The nuclear deal with Iran will unleash economic forces that make it unenforceable. Tehran will become the dominant economic and military power in the Middle East and if it chooses, build nuclear weapons.
President Obama held together a broad international coalition that imposed tough economic sanctions. Restrictions on the sale of oil and access to international banks imposed double digit unemployment and inflation and compelled Iran to negotiate.
Finding buyers for oil shipped via 3 million barrel supertankers was one thing, but the inability to transfer funds through western banks made securing $150 million payments quite another.
Obama sought to dismantle Tehran’s nuclear infrastructure—including underground centrifuge machines, capable of enriching uranium into fissionable material. Tehran resisted but events in the region made Obama desperate for a deal—the rise of the Islamic State in Iraq and Syria, its spinoff in Libya, and deteriorating relations with Israel and Saudi Arabia on issues transcending the Iranian nuclear challenge.
Boeing, French oil company Total and German industry group BDI see vast opportunities in the Iran market, and the surge of European, Chinese and American investment into Iran will be similar to the Gold Rush that created modern California.
The agreement significantly circumscribes Iranian nuclear activity but only limits Tehran’s ability to quickly “break out” from restrictions and accumulate enough fissionable material to create a nuclear weapon in less than one year. We are told that is enough time for the West to detect Iranian violations and respond—but it is not.
The lifting of economic sanctions will create an economic superpower with malevolent, anti-Western aspirations.
Iran has a well-educated population of 80 million—with a large middle class and many engineers and business leaders who studied in the West. It has the oil reserves of Saudi Arabia, the natural gas reserves of Russia, the mineral resources of Australia—including iron ore, bauxite, cooper, and the world’s largest supply of zinc—sophisticated manufacturing and a stock market with strong corporate reporting requirements
In 2010, Iran produced 1.6 million automobiles through indigenous manufacturers and joint ventures with western firms. Although sanctions pushed that number down to 1 million in 2014, autos are among the most difficult and complex mass production items to make, and Iran’s technological potential could quickly put it in the same class as South Korea.
Iran provides Western Europe and China with an alternative to Russian natural gas.
Boeing, French oil company Total and German industry group BDI see vast opportunities in the Iran market, and the surge of European, Chinese and American investment into Iran will be remindful of the Gold Rush that created modern California.
Once those euros, yuan and dollars are in, political pressures will make it tough to re-impose western economic sanctions.
Were Iran to start making weapons grade material, western actions would be preceded by talks. But as with Russia in the Ukraine, Europe’s largest economy, Germany, would be cautious about losing access to Iranian natural gas and its other commercial interests, and similar distractions would impede other European and Asian cooperation.
The U.S. trump card has been its unique grip on the global banking and payments system, but China’s success in recruiting European allies to join its Asian Infrastructure Bank demonstrates that Asian alternatives to U.S. dominated western financial institutions will soon emerge.
Even as sanctions handicapped Iran, it has projected power directly and through surrogates in Lebanon, Iraq, Yemen and elsewhere. Once the Iranian industrial juggernaut gets rolling, a society with an anti-western theocratic bent, sophisticated technology and manufacturing industries, and the resource wealth of Saudi Arabia, Russia and Australia combined will emerge as an economic and military power on a par with our European allies.
Ultimately, Iranian nuclear aspirations will prove awfully difficult to contain within 12 months with U.S. threats to assemble an international coalition to take military action or impose sanctions.
A decade from now, if UN inspectors discover Iran is building a nuclear weapon, western leaders will ask how they could have let this happen.
In all likelihood Barack Obama will still be around. Perhaps he will offer some answers.
Peter Morici served as Chief Economist at the U.S. International Trade Commission from 1993 to 1995. He is an economist and professor at the Smith School of Business, University of Maryland, and a widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.