Will Falling Oil Prices Kill Iran's Economic Recovery?

The Buzz

Oil prices have been tumbling for weeks—they were at twenty-seven-month lows this morning and fell further throughout the day. That’s good news for consumers—and bad news for producers. But the man who should be most uneasy is Iranian president Hassan Rouhani. He had promised an “economic boom” and lower inflation, and has even suggested that Iran has the potential to be one of the world’s ten largest economies within thirty years. And he’s had some successes. Iran’s economy isn’t zipping and inflation is still extreme, but he has calmed the widening gyre of economic chaos that former president Mahmoud Ahmadinejad had stirred up and worked to reduce Iran’s economic isolation.

Getting the Islamic Republic’s budgets in order required serious austerity measures. Now even the shrunken budget may be in danger. The current budget, in effect until March of next year, was designed for an oil price of $100 and oil exports of 1.5 million barrels per day. Iran has struggled to hit the latter target—in June, as oil prices were peaking, it came up a few thousand barrels a day short, and then fell more the next month. Now it might have trouble hitting the former, too. Brent crude oil, whose prices tend to hug Iran’s main crudes, hit a low below $91 today (it had been over $113 in June); the futures market anticipates $93-$94 per barrel for many months to come. Compound that with the difficulty Iran has making straightforward, efficient cash transactions under the sanctions regime, and one cannot help but wonder whether Tehran will struggle to get hard currency, to sustain its expenditures, to control inflation, or to get that “economic boom.”

Rouhani will have trouble delivering on his promises, and that will weaken him at home. Conservative elements in the Majles will intensify their criticism—and more moderate conservatives may join the fray. In the longer term, Rouhani would also have to worry that reformist enthusiasm may fade. Reformists have always been split on whether to change the Islamic Republic from within—and thereby dignify it with their participation—or to withdraw from the system. Rouhani has already lost some of his shine among reformists, particularly for his recent claim that Iran would not imprison journalists. Economic weakness could compound that trend. Would a reformist majority after the 2016 Majles elections—already not a sure thing, especially if the vote is not fair—slip away?

The most pressing issue in Iranian politics isn’t the economy. The nuclear negotiations, which are coming to a head as the current interim deal is set to expire next month, are. A successful nuclear deal would bring huge, sustained economic benefits. Western money would rush in. Western expertise would help Iran boost its oil production and thus the government’s budgets. And such a major political and economic success would enormously strengthen Rouhani’s hand and create a chance of big gains at the ballot box for his fellow travelers. A sagging oil market thus increases the opportunity cost of not making a deal. Iran has less leverage at the negotiating table. Seen from beneath an accountant’s green eyeshades, an agreement now looks more likely and more likely to be favorable to the West.

But the accountants don’t run Iran. Supreme Leader Ali Khamenei does—with the backing of a tangle of ideological and economic interests that stand to lose if a deal makes Iran more open to the West. And cutting a deal has always been the wise move from a purely economic standpoint. The nuclear facilities have been expensive to build, and the international response to them has been even costlier for Tehran. The only serious economic benefit they offer—the potential for nuclear energy—would take decades of construction and many billions more dollars to realize, and could have been done with foreign help for a much lower price. A bit of red ink on the spreadsheets might not be enough to make the ayatollah fold.

Khamenei also isn’t deeply invested in Rouhani’s political fortunes. Sure, he let Rouhani run, and then let Rouhani win. He’s backed the nuclear negotiations. But he’s also allowed withering criticism of Rouhani’s administration in the Majles and the hardline press. He’s let the Majles impeach one of Rouhani’s cabinet members. He’s publicly questioned the utility of the nuclear talks, and drawn red lines that limit Iranian flexibility. He won’t go into panic mode if Rouhani’s poll numbers drop a few points.

Further, to the extent that the nuclear talks also require negotiation between Rouhani and his allies on one side and Khamenei and the hardliners on the other, a weak oil price cuts into Rouhani’s leverage. So while a deal has become more likely when seen from an international lens, it’s become less likely when seen from a domestic politics lens. Thus, if oil prices hold around their current low levels, we’ll get a chance to see just how eager Khamenei and his allies are for a deal.

