What Explains Trump Pulling the Trigger on Suleimani? It’s the Economics, Stupid.

The last two U.S. presidents, Barack Obama and George W. Bush, each considered killing Qassem Suleimani, the powerful commander of Iran’s Quds Force. Unlike President Donald Trump, however, they demurred from pulling the trigger.

What, then, explains Trump’s decision?

One answer may come from the dismal science: economics.

“Men,” Karl Marx wrote, “make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already.”

Yes, Trump is not Obama or Bush. And no matter your views on the wisdom of his decision, the buck for Suleimani’s killing stops with the president. But Trump at least made his choice in circumstances that favored the operation more than when Obama or Bush was in power. To focus purely on personalities is to miss how shifts in economics upended the prospective risks and rewards facing U.S. policymakers in the months before Suleimani’s death.

Developments within the U.S. energy sector recently granted Washington armor that deflects what was once a favorite economic weapon in Tehran’s quiver of asymmetric arrows—oil price shocks. Meanwhile, in Iran, a spiraling collapse in macroeconomic conditions limited the regime’s ability to hurt American interests. Neither Bush nor Obama enjoyed circumstances like these. Nor did Trump himself, until very recently.

In September 2019, the United States became a net exporter of oil for the first time since at least the 1940s. Suddenly, global oil price increases were now a net positive for the U.S. economy, rather than the other way around. This change in status largely negated Iran’s ability to hurt the United States with oil price shocks: For the first time in the Islamic Republic’s history, disrupting the flow of oil out of the Middle East would cause no harm to macroeconomic conditions within the United States.

U.S. President Jimmy Carter’s characterization of an energy crisis emanating from abroad as “the moral equivalent of war” underscores the extent to which ensuring the stability of oil flows once defined U.S. interests in the Middle East. But just months ago Trump became the first modern U.S. president with the opportunity to formulate foreign policy in the Middle East without this sword of Damocles hanging over America’s economy—a development he has welcomed. Last September, after a drone attack on Saudi oil facilities attributed to Iran by U.S. officials created a record-breaking spike in the price of oil, he tweeted: “Because we have done so well with Energy over the last few years … we are a net Energy Exporter. … We don’t need Middle Eastern Oil.”

In Iran, however, the punishing impact of sanctions has bequeathed policymakers the opposite: more constraints and trade-offs than their predecessors would have faced in responding to an American attack. Unlike in the past, several potential courses of retaliatory action would now impose major costs on the regime by accelerating historic rates of inflation that have been driving deadly domestic unrest (although Suleimani’s killing seems to have briefly turned Iranians’ attention away from demonstrating against their own regime). Economic output in the Islamic Republic has also been, according to its own official data, on a downward slope: International Monetary Fund estimates indicate a contraction of 9.5 percent for 2019. And a shortage of foreign currency constrains the regime’s ability to fund activities abroad without worsening these conditions at home. More than at any point in recent years, Tehran will find it more difficult to fund a potential retaliation for Suleimani’s assassination without sacrificing other priorities.

The connection between foreign exchange shortages and inflation is textbook economics. A domestic shortage of anything induces its price to increase. And so a domestic shortage of foreign currency causes its price, in terms of the domestic currency, to rise. To the extent that people consume imported products, the currency devaluation then increases prices for domestic consumers, sparking a rise in inflation.

The Trump administration’s summer 2018 announcement of its decision to reimplement sanctions that November, and the anticipation of this announcement, caused Iran’s exchange rate to plummet. Sanctions also decreased the availability of foreign currency in Iran by prohibiting or discouraging foreign trade and business. For much of 2016, before Trump was elected and while the Iran nuclear deal was still in place, on the open market, a U.S. dollar cost between around 34,000 and 37,000 Iranian rials. By the spring of 2018, as rumors of the return of sanctions proliferated, the rial began to slide. By the end of August, a U.S. dollar cost more than 110,000 Iranian rials—representing a rial devaluation of about 300 percent since Trump’s election. After sanctions were reimposed in November 2018, the market rate for Iran’s currency has fluctuated between around 110,000 and 150,000 rials per dollar. Iran’s central bank maintains a relatively unchanged official rate of 42,000 rials per dollar, but this rate remains available only to finance the purchase of essential imports, for which it functions effectively as a subsidy.

