News : Economy
- Published: Friday, 22 March 2019
By Edward Carney
On Wednesday, Al Monitor published an article that described a series of steps that the nations of Europe might take as part of a “road map” for expanding trade with and investment in the Islamic Republic of Iran. These recommendations were offered as follow-ups to the establishment of the Instrument in Support of Trade Exchanges, or INSTEX, by Britain, France, and Germany.
The system, purportedly a mechanism to facilitate transactions that evade US sanctions on Iran, was established as part of an effort by the three European signatories to support the 2015 Iran nuclear deal, from which the US withdrew last year. But although INSTEX has been formally established with a headquarters in France, it has yet to actually become functional. And this has helped to spur Iranian statements suggesting that the Europeans have not done enough to convince Iran of the economic benefits of remaining a party to the Joint Comprehensive Plan of Action.
Al Monitor’s recommendations ostensibly set the stage for addressing these Iranian criticisms. But at the same time, the rhetorical nature of those criticisms raises serious questions about the level of receptiveness that Iran will find among its prospective Iranian trading partners. At the same time, the overall commentary emanating from Tehran may undermine the European impulse to provide Iran with additional incentives and to continue defying American efforts to build consensus around a strategy of “maximum pressure” on the Iranian regime.
Iranian foreign policy has been more openly belligerent toward the Western world in recent months, and the 40th anniversary of the Iranian Revolution was marked in February by the acceleration of an Iranian military buildup consisting of the unveiling of new ballistic missiles, cruise missiles, submarines, and more. Various public statements surrounding the introduction fo these weapons emphasized “resistance” against Western regional influence, and at least one Iranian naval officer stated that the armed forces were ready to dispatch a flotilla to the Atlantic Ocean as a specific counterbalance against American naval assets in the Persian Gulf.
Related rhetoric has continued long past the end of ceremonies marking the anniversary of the revolution. And Supreme Leader Ali Khamenei, the ultimate authority in all matters of Iranian policy, has played a leading role in promoting such messaging. This was evident on Thursday when he highlighted the themes of “resistance” and mistrust of the West in televised remarks that coincided with the nation’s celebration of Nowruz, the holiday marking the advent of spring and the start of the Iranian calendar year.
As part of that speech, Khamenei declared that the Islamic Republic would continue to pursue development of its military capabilities and would do so in a spirit of explicit defiance of Western pressures aimed at constraining Iran’s ballistic missile program. The United Nations Security Council resolution that implemented the JCPOA called upon the Iranian regime to avoid all work on nuclear-capable missiles, yet Iran has openly rejected that provision with one IRGC officer even going so far as to say that there might be a commitment to 50 tests per year for the foreseeable future.
Iran’s ballistic missile posture was a major justification for the White House’s withdrawal from the JCPOA, but it is not only the United States that has been at odds with Tehran over this matter. France has often been credited with especially strong criticism of the Iranian missile program, even in spite of having agreed to host the sanctions-busting INSTEX mechanism.
The tension between these policies seemingly creates openings both for those who wish to convince the European Union and its member states to exert more pressure on Iran and for those who wish to encourage more conciliatory policies and an expansion in trade relations. But while the Trump administration is certainly exerting pressure for the former outcome from Washington, one might question whether Tehran is comparably pursuing the alternative.
The actual trends in Iranian-European relations encourage such questions. Earlier this week, it was reported that newly-imposed French sanctions had caused the cancelation of flights to France by Iran’s Mahan Airlines, a carrier that has been accused of smuggling weapons and personnel on behalf of the IRGC. Then, on Thursday, Reuters reported that the French government had issued a statement explicitly highlighting the presence of certain limits on its commitment to preserving the JCPOA.
The statement in question declared that the nuclear agreement does not provide Iran with a blank check for violations of human rights within its own territory. The supposedly rare French commentary on Iran’s domestic affairs was apparently motivated by the recent news that Iran had handed down a sentence of 33 years in prison plus 148 lashes for the renowned human rights lawyer Nasrin Sotoudeh, in connection with her defense of women who protested against Iran’s forced veiling laws last year.