John Allen Gay, an assistant managing editor at The National Interest, is coauthor of War with Iran: Political, Military, and Economic Consequences(Rowman and Littlefield, 2013). He tweets at @JohnAllenGay.

TopicsEconomicsNuclear Proliferation RegionsIran

Selling Vietnam Lethal Weapons: The Right Move?

The Buzz

Last Friday, the Obama administration partially lifted the U.S. ban on lethal arms sales to Vietnam, which had been in place since the end of the Vietnam War in 1975. According to the Associated Press, on Friday, “State Department spokeswoman Jen Psaki told reporters the United States will now allow sales of lethal maritime security capabilities and for surveillance on a case-by-case basis.” These lethal arms sales will, for now, remain relatively limited, though the United States could sell Vietnam boats and planes, which would theoretically be used for Vietnam’s coast guard.

This first step in selling lethal arms to Vietnam, though heavily criticized by human rights groups because of Hanoi’s deteriorating record on political and religious freedoms, likely will be followed by greater arms sales, including naval and air force assets. And it is true that Vietnam’s government has increasingly cracked down on dissent of all types over the past five years. In particular, the government in Hanoi has waged a harsh campaign against Internet writers, bloggers, and social media activists of all types, jailing many and instituting some of the toughest restrictions on Internet and social media use of any nation in the world.

In general, as I have written, I think the Obama administration’s Southeast Asia policy has often overlooked human rights and democracy promotion, allowing the region to slide backwards in terms of political freedom, since the United States has said little about democratic rollback in many nations and has allied itself with some of the more autocratic countries in the region. This is, in general, a mistake, since the United States is alienating Southeast Asians while, in general, reaping little strategic benefit from its relationships with many of the more authoritarian nations in the region.

But Vietnam is the exception.  Of all the countries in mainland Southeast Asia, only Vietnam has provided–and will provide–enough strategic benefits for the United States to justify closer ties to such an authoritarian regime. Unlike in Myanmar or Thailand, in Vietnam the government, though repressive, has clear control over the armed forces, and though the Vietnamese regime certainly is guilty of a wide range of abuses, the actual Vietnamese military itself is, in many respects, less abusive and more professional than those of Myanmar or Thailand. Vietnam is, overall, more stable than Myanmar or even Thailand, and the population, despite the history of war with the United States, tends to be ardently pro-American. But there is no denying that Hanoi harshly represses dissent, minority rights, freedom of religion, and other freedoms.

Vietnam’s military is not only under civilian command but, more important strategically, is larger and, in a conflict, potentially far more effective than that of any other country in mainland Southeast Asia, including Malaysia and Thailand. Vietnam’s navy is professional and well-trained. Vietnam’s strategic location, right next to the South China Sea, puts it at the center of vital shipping routes and at the heart of one of the areas where the United States and China are most likely to come into conflict; Washington and Beijing are unlikely to come into conflict over the Mekong region, despite the Obama administration’s decision to re-engage with mainland Southeast Asia. Vietnam’s Cam Ranh Bay would offer the best harbor for U.S. naval vessels in case of a conflict in the Sea. And unlike Thailand or Malaysia, Vietnam, which has fought wars with China for centuries and shares a long land border with China, has few illusions about China’s rise, and is willing to back up its position on disputes with Beijing with skillful diplomacy and the real threat of force. What’s more, a younger generation of Vietnamese officials, who did not fight in the war, has come to dominate the foreign ministry and military; they see a stronger relationship with the United States as essential to Vietnam’s future security.

Paul Leaf, a defense specialist, offers a fine summary of Vietnam’s advantages as a partner:

Vietnam’s military outlays climbed 130 percent from 2003 to 2012—making it Southeast Asia’s second biggest defense spender as a proportion of GDP—which Hanoi is using to modernize its naval and air forces. Its location is strategically valuable: Vietnam shares an almost 800-mile border with China and it abuts the South China Sea. Finally, Vietnam is tough, having kept an outnumbered and outclassed group of vessels near China’s rig during their 75-day summer [of 2014] standoff.

As the most populous nation in mainland Southeast Asia, Vietnam also is an economy that, if it handles its current turbulence, has far more room to grow than most other nations in the region.

