Tuesday, November 19, 2013

Genesis at Geneva: Let's Begin the De-fissilization of Iran

The latest fracas to widen the gulf between competing factions in the Federal government has arrived, a mere month after partisan gridlock nearly laid the global financial system low. Its origins lie not with Federal debt or deficits, nor even with the recent road-bumps in the implementation of President Obama's signature achievement, the Affordable Care Act. In fact, its origins aren't even in North America. The newest casus belli springs from some 4,078.1 miles away in Geneva, Switzerland, where the P5+1 (Britain, France, Russia, China, the U.S., + Germany) are convening to discuss the latest specter to haunt the security community of the advanced world: the nuclear ambitions of the Islamic Republic of Iran.

In 2006, the International Atomic Energy Agency was "unable to verify" whether Iran was pursuing nuclear technology capabilities for purely civilian purposes as claimed, or whether it was in violation of the Nuclear Non-Proliferation Treaty. Iran was given a one-month deadline to "suspend all enrichment-related and reprocessing activities, including research and development" or face increased economic sanctions from the U.N. Security Council. The deadline was not met.

Since then, sanctions placed by the U.N. have resulted in the halving of potential oil revenues, the prime source of income for the Iranian government and broader economy. Despite possessing some 15% of the world's natural gas reserves, Iran has been largely unable to develop this resource. Export markets in Europe remain closed, as does sources of foreign investment funds and industry expertise. In addition, tens of billions of dollars in financial assets held abroad have been frozen due to the banking portion of the sanctions. Under intense fiscal pressure, the government of Iran has turned to fill the gap from lost revenues with inflationary finance, which has resulted in inflation running at 40% for the last two years. Faced with supply constraints on imports and a soaring cost of living, the Iranian economy has entered a full-fledged inflationary recession (the same phenomena dubbed "stagflation" when it occurred in the US in the 1970s).

These pressures have sufficed to bring Iran to the negotiating table in Geneva, and President Obama now has an opportunity to initiate the diffusion of Iran's fissile ambitions. The specific terms of the negotiation are being constructed as I write this, but they seem to hedge around two premises: Iran will agree to curtail enrichment of uranium, which it has been producing at an accelerating rate thus far, and limit it nuclear reactor capacity. In return, the West will agree to a limited reduction in sanctions, possibly allowing for limited foreign investment and technology to develop the liquified natural gas sector and unfreeze around $10 billion in frozen assets.

Not everyone is convinced. Benjamin Netanyahu, the Israeli Prime Minster, has called for demands that Iran immediately cease enrichment of uranium and the halting of a plutonium reactor in the eastern city of Arak. Failure to meet these demands, according to Netanyahu, should be met with increased sanctions and advised the P5+1 to "keep the pressure up." Economic sanctions were enough to bring Iran to the table. By extrapolation, it follows that increased and prolonged sanctions should suffice to bring Iran to its knees. But this is logic defied by historical experience. Fifty-one years of embargo on Cuba have not resulted in any concessions from our island neighbor to the south. Nor has the economic isolation of North Korea proved efficacious in limiting it's nuclear program. It turns out a nation can remain obstinately committed to a nuclear program on a GDP per capita of $1,800.

This hardline stance is also inconsistent with recent developments in the international geopolitical landscape. The United States no longer enjoys the near monopoly on soft-power it once did. The market for power-projection is becoming increasingly competitive, with a resurgent Russia and a newly- potent China offering nations that evoke ire of Washington an alternative to isolation. Vladimir Putin demonstrated his nation's ability to punch above its weight when he (at least appeared to) single-handedly remove the impetus of the planned American strike on Damascus by orchestrating the removal of Assad's chemical weapons arsenal. Now Syrian government forces are making headway against rebels who only recently thought their victory was at hand, courtesy of Uncle Sam.

The proposed lightening of sanctions on Iran will have a palpable effect on the material standard of living for Iranians. By lessening some (not all) of the pressure that is squeezing their incomes, in return for concrete reductions in their nuclear program, Obama will signal to the Iranian people that there truly is a tradeoff between the nuclear ambitions of their despotic government and the purchasing power of their take-home pay. Let's give them a taste of what compromise can bring. With any luck, they'll be back for seconds.

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