President Trump’s greatest foreign policy folly

On May 8, 2018, U.S. President Donald Trump announced that he was walking away from the 2015 nuclear deal with Iran known as the Joint Comprehensive Plan of Action (JCPOA), which the United States had signed along with the other four permanent members of the United Nations Security Council plus Germany (the P5+1) in order to eliminate the prospect of Iran developing an indigenous nuclear weapons capability until at least 2028.

Trump didn’t suggest any amendments to the nuclear deal nor any justifications as to how Iran was violating the nuclear accord. In fact, the International Atomic Energy Agency (IAEA) confirmed on May 9 that Iran was in compliance with its nuclear commitments. If so, then why did President Trump kill the deal when the alternative could be a war with Iran?

I would venture to suggest that the real reason is to please Israel. The decision by President Trump has the hallmark of having been made in Tel Aviv like the decision to recognize Jerusalem as the capital of Israel and passed on to the White House to announce.

Israel has been prodding the United States to attack Iran’s nuclear installations, thus risking war with Iran. Israel, which possesses an estimated 80 nuclear warheads, does not want Iran or any Arab country to acquire nuclear weapons as they would pose a threat to its security, but it doesn’t mind if its own ownership of nuclear weapons poses a threat to the security of others.

Under the current U.S.-led global order, there is one law for Israel and another for the rest of the world, particularly when it comes to Palestine and the Palestinians.

But the Trump decision is unlikely to bring about a meaningful improvement in the security situation of the U.S., Israel, or the Middle East generally, nor affect Iran’s strategic capabilities.

And although there is no immediate evidence that the Trump decision would necessarily lead to an uptick of conflict in the near-term in the Middle East, it is possible that it could allow Iran greater latitude in developing its strategic capabilities, including taking a more open stance on its nuclear weapons program.

Of significance is the projection that any potential constraints on Iran through the re-introduction of U.S. sanctions, could impact the country’s ability to export oil to the world market.

Contrary to claims by banks and analysts, U.S. sanctions on Iran will severely impact Iranian crude oil production and exports. Moreover, their impact on global oil supplies and prices will hardly be noticeable. Three cardinal factors lie behind my assessment.

First, Iran will not lose a single barrel of oil exports. More than 75 percent of Iran’s oil exports go to China and the Asia-Pacific region while the remaining 25 percent mostly goes to the European Union (EU). China, India and other Asia-Pacific region countries as well as the EU are not going to comply with U.S. sanctions and reduce their imports of Iranian crude. While most major buyers of Iranian crude oil will continue to do so, Japan, South Korea and a few others might decide to comply with U.S. sanctions and shun Iranian crude. However, this will be more than offset by increased imports of Iranian oil by China, India and other Asia-Pacific countries, as well as the EU.

Secondly, the pre-Iran nuclear deal’s sanctions worked against its oil exports because of a combination of the EU’s sanctions on global insurance companies insuring Iranian oil cargoes and U.S. sanctions on banking making it difficult for Iran to receive payments for its oil imports in petrodollar. The EU is not going to walk away from the Iran nuclear deal and therefore it will not be imposing any sanctions on Iran, thus further weakening U.S. sanctions.

Finally, Iran will be accepting the petro-yuan for payment for its oil exports to China and the euro for exports to the EU thus bypassing the petrodollar altogether and nullifying the impact of the sanctions. What is also significant is that the sanctions would almost certainly accelerate the use of the petro-yuan and the Russian ruble in Iran’s oil transactions. And, with the prospect of Saudi Arabia also considering some oil sales in petro-yuan, the end of the petrodollar domination of the global oil market is looking increasingly likely after more than a half a century. This will strengthen the economies of China and Russia, gradually erode U.S. influence on global markets and adversely impact on the value of the dollar against other international currencies.

The real strategic ramification would be on European corporations being forced in the coming six months to decide whether they wish to continue doing business with the U.S., or whether they would choose to continue to pursue the commercial opportunities in Iran.

Iranian President Hasan Rouhani, however, said on May 8, 2018, in response to the Trump decision that Iran would stay in the JCPOA with the other signatory countries. The question will be what meaning the JCPOA would have with the U.S. in a position to impose sanctions on Iran, which would effectively penalize non-U.S. corporations if they attempted to do business with Iran, regardless of the fact that their domestic laws and their acceptance of the JCPOA permit such trade.

The U.S. had the opportunity to have a serious rapprochement with Iran and offset some of Russia’s (and, to a degree, China’s) influence in Iran under President Obama and President Trump. It did not do so under pressure from Israel and the Israeli lobby in Washington.

In response to the Trump move President Rouhani said that the U.S. “has never adhered to its commitments”; and there is some justification for that comment, given the history that one U.S. administration will often cancel the commitments of its predecessors. President Trump’s decision to withdraw from the JCPOA undermines international agreements.

It is possible that the move will force Turkey toward further cooperation with Iran, thereby creating a dilemma for the U.S. as to how to deal with the fact that Turkey has become strategically hostile to the U.S. and NATO. Indeed, events are pushing together mutually suspicious players: Iran, Russia, and Turkey. But there is no opening in any of this for the U.S.

If we now evaluate the balance sheet of President Trump’s move, we find that the ultimate losers are the United States and its allies in the Gulf, particularly Saudi Arabia. The winners are China, Russia and Turkey, but the ultimate winner, at least in the short-term, is Israel.

*Dr Mamdouh G. Salameh is an international oil economist. He is one of the world’s leading experts on oil. He is also a visiting professor of energy economics at the ESCP Europe Business School in London.