Iran is Cutting its Losses with a Nuclear Deal

July 7, 2015

This week will likely — and finally — witness the dénouement of the longstanding nuclear dispute between Iran and the P5+1 (the five permanent members of the UN Security Council and Germany). Now that we’ve reached the July 7 deadline, there appears to be a strong chance that the negotiations will result in an agreement. Predictably, this has led to a wave of criticism against the Obama administration. For many critics, in particular, a key problem with the deal is that it will inevitably unshackle Iran’s power and consolidate its place as a rapidly rising regional hegemon.

Yet Iran does not come close to having the power necessary for the hegemony that anti-Iran hawks in the United States, Israel, and the Sunni Middle East fret over, and a nuclear deal will not change this reality. Iran’s power is brittle: Its conventional military is increasingly obsolescent, its economy is strangulated by sanctions and mismanagement, and the country is more diplomatically isolated than it has been for decades. As it finalizes negotiations with the P5+1, Iran is dealing from a position of weakness, not strength. The status quo is, for the Islamic Republic, excessively and increasingly costly. Tehran’s optimal outcome from these talks is not to consolidate its regional preponderance but rather to cut its losses after years of mounting sanctions and isolation.

What Iran has achieved and not achieved with its nuclear program is illustrative of the broader failures of its foreign policy. The program has indisputably provided Iran with some benefits. The country has developed expertise and infrastructure in the nuclear field, which will bring economic gains over the long term. It has also allowed Iran to constrain U.S. options, an important objective of its foreign policy. For Washington, years of negotiations within the P5+1 have been costly: They have exposed divisions with the Europeans and forced difficult negotiations with Russia and China. The latter two, in particular, know the high price Washington attaches to the issue and have thus been able to force repeated dilutions of sanctions. This has kept the United States out of the Iranian market while allowing Russian and Chinese companies to increase their access.

On the basis of another indicator of influence — the ability to set the terms of the regional debate — Iran has also had some limited success. Its efforts over the years emphasized that negotiations are a pretext for American bullying designed to prevent Iran, a developing nation, from acquiring advanced technology. At a summit of the Non-Aligned Movement in 2006, for example, the 118 member states reaffirmed “the basic and inalienable rights of all states to develop research, production, and use of atomic energy for peaceful purposes,” implicitly supporting Iran’s position. The summit statement also called for the establishment of a nuclear weapons-free zone in the Middle East and for Israel to join the Non-Proliferation Treaty (NPT) — standard Iranian positions. Tehran succeeded in inserting its preferred wording into the statement, but this had no discernible effect on the nuclear dispute. As has often been the case, Iran scored a tactical rhetorical win but failed to make a tangible and sustainable gain.

The current talks are illustrative of this self-defeating dynamic for Iran. It is true that no other mid-sized power today would be able to monopolize the attention of the United States, Russia, China, and the three main European powers for such a length of time. At the same time, what sustainable benefits has Iran accrued from this apparent diplomatic gain? Concretely, none. One must not confuse a highly visible — but ultimately no more than tactical and symbolic — victory with the vastly greater costs the program has imposed on Iran.

Sanctions have crippled Iran’s economy, significantly contributing to high levels of inflation and unemployment and to stagnation. Its oil and gas sector suffers from massive underinvestment, causing a deficiency of at least two million barrels per day compared to pre-1979 output. A quick counterfactual suggests that over the past 35 years, Iran’s economy would have become much stronger had it not been for this shortfall. Iran’s military has also been weakened by sanctions, which prevent it from acquiring spare parts for its many U.S.-acquired weapons systems dating from the pre-revolutionary era. Sanctions imposed by the UN Security Council, in addition, ban the sale of major offensive weapons systems to Iran. Its conventional military power, partly as a result, has steadily declined since 1979.

Iran’s progress along the nuclear path has also had negative implications for the power it derives from partnerships. Moscow and Beijing share common interests with Tehran, especially in their opposition to U.S. preponderance. They are therefore willing to cooperate on specific issues to stymie U.S. goals. Russia and China, however, believe that the prospect of a nuclear-capable Iran would go against their interests. They are thus not sympathetic to the prospect of a more powerful Islamic Republic assertively pursuing its nuclear ambitions. Moscow and Beijing have also typically been careful not to damage their ties to Iran’s Arab rivals at the expense of their limited ties to Tehran. As a result, the closer Iran has approached to nuclear capability, the more they have supported tougher sanctions and the less they have been willing to cooperate with Iran.

The more Iran has progressed along the nuclear path, moreover, the greater opposition to its ambitions has become in its own region. Most Arab states, especially in the Persian Gulf, have been particularly anxious. Their main fear is not so much that a nuclear-armed Iran would attack them, but that nuclear capability would drive Tehran to behave more assertively. Similarly, they fear that militant groups such as Hezbollah, emboldened by Iran’s nuclear umbrella, would also adopt more assertive stances. As a result, Iran’s nuclear program has led most regional states to balance increasingly firmly against it. Gulf Arab states are heavily investing in advanced defense capabilities and have increased security cooperation with the United States. This has been counterproductive for Iran. One of the Islamic Republic’s core objectives is to block regional American influence, yet its actions guarantee a long-term U.S. presence in the Persian Gulf.

Yet a nuclear deal would not lead to a reversal of regional pushback against Iran. The Islamic Republic would remain the main geopolitical competitor for Israel, Saudi Arabia, and the other Arab states of the Persian Gulf. For Tehran’s rivals in the Middle East, the nuclear program has been a symptom, not a cause, of its ambitions. As such, regional states would remain concerned at the prospect of an Iran unshackled by the removal of some sanctions. Its actions would therefore still provoke resistance. In addition, the U.S. security architecture in the Gulf and the Middle East, partly aimed at containing Iran, would remain in place. Even after a comprehensive deal, in sum, major constraints on Iran’s ability to project power would remain or even intensify. A nuclear deal would not by any means compound the “nightmare” of Iran’s alleged “domination” of a “satellite Shiite crescent.”

Equally important, a comprehensive agreement would also not represent an economic panacea for Iran, as many sanctions would remain in place and others would only be gradually lifted over many years. As a result, Iran’s oil production would not suddenly leap. The Iranian economy would still be mismanaged and hobbled by corruption, an unpredictable and sometimes hostile investment climate, and dependence on hydrocarbons. Its military would need decades to rebuild.

Any gains that Iran would make from an agreement resolving the nuclear issue must be seen as opportunities for Tehran to cut its losses, not to make net gains. Iran has made extremely costly choices that have caused major harm to its economy, diplomatic standing, and military power. The Islamic Republic will need decades to repair this damage and eventually generate sufficient capabilities to fulfil its regional ambitions. Those who worry that a deal will irrevocably damage U.S. interests in the Middle East by strengthening its main regional adversary seriously overestimate Iran’s power and influence. They forget that containment has worked: Iran’s economy today is stagnant, its power is brittle, and it is more diplomatically isolated than it has been for decades. This will not change easily.


Thomas Juneau is an assistant professor at the University of Ottawa’s Graduate School of Public and International Affairs. From 2003 to 2014, he was an analyst with Canada’s Department of National Defence. He is the author of Squandered Opportunity: Neoclassical Realism and Iranian Foreign Policy (Stanford University Press, 2015).