Iran and the US: No Exit

Early this morning the US government hit Iran with a raft of sanctions that make it illegal for companies to do any business with Iran involving precious metals, sovereign debt, airplanes, or cars. It also outlaws Iranian purchases of US banknotes and, for American lovers of Iranian pistachios and carpets, this is a very bad day – importing those is now forbidden again.


 

These sanctions, to refresh your memory, had been suspended under the 2015 Iran nuclear deal which President Trump ditched earlier this year.

Now they are back in place, and they’ll contribute to an economic crisis that could see Iran’s GDP shrink as much as 8% this year, a far cry from earlier expectations that fresh economic opportunities under the nuclear deal would boost growth. And greater pain awaits the Islamic Republic: in November, the US is set to reimpose a much harsher set of sanctions that target Iran’s energy sector, which is crucial for the economy.

Is this economic pressure from the Trump administration the prelude to a breakthrough between Iran and the US? Don’t bet on it.

First, Trump is demanding things that Tehran can’t realistically give. Leaving aside President Trump’s seemingly instinctive revulsion at anything that bears his predecessor’s fingerprints, Washington’s had three specific beefs with the Iran deal (which Tehran was adhering to, according to international inspectors and the US Defense Secretary): it expires; it allows Iran to test new ballistic missiles; and it doesn’t stop Iran from supporting proxy fighters in Syria, Yemen, Lebanon, and Iraq.

Now, even if Tehran were willing to discuss the first two – which is somewhere between implausible and impossible -- the third would amount to a complete reorientation of Iran’s foreign policy and an inconceivable humiliation for a regime that bases its legitimacy in large part on resisting the historic, and continuing, attempts by Washington to alter Iran’s politics.

In short, there isn’t a snowball’s chance in Ahvaz of Iran agreeing to what Trump (along with the Saudis and the Israelis) would want. Moreover, why, Iran’s president has already asked, should Tehran believe any commitments that Trump makes to a new deal after tearing up an old deal that was working?

Second, domestic pressures aren’t going to change Iran’s position. It’s true that economic protests (a longstanding tradition in Iran) have recently intensified and taken on a political coloring, but the regime can still rely on loyal, efficient, and ruthless security services to keep things in check. What’s more, sanctions by the US give the government a convenient, if certainly not inexhaustible, excuse for the economic crisis.

In short, unlike the Trump administration’s other major foreign policy tangles, there is no conceivable exit from the deadlock with Iran right now. Trade spats with China and the EU can, in principle, be resolved with deftly-packaged concessions and proper massaging of the relevant ego(s), not least because in each of those cases, both sides have lots to lose if things truly go off the rails. With North Korea, meanwhile, Trump and Kim seem committed to reaching some accommodation, even if that means artfully redefining terms like “denuclearization.” And even without a deal, the diplomacy can remain stalled indefinitely as both sides have already gotten a bit of what they want (Trump the pomp and splash, Kim the legitimacy and a fresh start with South Korea.)

But with Iran, there’s no clear way out. In fact, all signs point to a sharper escalation of tensions between the US, its regional allies, and Iran… Want to guess one area where that might happen sooner rather than later? My pal Kevin Allison will have some thoughts on that in tomorrow’s edition…

Populist nationalists who have rocked the political establishment in European capitals from Rome to Berlin in recent years now have their sights trained on a new target: the European Union itself.

Starting tomorrow, voters across the bloc's 28 member states will cast ballots for the next European Parliament, the Union's legislature. Candidates from across the bloc compete for 751 seats that are divvied up roughly according to each member state's population.

The Parliament is the only democratically elected governing body of the EU, and it has final say over contentious issues like EU-wide migration policy, trade rules, and budget allocations. The EU Parliament also plays a role in selecting the EU Commissioner, the bloc's most powerful official.

That power is something that far-right populists, buoyed by success in their own countries, now want a bigger piece of. In particular, Italy's Matteo Salvini and France's Marine Le Pen, whose parties once advocated for leaving the EU, are now joining in a loose alliance with other populist nationalists, hoping to win enough seats to bend EU rules in the more anti-immigrant and nationalistic direction that their supporters want.

Polls suggest the nationalists will do very well: A pro-EU coalition of the center-left and center-right is expected to lose its majority for the first time in 40 years, as parties from the extremes, but particularly the right, surge.

But they are still badly fragmented. While the populist-nationalists agree that they want less oversight from Brussels and a more restrictive immigration policy, they haven't been able to coalesce into a single bloc, because of disagreements over who would lead the group and what its main objectives should be. That means that the next EU Parliament may end up deeply fragmented and ineffectual.