Even with Tehran’s apparent attempts to conceal the extent of rising prices, domestic inflation in Iran has soared as the exchange rate has collapsed. The central bank ceased publicly reporting inflation data in 2018 after its last release indicated that it had more than doubled within the last six months. But another source of apparently official data, the government-funded Statistical Center of Iran, estimated year-over-year consumer price inflation for the Persian month that approximates December 2019 to be 40 percent. In the category that includes food, the figure was more than 50 percent.

The Statistical Center of Iran seems to have removed its historical time series data on inflation from its website sometime between December 2017 and November 2018. According to the decades of annual data available from Iran’s central bank, only once since 1945 has inflation exceeded the annualized rate of 40 percent recently reported by the Statistical Center of Iran.

Such increases in prices have fueled domestic unrest within Iran that spilled onto the streets last November. The impetus for the protests appears to have been the removal of a subsidy that prevented a rise in the price of gasoline—an expected effect of inflation, which has soared past rates observed during the presidencies of Bush and Obama. Though the protesters would ultimately broaden the range of grievances they voiced, their burning of hundreds of Iranian banks underscored the extent to which economics was driving their dissatisfaction. And in an indication of the protests’ perceived threat to the regime, the marches elicited the deadliest response from the government since the Islamic Republic’s founding in 1979, with about 1,500 people killed in crackdowns.

Until the end of 2019, when large-scale protests over price increases broke out across Iran, increases in inflation could be passed on to the people without imposing serious costs to the government. But economic conditions today effectively compel the Islamic Republic’s leaders to choose between violence abroad and security at home: If inflation continues to increase, the discontent that fueled last year’s protests will only deepen, which would in turn threaten the regime’s future. Any potential retaliation to Suleimani’s killing through terrorist attacks in third countries or escalations of violence through proxies abroad would exacerbate Iran’s underlying foreign exchange shortage. As always, the regime would need to fund any operation in a territory abroad through expenditures of foreign currency. But a second-order effect is that any violence abroad would likely jeopardize any remaining foreign currency obtained with the cooperation of the foreign governments—namely in Europe, India, and China—that preserved channels through which Iran can acquire foreign funds after the United States reimposed sanctions on its oil sector.

Tehran’s options are constrained by more than just inflation. Contractions in economic output further limit the country’s ability to fund increases in military expenditure. A $10.7 billion central government budget deficit reported in February 2019 set a record, but amid last November’s protests, the government acknowledged a deficit closer to $30 billion.

Unlike most countries, Iran cannot simply turn to the international bond market to fund expansions of its deficit, due in part to the November 2018 implementation of U.S. sanctions on purchasers of Iranian sovereign debt. Nor is the Islamic Revolutionary Guard Corps (IRGC) positioned to raise revenues to fund a response to Suleimani’s elimination. The IRGC has a mafialike economic structure, profiting from smuggling and other illicit activity. If the IRGC had new sources of revenue it could tap, it would have tapped them before Suleimani’s death.

In the coming weeks and months, additional details will surely emerge about Trump’s decision to eliminate Suleimani and of the plotting of the operation. Even if these bits of information engender more speculation than they quell about the Trump administration’s Iran strategy, you don’t need to wait for the latest trickle of news to find an explanation for why a U.S. president whose first National Security Strategy emphasized that “economic security is national security” made use of a tactic that his predecessors declined.

Three American presidents consider an operation—one of them under circumstances unlike those experienced by his two predecessors. He comes up with a different answer. Why? It’s the economics, stupid.