But the Reuters report also underscored the fact that tensions have grown between France and the Islamic Republic, particularly over the past year. Iran’s defiance of the UN resolution regarding ballistic missile testing has certainly been a sore spot for French policymakers, but the imperative for action against Iran was much more widely recognized after June 30, 2018, when Iranian agents attempted to carry explosives to the international gathering that was organized just outside Paris by an Iranian opposition coalition, the National Council of Resistance of Iran.
The French turn toward policies of pressure on the Islamic Republic is unlikely to be discouraged by the Iranian Supreme Leader’s Nowruz message, which not only reaffirmed the regime’s rejection of limits on ballistic missiles but also conveyed a much broader anti-Western message, even seeming to reject the prospect of strengthening Iranian-European trade relations via INSTEX.
Khamenei’s speech referred to that payment mechanism as a “bitter joke,” as reported by Agence France-Presse. Furthermore, Khamenei decried the policymakers behind INSTEX as “savages” and insisted that the European Union had betrayed Iran over implementation of the JCPOA and the reversal of years-long sanctions policies. And despite blaming this “betrayal” for the economic situation that he identified as an urgent crisis for the Iranian people, the supreme leader also counterintuitively declared that the Islamic Republic had “successfully resisted” the pressure of foreign entities.
In this way, Khamenei appeared to be pushing for lesser engagement between Iran and the West. His description of European partners as “not to be trusted” may thus set the stage for more political pressure in favor of purely domestic control over Iranian industries. And this is certainly something that hardline entities within Iranian government and society have been actively promoting already.
The Financial Times reported upon that trend on Thursday, noting that the IRGC’s construction firm, Khatam al-Anbia has reportedly positioned itself to fill the “vacuum” in the energy sector that has been created by the failure of Western partners to enter or remain within Iranian markets following the signing of and subsequent Ahttps://www.ft.com/content/ff6184bc-4af0-11e9-8b7f-d49067e0f50dmerican withdrawal from the 2015 nuclear deal. The Guards have specifically moved to take over for a French firm, Total, after it pulled out of a development project involving the South Pars gas field.
The same article noted that Khatam al-Anbia and the IRGC more generally have long been impediments to foreign investment, and that their deeper involvement in the Iranian economy would only exacerbate Iran’s isolation. The intelligence network of the Iranian opposition group the People’s Mojahedin Organization of Iran has determined that the IRGC already effectively controls well over half of the nation’s gross domestic product.
Khamenei’s speech on Thursday seemed to preemptively blame the lack of foreign investment on a “betrayal” that consists of France, Britain, and Germany refusing to make INSTEX operational. But there is a credible argument to be made that Iran could effectively encourage the active use of that system by coming into compliance with universal standards of international exchange that have been highlighted by the European signatories to the JCPOA.
In February, the Islamic Republic surpassed a deadline for adopting the anti-money laundering standards laid out by the Financial Action Task Force. The Iranian parliament had introduced multiple pieces of legislation reflecting those standards and has consequently received a June deadline extension. But hardline entities including both the IRGC and the supreme leader have openly opposed FATF compliance despite it being a stated prerequisite for use of INSTEX, because that compliance would impede Iran’s financial support of Hezbollah and other terrorist groups.
Meanwhile, the hardline faction has faced little to no pushback from “moderate” political rivals associated with President Hassan Rouhani. In fact, the president seemed to echo Khamenei’s anti-Western rhetoric in his own Nowruz remarks, reiterating the supreme leader’s doubts about the future of Iranian-European relations. “These problems began with the oath-breakers and those who have recently reached power in Washington,” Rouhani said in reference to Iran’s worsening economic crisis, before highlighting the principle of unity across the entire Iranian political establishment, in defiance of Western enemies.