpstart Australia’s broader engagement with India. Both countries share an interest in Indian Ocean maritime security and bilateral military relations can be built around that common interest. We should expect to see strengthened dialogue between India and Australia on security issues. And we can expect that more joint military exercises and military-to-military exchanges will also be announced. A bilateral naval exercise is already scheduled for 2015.

There’s also potential for increased economic engagement between Australia and India. Trade Minister Andrew Robb plans to lead a business delegation of 300 to India early next year. Australia recognizes a need to diversify its trade partners, and bilateral trade with India trails far behind that with other major Asian partners. India could become a large-scale market for Australian goods and services. And its surging need for energy security coupled with Australia’s competitive advantage in energy-supply potentially makes for a strong partnership. In the short term, we can expect coal to continue to be a significant export and later LNG will emerge to fuel India’s economy.

Although this agreement will spark some optimism in the struggling uranium business, it won’t make anyone rich anytime soon. Uranium prices are extremely weak due to decreased global demand in the wake of the Fukushima disaster in Japan and there’s a global excess of supply. Although Australia’s known resources are the world’s largest, uranium’s only a small part of Australia’s massive mining sector.

Moreover, it’ll take some time before uranium shipments to India begin. Australian mining company Toro Energy said shipments could start within five years. Things will likely change for Australia’s uranium sector as India and China deliver on their prospective nuclear power projects.

There’s been some concern that the uranium will be used not just for civil purposes. That’s a point of controversy given concerns about India’s nuclear arsenal. However, this June India signed the additional protocol with the International Atomic Energy Agency (IAEA) placing its ten reactors under the agency’s safeguards. That agreement also allows inspectors into the country and requires India to report to the IAEA all uranium within its control that is redirected for export to a third-party country. Australia also has its own watchdog, the Australian Safeguards and Non-Proliferation Office (ASNO). To ensure Australian uranium isn’t used for military purposes, ASNO accounts for it as it moves through the fuel cycle. India will be obliged to report to ASNO on the uses of uranium purchased from Australia.

While Australia can’t be completely certain uranium will never be diverted for military use, India knows there would be serious diplomatic consequences if it was discovered that such diversion had occurred.

The nuclear safeguards agreement is a diplomatic tool meant to build trust with India and move bilateral ties forward. As an economic tool, it’s a forward-looking measure to supplement India’s energy needs with Australian resources.

Kyle Springer is the program associate at the new Perth US Asia Centre at The University of Western Australia. This piece first appeared in ASPI’s The Strategist here

Image: Office of the PM, India. 

TopicsSecurity RegionsIndia