Does all of this excuse Vietnam’s harsh repression of dissent? Of course not. But foreign policy, at times, entails balancing strategy and values, and despite my own strong convictions about democracy and human rights, in Southeast Asia Vietnam is the one place where, to my own sadness, the strategic side of the ledger should win out. The White House should move forward with further arms sales. In an upcoming working paper, I will examine how the United States and Vietnam could build on arms sales and move toward a formal treaty alliance.

This piece first appeared on CFR’s Asia Unbound blog here.

TopicsSecurity RegionsVietnam

Avoiding the Long War Redux

The Buzz

As bombs and missiles have begun to drop in ISIS strongholds in northern Syria, military experts are warning that the air campaign will be measured in months, if not years, and that a ground campaign must certainly follow.  President Obama said as much in his address announcing the commencement of the campaign against the IS.

The Obama plan cannot be considered a strategy yet--significant pieces are missing. It was formed as much if not more so from domestic political realities and those constraints rather than what is necessary to defeat the IS.  It is in part why there are two separate, though complementary, missions to destroy the IS in Iraq and to degrade it in Syria.  

Destruction of the IS cannot be done by airpower alone, and there are some questions of how much of it can be degraded by airstrikes. In this context, air power can be likened to trying to swat a pesky fly with a hammer – but given the number of flies and their geographic spread, an area the size of the United Kingdom, this can be a wearisome and lengthy process.

Based on how many sorties were flown over Libya, we can surely expect the air campaign to last between six months to well over a year and that was with a proxy ground force provided by the National Transition Council.  There is no such ground force in Syria or even in Iraq and so we are once again facing a long war.

Above all it is the duration of our engagements overseas, the years in Iraq and Afghanistan without satisfactory conclusions, and the billions that were spent, that have soured western publics to any sort of overseas military engagements, especially those which feature the commitment of ground forces.

Facing the threat that the Islamic State evinces--with its beheadings, its pre-medieval use of crucifixions, the purposeful elimination of non-adherents in their midst and the subjugation of what remains to servitude--has galvanized nations and people to act, notwithstanding their visceral reluctance to do so. People understand that the IS, wrapped in a cocoon of quasi-statehood represents a danger if left untouched.

In the towns and cities it holds, an entire new generation of youth is being schooled in the Islamic State’s sanguinary curriculum of terror. It isn’t our intervention that will make more martyrs and converts; it is our non-intervention that will.

In response, a coalition that includes Arab states, puts an end to the question “why it’s always only us”.  The participation of regional Sunni states is helping defy the narrative that it is the West against Islam.  

However, military action is not inexpensive. The estimates from the United States are that this will cost between seven to ten million dollars a day, or $3.6bn dollars a year, not including contributing nation costs.

Unlike the Second World War, where spending supported mobilization and increased hiring, modern wars do not produce the same economic effect and  monies spent on long wars could be directed for more productive uses.

President Eisenhower in his famous parting speech said: “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.”

Beyond fiscal cost, there is a further societal cost to consider at home.

In the 19th century, Robert E. Lee opined that warfare should be fierce lest we grow too fond of it.  A century later in 2004, the historian Niall Ferguson was struck by the festive atmosphere in Las Vegas, while the U.S. Army was slogging it out in Iraq. Video of antiseptic, high tech missile strikes, mesmerizing us with their precision will become part of our daily fare of news, in a similar fashion to the day’s box scores and traffic reports. It is Orwellian in its imagery, where a society is in perpetual war but disengaged from it.  Along with that separation is the inescapable reality that prolonged war produces a drain on the national spirit the longer that conflict endures.

This is not an argument to avoid going to war against ISIS, in fact it is quite the opposite.

The quicker ISIS can be decisively degraded if not destroyed the better.  This requires a punishing air campaign coupled with a ground force follow up. Instead of one hammer employ many and end this military intervention quickly.

The air campaign, appears to be under-resourced compared to what established the winning conditions for Desert Storm for example; as if the coalition is hoping that precision will replace the persistent coverage that only mass can provide.  While an air campaign answers the public perception of action it cannot fully succeed on its own.   That is exactly what coalition leaders must openly discuss and confront.

The Obama plan recognizes the need for a ground campaign; It is short on detail on who will do that making this only a plan at the moment and not a strategy.

