A Hold on the Iran Dividend
News of the Interim Nuclear Agreement with Iran has created a flurry of activity across the world – Boeing is digging through its stores for upgrades to Iran’s antiquated fleet of passenger planes, Renault is gearing up for potential exports to Iran, India has woken up to an opportunity to increase its strategic clout in South Asia, Turkey’s banks are raring to manage Tehran’s financial transactions, and the Organisation of Petroleum Exporting Countries has been put on alert for increased oil production from Iran. There are even murmurs about a New Silk Road. Yet on the military end, they is speculation about an Israel-Saudi alliance against Tehran.
Much of this is overly optimistic speculation and there will be little movement on most of these fronts over the first half of 2014 when the E3+3 and Iran will be busy trying to negotiate a permanent understanding on Iran’s nuclear programme. In fact, even a comprehensive solution to the Iranian nuclear question will hardly result in the tectonic shifts everyone envisions and certainly not with the speed everyone predicts. Iran’s return to the mainstream is likely to be slow and though its impact on the region could be significant, will proceed at a more moderated pace than suggested.
The most critical change, from Tehran’s perspective, must come in the oil sector. Oil will remain Iran’s bread and butter in the short term until other sectors of its economy can recover from the decades of sanctions. The Islamic Republic must be able to produce and sell as much oil as it pleases, and it must be able to conduct secure financial transactions to receive payment for its mineral resource. However, it is not so easy to ramp up oil production, and Iran’s decrepit oil machinery and infrastructure cannot handle any sudden increase. Iran desperately needs help to build new oil rigs and upgrade or repair old ones before it can sustain a high output of oil.
Tehran is not looking East
Tehran’s gas pipeline east faces other hurdles – historical differences between India and Pakistan act as a dampener on Indian enthusiasm for the project, and though the pipeline may still go ahead between Iran and Pakistan, the real prize is India’s burgeoning economy and its insatiable hunger for energy. Projections for that economic boom must wait until India and Pakistan come to an understanding or the security of the pipeline and India’s energy source is assured.
India has also refused to move quickly on developing Chabahar for fear of having its companies sanctioned by the United States and the European Union. Even if the removal of sanctions would push Delhi to finally begin moving quickly on Chabahar, the expansion of the port and connecting it by railway, road, and pipeline – at least to Afghanistan if not Central Asia – will take a few years. In addition, such plans will undoubtedly meet with resistance from several neighbours – Pakistan would view Indian influence so close to its western border with concern; if the Central Asian republics could be persuaded to participate in connecting their oil & gas reserves to Chabahar as well as to China, Russia would resent its waning influence over the former Soviet republics. Furthermore, any pipeline, road, or railway heading north from Chabahar will be in some of the most militant-rich terrain in the world.
Another factor that could slow Iran’s recovery is that a lot of Tehran’s money is trapped in rupee deposits in India, renminbis in China, and other less desirable currencies. This is because the US-EU sanctions cut Iran off from the international financial system completely – even accessing one’s US bank account online from Iran would lead to its suspension until one personally went into a US branch again. The non-convertibility of many of the currencies Iran holds forces them to buy from the specific countries, hindering Tehran’s ability to purchase necessary goods freely. As one business man complained, “How much basmati can we buy?” The sudden depreciation of the rupee has also lost Iran about 12% of its oil earnings from India. Iran’s warmth towards its eastern allies is born out of economic necessity than any ideological or other concurrence of views. As an Iranian engineer said of his Chinese partners, “I think the sanctions gave them the ability to act however they wanted with us.” Indeed, with allies like these, who needs enemies?
The United States probably hopes that the thawing of relations with Iran will help its retreat from Afghanistan. This could be achieved sooner than most other goals. It is well within Iran’s capability to make the Western extraction difficult, and most importantly for the United States, Pakistan will no longer have NATO at its mercy. However, it is hard to predict the ramifications upon Pakistan of the loss of its pivotal role in US operations in Central Asia. With anti-American sentiment strong in the population and the increasing power of Islamists, not to mention the questionable safety of its nuclear arsenal, Pakistan may even take a turn for the worse without a US presence in the region. Tehran does not favour a US presence in the neighbourhood, but an Afghanistan and Pakistan out of a Wild, Wild West scenario must keep the clerics up at night.
