- By John HannahJohn Hannah is a senior fellow at the Foundation for Defense of Democracies, focusing on U.S. strategy. During the presidency of George W. Bush, he served for eight years on the staff of Vice President Cheney, including as the vice president's national security advisor., Saeed GhasseminejadSaeed Ghasseminejad is an associate fellow at the Foundation for Defense of Democracies specializing in Iran’s economy, politics, and the effects of terrorism and political unrest on financial markets. Follow him on Twitter: @SGhasseminejad.
You may have missed it, but there was big news on the Iran front earlier this month. After much hesitation, Total, the French energy giant, plunged back into the Iranian market, committing to become the primary operator in a $5-billion deal to develop the country’s South Pars offshore gas field. In doing so, Total became the first major Western energy firm to invest in Iran since the 2015 nuclear agreement, or the Joint Comprehensive Plan of Action (JCPOA). As such, Total’s move could have far-reaching implications, paving the way for a flood of new investments not only by other big oil and gas companies, but also by a host of multinationals eager to tap Iran’s post-sanctions business prospects.
That can’t be welcome news for a Trump administration committed to constraining Iranian aggression. The likely strategic effects of a much-strengthened Iranian economy aren’t hard to fathom. The regime’s Revolutionary Guard Corps (IRGC) dominates the commanding heights of Iran’s economy — including the energy sector. A richer Iran inevitably means more money flowing into the coffers of precisely the forces that have served as the vanguard of the Islamic Republic’s most threatening activities — not just in the nuclear sphere, but terrorism, ballistic missiles, and the regime’s relentless bid for regional hegemony as well.
Further, it goes without saying that the more Iran’s economy is bolstered by large-scale Western business deals, the harder it will be for the United States to deploy sanctions effectively to compel changes in the mullahs’ bad behavior. Politically speaking, powerful Asian, European, and U.S. corporations will fight tooth and nail against measures that could threaten their newly won positions in the Iranian market.
As for the economics, it’s a pretty good rule of thumb (North Korea notwithstanding) that the ability of sanctions to achieve their strategic goals is inversely related to the size, strength, and diversity of the target country’s economy. Simply put, the more resilient Iran’s economy grows, the greater its ability to withstand Western economic pressure. That would leave the United States with few options other than the threat of war to prevent the emergence of a future Iranian menace — from the resurgence of its nuclear weapons program to the testing of an intercontinental ballistic missile.
Regrettably, the Trump administration may have inadvertently encouraged Total’s decision to conclude its deal. For months after the U.S. presidential elections, Total delayed moving forward with Iran out of concern over President Donald Trump’s opposition to the JCPOA. Last February, the company’s chairman said that if the U.S. withdrew from the nuclear deal, “we will not be able to invest.”
But several developments this spring apparently gave Total reason to suspect that Trump’s bark might be worse than his bite. One was the administration’s decision in April to certify to Congress that Iran remained in compliance with all its obligations under the JCPOA — despite repeated violations of some of the deal’s key constraints regarding things like stocks of heavy water (begrudgingly, the Trump team issued its second report certifying Iran’s JCPOA compliance Tuesday night). That was followed by the decision in late May, in response to another congressional deadline, to continue the Obama administration’s policy of granting certain sanctions relief to Iran, as called for in the JCPOA.
To its credit, the Trump team did attempt to limit the impression that it was going soft on the mullahs. The certification of Iranian compliance was coupled with the announcement that a comprehensive review of Iran policy was underway, including the JCPOA. The waiver of nuclear sanctions was accompanied by new designations against a handful of entities and individuals involved in Iran’s missile program. Nevertheless, the mixed signals and overall lack of policy clarity seem to have provided Total with sufficient comfort to alter its risk calculus.
If the administration still hopes to prevent a broader rush of Western business into Iran, it needs to start sending the markets a far stronger, more definitive message of opposition — and the quicker the better. In that regard, Trump’s silence in the face of Total’s decision was unfortunate. At a minimum, some arm of the U.S. government — the White House, State Department, Treasury, take your pick — should have gone on record expressing concern about leading Western companies enriching a hostile regime that remains up to its eyeballs in illicit activities, not to mention the world’s leading state sponsor of terrorism. Foreign companies should have no doubts that not only are they exposing themselves to substantial reputational risks in Iran, but legal and financial jeopardy as well from a U.S. government that intends to keep close tabs on their transactions — especially the identities of their local business partners and any possible links to the IRGC or other U.S.-designated entities.
As a sign of the Trump administration’s seriousness, however, there’s probably no stronger deterrent message that it could send about the continued dangers of doing business with Iran than putting the brakes on the planned sale of civilian aircraft to Iran by one of America’s leading companies, Boeing, as well as its European competitor, Airbus. For reasons still hard to fathom — beyond the obvious need to appease Iran — the Obama administration agreed under the JCPOA to allow Iranian carriers to purchase Western passenger jets. As part of the nuclear deal, the Obama White House also agreed to remove sanctions on Iran Air, the Islamic Republic’s flagship airline.
In short order, Airbus and Boeing both inked multibillion-dollar deals with Iran Air. Obama’s Treasury Department lost little time issuing the necessary export licenses (though a European company, Airbus requires the U.S. license because its aircraft contain significant U.S. content). Airbus delivered its first planes earlier this year, while Boeing’s initial deliveries are scheduled for 2018.