The mainly conventional nature of the ISIS enemy, the terrain and, a long secure allied border with Turkey mean that a ground campaign could be conducted with lighting speed.

In Gulf War One the air campaign lasted five weeks, and the ground operation liberating Kuwait was completed in 100 hours.  The point being that success is possible if aims are limited to the destruction of the IS, and not a mission to establish government or re-establish civil society by military means.

The end of conflict in Gulf War One is also instructive, as there was no “complicated” exit strategy.  When Kuwait was liberated, the troops came home.  Limited objectives, clear goals and a short war are the lessons to be drawn.

Two divisions, of a well-led modern mechanised force preferably US led that would not exceed 50,000 should have no difficulty advancing North on a Baghdad,  Mosul axis, then swinging west driving to Lake al Assad as its limit of exploitation.

Its left boundary, once in Syria, would be the Euphrates River, north of which is exclusively the IS domain.  The Turks, whose border runs across the entire line of advance would be enjoined to provide secure basing for the logistics effort, and holding attacks along the length of those borders.

That sweep, would provide Turkey the buffer zone that they have long argued for and they can be asked to man it under a UN mandate in effect reducing the creation of newly displaced and facilitating humanitarian aid delivery.

That alone is not enough and international pressure must be maintained for the creation of inclusive governments in the region.  Without the sharing of real power in Baghdad, the Sunni’s will have every reason to distrust both the current regime and the US.  In Syria, the faster the IS is destroyed, the less Assad will benefit and the Free Syrian Army might have a chance to concentrate instead of fighting a two front war – one against Assad, another against the IS.

It is important to remember how we got here in the first place and understand it to avoid another re-dux; that being the very delicate matter of the Sunnis in Iraq.

The roots of the IS were spawned in the Sunni suppression and its subsequent marginalization soon after the Iraq invasion.  When repaired by extraordinary US efforts during the surge, gains were squandered by a Iraqi government, in the absence of a US presence, that re-fomented sectarian divides further marginalizing the Sunnis; resulting inter-alia in an Iraqi army that could no longer fight despite the billions spent on creating it.

In Syria, as civil demonstrations against Bashar al Assad became a rebellion and then a full-fledged civil war, the United States and the West had nothing to offer except words.  International “Red Lines”, proved to be nothing more than posturing, adding to a long list of missed opportunities where what might have emerged as a moderate opposition with western support quickly became overrun and divided by fundamentalists.

Between those two tinder boxes, ISIS, and the IS was born.

To simply bomb the ISIS over the course of a year without becoming diplomatically engaged in resolving the baseline issue of Sunni marginalization in Iraq and Syria will only create another ISIS down the road. In both Syria and Iraq, a positive outcome is only achieved, if IS is rapidly defeated and only then, will there also be an opportunity for humanitarian aid to freely flow.

To avoid the results experienced by the west over the last decade ; the most obvious of these being that “Long Wars with unclear purpose are not good.”  Use decisive military force, including land power, now--to bring ISIS to an end, to avoid a prolonged conflict and further human suffering.

George Petrolekas is on the Board of Directors of the CDA Institute and co-author of the 2013 and 2014 Strategic Outlook for Canada. Mr. Petrolekas served with NATO, in Bosnia, and Afghanistan and as an advisor to senior NATO commanders.

Howard Coombs is a professor of military history and war studies at the Royal Military College of Canada. The opinions expressed are their own.

Image: U.S. Army Flickr. 

TopicsISIS RegionsMiddle East

The Next Threat?: Boko Haram's "Islamic State"

The Buzz

On October 3 Boko Haram released a new video asserting that Abubakar Shekau is still alive. The video goes beyond “Shekau’s” usual rhetoric and Boko Haram violence. Here are five reasons to pay attention to this newest video:

  1. The quality of the video is very good. Typically, Boko Haram videos have been grainy and have had low-resolution. This newest video is clear and well produced. Parts of the video show other videographers filming. This quality of video production is reminiscent of earlier work by the splinter group known as Ansaru. This video could suggest that the two groups are now working together.

