Iran sans Sanctions

The lifting of sanctions against Iran relating to its nuclear activities on 16 January marks an important turning point for Iran, the region, the United States, and the rest of the world. The international media seem to have missed out a curious coincidence. It was on 16 January 1979 that Reza Shah Pahlavi, restored to the throne in 1953 through a CIA-engineered coup, left Iran for good, enabling Ayatollah Khomeini to make his triumphant return and assume supreme power days after the Shah left.

Before we deal with the impact of the lifting of sanctions that terminates Iran’s status as a pariah state, it will be useful to see how US-Iran relations got adverse after the 1979 Revolution. This is because, though the nuclear negotiations were between Iran on the one hand and the P5 plus Germany and EU on the other, the principal protagonists were Iran and the US, the rest being “attendant lords to swell a progress” as T. S. Eliot would have put it. Though Iran did hate the US for its decades-long support for the Shah, Khomeini was prepared to have normal relations with the US. And the United States too was keen to have good relations with the new Iran. However, President Carter’s October 1979 decision to let the Shah come to New York for medical treatment enraged Iran which wanted to get him to Iran to face ‘revolutionary justice.’ Incidentally, the CIA came to know that the Shah had cancer only in October 1979. Carter agreed to the Shah’s trip to New York partly because he did not want to be blamed for the Shah’s death especially when he was being held responsible by some of his critics for the Shah’s fall.

In early November 1979, Algeria was celebrating the 25th anniversary of its own revolution. Carter’s National Security Adviser Brzezinski went to Algiers for the occasion, accompanied by Madeleine Albright, a future Secretary of State, and Robert Gates, a future Secretary of Defense. Iran had also sent a high level delegation for the celebrations in Algiers. On 1 November 1979, Brzezinski called on Iranian Prime Minister Bazargan and Gates was there as the note-taker. According to Gates, Brzezinski told Bazargan that the US and Iran had no disputes; they had a common enemy in the USSR; they should work together; the US was prepared to have friendly relations with Iran; and the arms paid for by Iran during the reign of the Shah would be delivered. Bazargan responded positively. However, he added that the Shah should be sent back to Iran. Brzezinski, who had always advised Carter to give the Shah political asylum, rejected the demand as it was “a question of national honour for US”. With that, the conversation came to an abrupt end. Bazargan, on his return to Iran, must have briefed the Ayatollah and soon the revolutionary youth must have discussed about what to do to the ‘Great Satan’. On 4 November, the US Embassy was taken over by the students, and soon Bazargan fell. Khomeini praised the students. From this, it is reasonably clear that Carter would not have let the Shah in if he had known the high cost he would be paying. The Embassy hostage issue cost him his re-election and he lost to Reagan who conspired with Khomeini to delay the release of the hostages till he made his inaugural speech. Carter went to Germany to receive the freed personnel and tried to hug them, but many of them refused his hug.

There is some irony about the nuclear deal allegedly concluded to prevent Iran from making an atom bomb. How can you prevent someone from doing what he is not doing? The CIA and other US intelligence agencies concluded in December 2007 with ‘a high level of confidence’ that Iran had halted its weaponisation programme in 2003. IAEA Director General El Baradei said in October 2007 that there was no evidence that Iran was trying to make an atom bomb. However, President Bush in his State of the Union address in 2002 had included Iran as part of the ‘axis of evil’ and the neo-cons and the Zionists were determined to make the world believe that Iran was about to make a bomb. They were assisted, unwittingly, by Ahmedinejad, Iran’s President (2005-2013), who from time to time made provocative statements about Israel. He also sharply increased the number of centrifuges. He started a nuclear reactor in an undisclosed location fearing Israeli bombing. When the location was discovered the neo-cons argued that it was additional evidence that Iran was after the bomb. If President Obama had figured out all this, prudence prevented him from speaking out. He waited for President Rouhani who assumed office in 2013. But for Obama’s and Rouhani’s tenacity of purpose and ability to safely navigate in treacherously deep diplomatic waters, the deal concluded in July 2015 would not have seen the light of the day.