While harshly critical of the JCPOA in general, Trump and his team have been noticeably silent when it comes to the Boeing deal. Given the president’s competing priority of reinvigorating the U.S. manufacturing sector, many suspect that he’s reluctant to forego the thousands of jobs that Boeing claims the sales could support. Boeing reinforced that suspicion when it announced in April that it had signed a second deal to sell planes to another Iranian carrier, Aseman Airlines, with a potential value of $6 billion. One might have anticipated that an administration highly skeptical of the JCPOA would have something to say about the first major Iran deal signed by a U.S. company under the Trump presidency. But again, nothing but crickets. That lack of reaction almost certainly was another factor contributing to Total’s decision to finalize its own deal with Iran.
If the president and his administration are as committed to combatting terrorism and Iranian aggression as they’ve suggested, blocking the Boeing and Airbus deals really shouldn’t be too hard of a call. It’s well established that Iran’s civilian airline industry has long been used in support of the regime’s illicit activities, particularly on behalf of the IRGC. When the U.S. designated Iran Air in 2011, the Department of Treasury stated that “rockets or missiles have been transported via Iran Air passenger aircraft, and IRGC officers occasionally take control over Iran Air flights carrying special IRGC-related cargo. The IRGC is also known to disguise and manifest such shipments as medicine and generic spare parts, and IRGC officers have discouraged Iran Air pilots from inspecting potentially dangerous IRGC-related cargo being carried aboard a commercial Iran Air aircraft, including to Syria.” Multiple other Iranian airlines have also been designated for illicit activities. As for Boeing’s second Iranian partner, Aseman Airlines, while it may not have been designated, its CEO was a longtime senior IRGC commander.
The Obama administration never gave any justification for agreeing to remove Iran Air’s designation. No evidence was ever presented to suggest that the company’s illicit activities on behalf of the IRGC had ceased. On the contrary, there’s every reason to believe that the opposite is true. As our colleague at the Foundation for Defense of Democracies, Emanuele Ottolenghi, has meticulously documented, in the year after the JCPOA went into effect, Iran Air flew nearly 100 flights to war-torn Syria — not filled with tourists, but almost certainly continuing to ferry weapons and militants to support Syrian President Bashar al-Assad’s campaign of mass murder of his own people. One of the authors has been briefed privately that U.S. and other Western intelligence services concur with that judgement and have the evidence to back it up.
The fact is that, if he chooses, Trump has ample grounds to suspend the export licenses already granted to Boeing and Airbus, pending a thorough review by the U.S. intelligence community that concludes with high confidence that Iran Air and the broader commercial airline sector in Iran are no longer supporting the Islamic Republic’s deadly activities. If he did so, the president would almost certainly have strong support in Congress, where at least five pieces of legislation have been introduced calling for such an assessment. Illustrative of the broader sentiment was a letter sent to Trump in April by Florida Senator Marco Rubio and Illinois Representative Peter Roskam, which noted that “Iran, the world’s leading state sponsor of terrorism, has systematically used commercial aircraft for illicit military purposes, including to transport troops, weapons, and cash to rogue regimes and terrorist groups around the world. The possibility that U.S.-manufactured aircraft could be used as tools of terror is absolutely unacceptable and should not be condoned by the U.S. government.”
A presidential decision to delay the sale of commercial aircraft to Iran should also have the full backing of America’s Arab allies in the Gulf, especially Saudi Arabia and the United Arab Emirates. Neither country has yet expressed concern about the Boeing deals. But if they did, their word would likely carry significant weight — both with the president and with Boeing. During his trip to Riyadh, Saudi Arabia, in late May, the president hailed his success in securing Saudi agreement to a multi-year package of arms sales and commercial deals estimated to be worth close to $400 billion, dwarfing the value of Boeing’s proposed transactions with Iran. While multiple U.S. companies will profit from the deals, Boeing promises to be among the leading beneficiaries. The Saudis have already committed to buying Boeing Chinook helicopters and P-8 surveillance planes, and will form several joint ventures with the company to service the kingdom’s defense sector. And a domestic Saudi airline is negotiating with Boeing for the purchase of 16 wide-body passenger jets.
If put to a choice, it’s hard to believe that Boeing would risk its longstanding and lucrative relations with the Gulf Arab countries in order to maintain the company’s controversial deals with a terror-supporting Iran. Boeing’s success very much depends on both prongs of its business — commercial aviation and defense. For years, Saudi Arabia and United Arab Emirates have been major patrons in both sectors. On the civil side, their large national carriers have been regular Boeing customers. And on the defense side — where operating margins are significantly higher than in the commercial aircraft business — the Saudis in particular, but also the Emiratis, are among the top arms purchasers in the world. Even if Boeing’s planned commercial sales to Iran were allowed to stand, the chances are less than zero that the Islamic Republic will ever be allowed to buy any of the company’s weapons system or services. Should they choose to exercise it, in short, Saudi and Emirati leverage to influence Boeing’s decision-making when it comes to Iran could be substantial.
Trump has called the JCPOA the “worst deal” ever negotiated and has said that “all nations of conscience must work together to isolate Iran, deny it funding for terrorism, and pray for the day when the Iranian people have the just and righteous government they deserve.” Saudi Arabia and its neighbors claim that Iran poses an existential threat to their very survival. None of those views can be easily reconciled with a policy that stands aside and permits Boeing, one of America’s most iconic companies, to embrace the world’s leading state sponsor of terrorism as a legitimate business partner. In no small measure, whether the Total decision winds up being an unfortunate exception to Iran’s relative isolation or the watershed moment that marks its collapse — with all the geostrategic consequences that entails — now hinges on whether Boeing’s deal with Iran is allowed to proceed unimpeded. If combatting Iranian aggression is as important an objective as the Trump administration and its Arab allies claim, the time has come to back their words with action. Stopping the Boeing deal will be a litmus test of their seriousness.
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