  2. It claims to show the remnants of a Nigerian jet fighter that went missing on September 12. The footage shows a jet wing that looks to be riddled with bullet holes. If this is indeed the missing Nigerian jet fighter, then Boko Haram likely has anti-aircraft weapons capable of shooting down the Nigerian military’s jets.

  3. It introduces Al Qaid (Commander) Al Midani Ali Al-khambuwi. He is the executioner of a man that Boko Haram claims is the pilot of the downed Nigerian jet. This is the first time that Boko Haram has shown the face of any commander other than “Shekau” in a video. This may suggest that they are trying to establish formal leadership as the group develops its own governance.

  4. It shows multiple examples of Boko Haram’s sharia justice: a couple being lashed, a man losing his hand, and a man being stoned to death. In each case there are large crowds of men and women witnessing the punishments. This indicates that Boko Haram has control over certain populations in northeast Nigeria and is reminiscent of MUJAO and other radical groups during their occupation of northern Mali.

  5. There are more references to an Islamic caliphate. In previous videos “Shekau” has used the terminology “Islamic state,” in this video he refers to Boko Haram’s territory in Nigeria as a “caliphate.” The flag used by Boko Haram in the video appears to be the same as the one flown by ISIS. While the two organizations seem separate it is clear that they have shared aspirations.

The reemergence of “Shekau” is not of particular interest. The Nigerian military continues to claim that the real Shekau died years ago, and, if he is still living, it is unclear what Shekau’s actual leadership role is. What is of great concern is Boko Haram’s increased military capabilities, control of territory, and its efforts in establishing its own “caliphate.”

This piece was originally posted in the CFR Blog “Africa in Transition” here.

Image: Wikicommons.

TopicsTerrorism RegionsAfrica

Nuclear Negotiations: Iran's Quest for Status

The Buzz

Policy makers tasked with cutting a deal with Iran over its nuclear program by the November deadline may find a set of useful lessons from the French nuclear-weapons program. Scott Sagan points out that France was largely motivated to pursue the bomb to restore the grandeur it lost during the Second World War. For de Gaulle and his predecessors, the bomb was an important symbol of French independence; after France lost Algeria, it demonstrated that France was still a great power. A similar dynamic may be at play with Iran over its demands concerning the right to engage in the enrichment of uranium.

When it comes to proliferation, many scholars and policy makers have largely ignored the possibility that status, rather than insecurity, is a primary motivation driving the behavior of states seeking to cross the nuclear Rubicon. Status refers to “an attribute of an individual or social role relating to rank.” States that are content with their standing in world politics are unlikely to pose problems for the prevailing international order. The states that pose a challenge are the ones that are dissatisfied over their rank in the international hierarchy. While these states may excel along one or more observable dimensions, from military prowess to economic strength to possessing a geographic sphere of influence, conflict is likely to ensue when the leading international powers refuse to recognize dissatisfied states’ claims to prestige. Conflict can come in the form of crises as well as war. Such conflicts are believed to resolve contests over status. The status dilemma resolves itself with either the leading powers granting a state’s status claims or the contestant backing down.

Many of Iran’s claims to enrichment appear to be driven by concerns over its status. In 2003, Iran agreed to a deal with the EU+3 whereby it would suspend the enrichment of uranium and sign the Additional Protocol to the NPT, allowing for more intrusive inspections. Mahmoud Ahmadinejad pointed to this agreement in the 2005 presidential elections as a humiliation for Iran. This issue is credited with having helped propel the then mayor of Tehran to the presidency. Throughout his tenure in office, Ahmadinejad continually reiterated Iran’s claims to having the right to enrich uranium under the NPT. Despite Ahmadinejad's current status as a political pariah, this is one part of his legacy that has managed to survive. Even though he was responsible for negotiating a deal with the EU+3 that involved the suspension of enrichment, President Hassan Rouhani, has reiterated some of the same claims to enrichment that his predecessor made. This suggests that concerns over status are alive and well within the Iranian body politic.