What might be the impact of Iran’s re-entry into the comity of nations? It is true that only the nuclear-issue related sanctions have been lifted. Some US sanctions relating to sponsorship of terrorism and violation of human rights remain. Intriguingly enough, after suspending the nuclear-matter related sanctions, Obama has imposed fresh sanctions on Iran for violating a Security Council resolution on ballistic missiles testing. Incidentally, Obama delayed the announcement of the new sanctions till the Americans released under the prisoner-swap deal reached the US safely. This is because Iran had warned Secretary of State Kerry that the swap deal might not survive the announcement of new sanctions. In any case, the new sanctions are minor, directed as they are against 11 entities and individuals connected with import of material for ballistic missiles. We should also note that the 10 US sailors who strayed into Iranian waters were quickly released after Kerry spoke to his counterpart. However, it is also possible that should a Republican succeed Obama, Congress might refuse to lift the sanctions suspended by Obama.

But there is a strong reason to conclude that we are witnessing the beginning of the end of sanctions. Now that the crippling sanctions on trade, shipping, insurance, and financial transactions have been removed, Europe and others will enter Iran’s market which has been starved for years of imported goods. European companies have already sent in many business delegations. Once others start reaping gains from doing business with Iran, the US corporate sector will compel its government to let them also have a share of the cake. Soon US companies are going to get special license to sell aircraft and spare parts.

Iran will get hold of frozen funds to the tune of USD 100 billion, out of which half would go to creditors including China. But, even the remaining 50 billion is a huge amount for Iran whose current budget amounts to less than USD 300 billion. Iran holds the fourth largest proven reserves of crude oil after Venezuela, Saudi Arabia and Canada. It also has huge deposits of natural gas. The hydrocarbon sector in Iran would need investment to the tune of USD 150 billion in the years to come. Despite the falling crude prices, foreign companies might be keen to position themselves to their advantage. In the unlikely but not impossible event of an understanding between Saudi Arabia and Iran, OPEC might decide to reduce the current surplus of supply over demand and push the prices up.

Coming to the impact on geopolitics, the key question is whether Saudi Arabia will realise the folly of its current policy of confrontation with Iran and agree to seek reconciliation. As of now, there is no sign of any thought of such a course correction. But it should not be ruled out. Saudi Arabia finds itself in a stalemate in Yemen and Iran can easily make things there more difficult for the Saudis. Iran can also exploit the vulnerabilities of Bahrain where a minority Sunni royalty rules over a discontented and to an extent alienated Shia majority. Iran might or might not avail of these options. It has the option to watch the internal developments in its rival where there are signs of disunity and disaffection within the royal family over succession. As regards Syria where Saudi Arabia and Iran are at loggerheads, we do not know whether US diplomacy can make them work together to support a political process. Chances are not too bright right now.

Will the US and Iran get closer? As we have seen for more than 36 years from 1953, the Shah acted as the sheriff appointed by the US to keep the peace in the region. When I was serving in the Indian Embassy in Iran from 1976 to 1979, there was no major discord between Tehran and Riyadh, with both following Washington’s instructions rather obediently. The discord arose when Saudi Arabia feared, not without reason, that Khomeini was exporting revolution. We cannot expect the US to recover in the near future the dominant position it then had in the region. For Iran it will not be possible to embrace publicly the ‘Great Satan’, but Iranians are pragmatic and the two countries might quietly work together.

Coming to Indo-Iranian relations, when the Shah was in power, there were hundreds of Indian doctors, engineers, and other professionals working in Iran. It might be possible to send professionals to Iran. When Iran was under sanctions, India was one of the few countries trying to do business with that country. India and Iran had agreed that 45 per cent of the value of oil imported from Iran can be used by Iran for imports from India. The State Trading Corporation (STC) obtained a contract for the supply of steel worth USD 2.5 billion – the largest export contract for India – and a certain quantity was sent to Iran. According to the Indian side, Iran delayed payment and a dispute arose which is yet to be resolved. Did India take into consideration the eventual lifting of sanctions and the need to give extra accommodation to Iran? Perhaps not. India should start working on the Chabahar port project and complete the work by the end of 2016 as promised. However, a formal agreement is yet to be signed. Iran had approached India for the upgrading of the port way back in 2003. The confrontation between Tehran and Riyadh will test India’s diplomatic skills, but there is no reason to believe that India will not pass the test.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.