In his book The Art of the Deal, Donald Trump wrote that in order to seal a deal, he sometimes has to “be the bad guy.” If Trump has a strategy when it comes to Iran, he’s certainly adhering to that playbook. On Friday, he announced that the United States would not certify Iran’s compliance with the nuclear agreement, saying that to do so would be to “continue down a path whose predictable conclusion is more violence, more terror, and the very real threat of Iran’s nuclear breakthrough.”
If Trump’s threats are a way to extract additional concessions, he is soon going to learn that every bad cop needs a good cop. When it comes to Iran, Trump will find that Europe is his best bet to offer carrots as he wields sticks. Europe’s growing footprint in the Iranian economy is the best available leverage to change Iran’s behavior. Despite the swagger of the regime in Tehran, the state of the economy remains its Achilles’s heel, and the Iranians are loath to see European businesses abandon them again. The key for the Trump administration will be persuading Europeans that it’s in their own interest to pressure Iran.
Trump needs allies to contain Iran
From Europe to Russia to China, there is virtually no appetite to kill the nuclear deal, which is delivering on its narrowly defined mission: keeping Iran from being able to weaponize its nuclear program. However, Trump may find sympathy among America’s European allies for his pressure tactics if he can persuade them that his strategy fits into a broader plan to tackle Tehran’s other questionable behavior.
Both the United States and Europe share common concerns about Tehran’s regional agenda — including its military interventions in Iraq and Syria, its virulent opposition toward Israel’s right to exist, and Tehran’s record of repressive policies at home.
Put simply, Iran says it is a status quo power but often acts as an insurgent force whose actions undermine the interests of Western states and their Middle Eastern allies. While the Trump administration and the Europeans do not agree on the details of each point, there is enough overlap that the two sides might be able to concoct a common to-do list vis-à-vis Iran — but only if Washington doesn’t void the 2015 nuclear agreement.
A hasty pullout from the nuclear deal would be viewed with horror in much of Europe
A hasty pullout from the nuclear deal would be viewed with horror in much of Europe and would therefore make it harder to organize the multilateral pressure necessary to change Iranian behavior. The United States will instead have to patiently co-opt the Europeans to come along.
The combined U.S.-European message to Tehran has to be that the double game it has been playing in its foreign policy — pursuing an economy that is intertwined in the global system while remaining dedicated to Islamist revolutionary ideals — is unsustainable and will eventually lead to conflict. But crafting that message will require Washington to recognize that the nature and extent of the problem posed by Iran is an unsettled question. The Europeans, for instance, are more inclined than Washington to consider Iran’s missile program as part of a legitimate defensive military doctrine. But that notion does not explain Tehran’s protracted efforts to export its Islamist revolutionary model to places such as Iraq and Syria. Europe recognizes that Iran’s sponsorship of militias in those countries is not an act of preserving the status quo but an attempt to overturn what remains of the political order in the Middle East. This should be the emphasis of Trump’s diplomacy to his European counterparts.
Even some leaders in Tehran have warned openly about the disproportionate militarization of Iranian foreign policy. President Hassan Rouhani was not holding back when he said in March 2014 that “launching missiles and staging military exercises to scare off the other side is not good deterrence.” Rouhani was chastising his rivals in the Iranian regime, the hard-line Islamic Revolutionary Guard Corps, whose mantra of militant “resistance” constantly blemishes any Iranian effort to move the country toward the state of normalcy.
The Europeans consider moderate voices like Rouhani as worth banking on in this intraregime struggle. Europe has after all pursued numerous rounds of so-called “critical dialogue” with Iran going back to the early 1990s. In the past, Europe’s talks produced little in the way of tangible progress. But if Trump is serious about changing Iranian behavior, he could adapt Europe’s approach to fit his own purposes.
Making Iran an offer it can’t refuse
Trump could potentially play the “bad guy” in the next round of these talks. In such a scenario, the state of the Iranian economy is the most obvious leverage point.
If the Trump administration hopes to pull this off, however, it is going to have to acknowledge a basic reality of the European stance toward Iran. The Europeans want to engage Tehran, for both security and commercial reasons. Iran, a country of 80 million people, enjoys relative internal stability in a region where a number of states have collapsed in recent years — and this matters a lot to the Europeans. Europe is, after all, still recovering from the aftershocks of the Syrian and Iraqi conflicts, which forced waves of refugees to their shores. To “blow up” Iran and hope for the best, as one European put it, is not an option. Meanwhile, the many senior dignitaries who have beat a path to Tehran since the nuclear deal was signed also show Europe’s deep appetite for commercial opportunities there.