Western negotiators appear sensitive to Iran’s concerns over saving face. The United States has recently floated proposals that would recognize Iran’s right to enrich uranium while limiting its technical capacity to do so. Simultaneously, the Obama administration has also signaled that it may propose allowing Iran to keep 4,500 centrifuges in exchange for cuts in Iran’s fissile material stockpile. While Iranian negotiators have hinted that Tehran may be willing to reduce the number of centrifuges from the currently reported 9,400 to 7,000, other hurdles remain. Iran has insisted that multilateral UN sanctions be removed at the front end of a nuclear deal, rather than being removed piecemeal while the Islamic Republic demonstrates it is in compliance with any deal with the P5+1.

While the possibility of reaching a comprehensive nuclear deal with Iran by the end of November remains in doubt, there are a few options for satisfying Tehran’s demands for status and prestige while preventing breakout. The United States and other members of the P5+1 should tie prestige to states’ non-nuclear status. One issue that is of importance to Iran is the Persian Gulf naming dispute. Several Arab states along with some branches of the U.S. military refer to the body of water as the Arabian Sea, while international organizations, such as the UN, use the term Persian Gulf. The United States and the P5+1 could tie official recognition of the body of water as the Persian Gulf to Iran’s non-nuclear status. A second way is to lower the prestige of nuclear weapons. One way to do this is to allow for the limited expansion of the UN Security Council but make denuclearization a condition for permanent membership. Seyyed Hossein Mousavian and his colleagues at Princeton proposed a third idea that has failed to gain traction, but may be worth revisiting. This involved reducing the number of Iran’s older centrifuges in exchange for a smaller number of newer, more sophisticated centrifuges along with the construction of a multilateral enrichment facility.

Cooperation with Iran under the status dilemma may not be possible before the late November deadline, compelling the P5+1 to visit other options. These options start with pursuing another extension of the talks after November. This may prove to be difficult, if not impossible, if the Iranians are seen as intransigent and the Obama administration suffers huge losses in the upcoming midterm elections. In the United States, Congressional action is necessary for sanctions relief to take place; pushing through such legislation would be difficult with the current Congress and would be nearly impossible if the Democrats lost control of the U.S. Senate. If a deal were cut with the Iranians after the November elections, President Obama could suspend enforcement of sanctions legislation. However, there would be no guarantee his successor would do the same.

A second option would be to abandon the Joint Plan of Action (JPOA) and put the sanctions that had been removed last year back into place. Despite criticisms from hawks on the right, the announcement of the JPOA was greeted with a muted response by world oil markets and foreign investors, because it did not remove sanctions on Iran’s banks. Removing the first phase of sanctions relief may be fairly easy for the United States, because a “coalition of winners” benefiting from access to Iranian markets has not emerged.

A third option is for the United States and its allies to ratchet up the pressure on Iran. Iran’s economy is still in shambles and the country is continuing to suffer from a drought, both of which have been brought on through gross mismanagement. Covert actions that diminish Iran’s already limited refining capacity would exacerbate its economic woes. However, some studies have shown that autocracies benefit from sanctions. They allow rulers to extend their grip on power by centralizing the distribution of wealth within a state.

A fourth option is to denuclearize Iran militarily through a series of Osirak-like strikes. This option does not seem to be feasible, because the governing regime is believed to have learned the lessons of Osirak and dispersed its nuclear sites throughout the country. Some, like Fordow, are heavily fortified and may be difficult to destroy. Foreign Imposed Regime Change (FIRC) may be a more effective means of disarming Iran than a set of limited strikes, but would be incredibly expensive given the costs of occupation. Furthermore, it would put the United States in the position of having to choose between continuing to pursue its fight against ISIS and Al Qaeda or dealing with the blowback from attacking Iran.

A fifth option is to learn to live with a nuclear Iran and focus on the threat posed by groups such as ISIS and Al Qaeda. While there is little doubt that Iran can be deterred, many fear that allowing Iran to cross the nuclear threshold could set off a cascade of reactive proliferation in the Middle East. Furthermore, it could exacerbate tensions within the nascent alliance the United States has put together against ISIS by giving the impression that Washington is favoring the leader of the “Shia crescent” over Sunni powers.

Albert B. Wolf is an Israel Institute Fellow with the Leonard Davis Institute for International Relations at The Hebrew University of Jerusalem.  He is currently writing a book examining the effectiveness of coercive diplomacy in curbing nuclear proliferation.

Image: Iran president website

TopicsSecurityDiplomacyNonproliferation RegionsIranUnited States