Iran After the Nuclear Deal
After years of difficult negotiations, Iran and six world powers (the United States, China, Russia, Germany, Britain and France) finally reached a comprehensive deal on Iran’s nuclear program. For Iran, this signals a major opportunity for the country to re-establish normal relations with the rest of the world while reviving what has become an increasingly weak economy, a key step towards restoring Iran’s leading position in the Middle East. However, this deal has been greeted with trepidation in many areas of the world, particularly the Middle East, where leading powers such as Saudi Arabia and Israel have voiced major concerns about this deal. As a result, while this deal is being hailed as having blocked Iran’s path towards acquiring nuclear weapons, its fallout in other areas has yet to have been determined and could lead to a major power shift in the Middle East.
This deal is, in essence, an agreement by Iran to curtail some of its nuclear activities and to allow for extensive monitoring of its nuclear program in return for a gradual easing of the international sanctions that have devastated the country’s economy. In order to see sanctions eased, Iran will have to get rid of 98% of its enriched uranium, remove two-thirds of its installed centrifuges (and hand them over to international supervisors) and permanently give the International Atomic Energy Agency (IAEA) access to all of the country’s nuclear sites. In return, the international community will gradually ease economic and other sanctions against Iran and will lift an arms embargo against Iran in five years time.
The lifting of economic sanctions is expected to have a major impact on Iran’s economy as well as on the global oil and gas industry. After recording average economic growth rates of 6.5% between 2002 and 2007, the Iranian economy has managed to grow by an average of just 1.1% since 2008, including a deep recession in 2012 and 2013 when more stringent sanctions were imposed on Iran. Now, with economic sanctions being lifted, foreign investment in Iran is expected to rise sharply in the coming years and this will help boost many sectors of the Iranian economy. On the manufacturing side, Iran had been the region’s second-leading manufacturing center (behind Turkey) and the country is in a strong position to revive many of its manufacturing sectors. As far as the dominant oil and gas sector is concerned, Iran has been preparing for this moment for some time and stands ready to export large quantities of oil and gas to Asia and other markets. Nevertheless, massive foreign investments will be needed to restore Iran’s oil and gas industry to its former self and this may not materialize as long as oil prices remain relatively low.
Meanwhile, the political impact of this deal is certain to shake up the balance of power in the Middle East and could lead to some dangerous changes in the region. First, Saudi Arabia and Israel doubt that this deal will prevent Iran from acquiring nuclear weapons and this could lead to Saudi Arabia acquiring its own nuclear weapons (from Pakistan) and Israel expanding its already considerable nuclear arsenal. Second, Saudi Arabia and other Sunni-led countries in the region are fearful that this deal will lead to an improvement in relations between the United States and Iran, bolstering Iran’s position in the region. Third, this deal is perceived by many countries in the region as the latest in a series of Iranian victories, dating back to the election of a Shiite-dominated (and Iran-friendly) regime in Iraq. With sectarian violence and wars underway across the region, Iran’s championing of Shiite governments (in Iraq and Syria) and militant groups (in Lebanon, Yemen and Bahrain) has led to a major sectarian divide that is threatening to bring war to the entire region. As a result, this agreement between Iran and the international community has repercussions that extend well beyond Iran’s nuclear program and could dramatically alter the balance of power in the Middle East.