Within the Middle East, many hope that resolving the Iranian issue is a first step to ending the civil war in Syria and perhaps gaining some control over the Hezbollah in the Occupied Territories in Israel. These fantasies are also unlikely to pan out as beautifully as they are imagined. If Tehran abandoned Bashar al-Assad to the Gulf-funded Salafi jihadists and their Western patrons, not only will it undermine confidence in Iran’s support in the region but also create a hostile state on the Islamic Republic’s doorstep. Tehran’s cooperation on the Syrian bloodbath will hardly result in the ideal outcome the West desires and the issue of a future Syrian state and Assad may become yet another splinter between the United States and the Gulf states.
Next door to Iran, the Kurdish Regional Government has been developing ties with Turkey and establishing its own international credentials in matters involving the Kurds in Syria, international investment in the Kurdish autonomous province, and oil trade. An Iran that is not an international pariah will open doors to Hewlêr’s diversification of its trade and allow its energy resources access to the Persian Gulf as well as the presently planned route to the Mediterranean via Turkey. The KRG will hardly rush with the large investments needed in infrastructure for the pipelines; Hewlêr will want to be convinced of the viability of trade with Iran and that the clerics will keep their word on nuclear safeguards.
The Israeli Connection
An interesting development has been the much mentioned Israeli-Saudi alliance against Iran. If the United States achieves a rapprochement with Iran, many observers believe that it will be over Israeli and Saudi concerns and this would push the two governments into an unlikely partnership. This is an extremely simplistic, if not naïve, view of geopolitics. For one, Israel and Saudi Arabia are still are still locked in mortal combat over desired outcomes in Syria and Palestine, and there are several symbolic as well as strategic reasons Riyadh and Jerusalem will not drift too close. At best, they might temporarily walk in the same direction and, perhaps, tangle their little fingers. It will be impossible to whitewash over the rhetoric of Jewish/Zionist-Islamic divide that has been so carefully cultivated since 1948 any time soon.
Considering the Israel-Iran stand-off, Trita Parsi has convincingly argued in Treacherous Alliance that both Israel and Iran are shrewd and pragmatic political operators who have not let ideology interfere with their national interests; Israel supplied Iran with weapons during the Iran-Iraq War despite the anti-Israel tirade from the imams in Qom. In fact, many of Iran’s security and policy goals show a continuity, not a break, with Shah Mohammad Reza Pahlavi’s regime. If Israel can be persuaded of the effectiveness of the nuclear safeguards on Iran’s nuclear infrastructure – without which there would be no deal in the first place – its strategists have always argued for what they called a Periphery Doctrine. Essentially, this doctrine argued that as non-Arab states – two and a half of them are even democracies – Iran, Turkey, and Israel act as natural bulwarks against their mutual rivals. Turkey’s place in that club has become murky with the failure of Ankara’s recent Zero Problem foreign policy initiative, but there is little reason for eternal enmity between Tehran and Jerusalem.
Shia Living in a Sunni World
Perhaps counter-intuitively, international normalisation of ties with Iran causes more problems for Saudi Arabia than Israel. Iran’s increased influence in the region could easily translate to Tehran emerging as a lightening rod for the disaffected Shia minority from Pakistan to Bahrain, Yemen, Lebanon, Egypt and even the Kingdom itself. The fall of Saddam Hussein in Iraq and the increasing political presence of Iraq’s Shia population has given Iran some breathing space in its neighbourhood. If pilgrimage numbers are anything to judge potential political ties by, Najaf has seen more visitors annually since 2009 than either Mecca or Medina.
Recent media reports suggest that ties between Iran and Turkey have been getting warmer and that the two countries are even sharing intelligence on matters of mutual concern. However, though both have shared concerns about Kurdish nationalism in the past, the major question mark in the near future is Syria. Ankara has been lukewarm in its support of the rebels against Assad since any semblance of a secular opposition gave way to Salafists, but neither is it likely to be comfortable with yet another neighbour within Iran’s sphere of influence. Ankara’s failure in Egypt and Syria may make it more open to Iranian overtures, but that remains to be seen.
A Slow Normalisation on the Cards
Iran’s leaders have posited their nation to be a golden key that could open up the entire Middle East. That honour, in my opinion, will go to an Israeli-Palestinian peace accord. Iran today presents a problem for the West, no doubt, and settling the nuclear issue will bring relief to both sides. Yet over three decades of demonising, scheming, and aiding hostile proxies will hardly go away in a few months. To put things in an Indian perspective, friendly Iran-US relations within the decade would be like expecting India and Pakistan to overcome their historical mistrust and hatred overnight just because Islamabad decided to extradite terrorists India has been demanding. Resentment between the United States and Iran has gone deeper than the political and seeped into public opinion as well, albeit many hope that relations will improve. A rapid turnabout of 370 million minds is no easy task, but that is why we read Lao Tzu.