But while there is no appetite in Europe for abrogating the nuclear agreement, European leaders still are able to modulate their level of economic engagement with Iran. They will not abandon the minimum base of cooperation required by the deal but can make clear to their counterparts in Tehran that any steps capable of truly jump-starting the Iranian economy will be contingent on a less disruptive Iranian foreign policy. For instance, European officials could make the case that if Iran wants large global banks to move into its market — and not just small- or medium-sized ones, as is the case now — it needs to lessen the concerns of the most powerful actor on the international scene: the United States. Otherwise, severe sanctions from the U.S. Congress could again be in the offing.
The Iranians know that if push comes to shove, the Europeans will have to side with their historic ally, as has happened more than once before. The European message to Iran should be: “Please don’t make us have to choose.”
Iran’s military interventions in Syria and Iraq might give the impression that Tehran is invincible, but economic malaise on the home front remains its weak point. The Iranian economy has improved since international sanctions were lifted: Oil exports are back to pre-sanction levels, and trade and foreign direct investment (FDI) are trending upward. To put the increase in perspective, Iran secured roughly $40 billion in FDI in the last 20 years — and of that amount, $8 billion has come after the 2015 nuclear deal. The economy grew by some 6 percent in 2016 and is projected by Iran’s Central Bank to grow by another 5 percent this year.
Iranians expect growth soon
However, this growth is still not enough. Job creation is Rouhani’s No. 1 priority, and most of the economic restoration and injection of investment has occurred in the oil and gas sectors — profitable sectors but not job creators. Iranian officials are aiming to create about 1 million new jobs per year, which is an ambitious goal given that an earlier target of about 350,000 new jobs per year was repeatedly unfulfilled. The country’s labor minister recently put it bluntly: Iran has 3.4 million unemployed people and can create less than half of new jobs needed each year given limited domestic funding sources.
There is a consensus across Iran’s partisan divide that accelerating job growth has to be a priority. It’s an issue of simple political survival: T
he regime doesn’t want to wake up one day to discover an uprising instigated by poor socio-economic conditions
he regime doesn’t want to wake up one day to discover an uprising instigated by poor socio-economic conditions and exacerbated by rampant corruption. According to Iran’s interior minister, unemployment is as high as 60 percent in some towns. News reports of corruption — often involving top regime members and their families — are a routine affair in Iranian media.
Europe cannot help Iran with its corruption problem, but it can help Tehran return to the international economic mainstream. This will in turn create some breathing room for the regime. From Rouhani’s earliest days in office, attracting European businesses has been a central pillar of his strategy to revive the Iranian economy and avert deep economic distress. This was clear in his message to the United Nations this year, when he said Iran was happy not to engage with the United States but that the nuclear deal’s fate would be at risk if Washington looked to break Iranian-European commercial ties.
Rouhani has already reaped significant benefits on this front: Europe-Iran trade is up 94 percent in the first half of 2017 compared with the same period in 2016. But his government is seeking added benefits, such as the transfer of advanced technology, which Tehran particularly values for its underperforming oil and gas sectors. The Europeans also have the ability to finance projects in Iran, a trend that appears to have resumed. In September, an Austrian bank and a Danish bank became the first European firms to provide funding for projects in Iran in 15 years.
These successes since the signing of the nuclear deal, however, have also heightened public expectations in Iran that an economic renaissance is around the corner. A key economic advisor to Rouhani, Masoud Nili, recently pointed out that failing to deliver on these hopes could shake the regime’s grip on power. “It is like opening the doors to a dormant explosives depot where it can blow up at any moment,” he said.
This provides the Trump administration and European officials an opportunity to place Iran’s economic predicaments at the center stage in future talks. The ball would then be in Tehran’s court: If it wants to be a revisionist power, it will find that the European interest in dialogue and economic engagement will ebb away. But if the rival factions in Tehran put the achievement of economic stability at the core of their dealings with the world, then Europe will stand as a partner. Trump, meanwhile, has to buy into the idea that even as he plays the bad guy, using European economic leverage to extract concessions from Iran remains his best hope.