The campaigning for EU Parliament also has a lot to do with national politics, and here there are a few key implications to watch:

French President Emmanuel Macron's forceful and defining push for a more unified Europe would effectively be dead if populist parties score a big victory – that could pull the rug out from under him in national politics as well.

Italy's Salvini might call for snap elections at home if the polls confirm his Lega Party's growing popularity.

In Poland, the ruling Law and Justice Party, which faces national elections later this year, is looking to gauge whether its prolonged fight with the EU over rule of law and cultural issues has been a political winner or if it's a reason the party has lost some ground to the opposition.

The upshot: Far from a snooze-fest, this week's elections could significantly shift the direction of the world's largest economic bloc.

Does the European Union even hear the voices of average European citizens? As millions of people prepare to cast ballots in European Parliament elections, that's a good question. As this graphic shows, more Europeans feel "heard" by the EU today than ten years ago. But what, precisely, they are saying to the EU with those voices is something that we'll understand better when we see the election results this weekend.

Back in January, we warned that an intensifying "Tech Cold War" between the US and China over technology and trade could plunge global innovation into a deep freeze as both countries impose fresh restrictions on the free flows of money, people, and information that (throughout history) have powered new ideas.

We're not at the winter solstice of innovation just yet, but the US's move last week to restrict Chinese networking equipment giant Huawei's access to US markets and technology sent an awfully chilly wind through the tech sector.

Here are two ways that a decoupling of the Chinese and American tech sectors could damage innovation in the US:

  • Less good money: Huawei spends roughly $10 billion a year buying hardware and software from US firms. Total Chinese tech industry purchases are many times greater than that. A portion of that money is reinvested by Silicon Valley in R&D; to help develop the next generation of innovative tech products. If Chinese firms can't – or won't – buy from American companies, a lot of R&D; cash will vanish.
  • Fewer good brains: US semiconductor companies are already struggling to hire highly coveted Chinese engineers as the Trump administration slow-rolls their visa applications over national security fears. But top tech talent is hard to come by, and there aren't always qualified workers from the US or other countries available to pick up the slack.

The upshot: The United States has plenty of well-founded grievances with how China runs its economy and its increasingly powerful tech sector. But the costs of Washington's more confrontational approach are already becoming apparent. Those costs will rise further if the US and China's deeply linked tech sectors decouple more fully and formally, as some China hawks in the US hope. At what point do the costs start to outweigh the benefits?

Iran's proxies – The thing about "proxies" is that you don't always have perfect control over what they do. To varying degrees, Iran funds and backs Hizbullah in Lebanon, Hamas in Gaza, Houthi rebels in Yemen, and various militias in Iraq. But these groups also have agendas and interests of their own. Sometimes they'll do things Iran doesn't want them to do. At a time of high tensions between Iran, Saudi Arabia and the United States, these proxies can create trouble for Iran whether they've acted in coordination with its government or not.

Finns fighting fake news "Fake news," the dissemination of false information designed to create confusion and sow division, has become a truly global problem, but at least one country has a proven track record in helping its citizens to recognize and reject it. Finland has faced information warfare in various forms since declaring independence from Russia a century ago, but since Russia's invasion of Crimea in 2014, the country's government has worked hard to help its people – in particular high school students -- spot false information. This report suggests we can all learn something from the Finns' example.

What We're Ignoring: Fruitless British ploys and Venezuelans at the Pentagon

A second referendum on Brexit – A collective guffaw arose in the office here when we learned yesterday that British Prime Minister Theresa May had made yet another attempt to rally support for her thrice-rejected deal to leave the EU. This time she promised to let Parliament vote on whether to hold a second referendum on Brexit, but only if MPs pass her withdrawal agreement first. It's a notable concession by May, who had previously resisted calls for another referendum. But some prominent Brexit supporters have rejected the move, and we doubt that a whole lot of Remainers will be swayed by a promise to hold a vote on whether to ask the public to hold a vote.

Venezuelan talks – An emissary of Venezuelan opposition leader Juan Guaidó (recognized as president by more than 50 countries) went to the Pentagon on Monday for talks with the US military, evidently about humanitarian assistance. This follows last week's meetings in Norway between reps of both Guaidó and President Nicolas Maduro. Talks are good, but we don't see much scope for progress. Guaidó wants the one thing – free and fair elections – that would be certain political suicide for Maduro, whose approval rating is a deservedly pitiful 12 percent. But following Guaidó's failed April 30 uprising, the Maduro regime is feeling like it's got the momentum now. We see no compromises on the horizon.