As the world inches closer to official and non-official deadlines given to Iran on nuclear negotiations, something in the international equation just doesn’t add up.
The relevant players here are the P5+1 (the permanent five members of the UN Security Council plus Germany), Israel, the Sunni gulf states, and Iran. It’s worth evaluating their interests one by one, since a composite view of the situation will involve an intersection of these interests with their respective capabilities.
China—not thrilled about the prospective of nuclear proliferation, but even less thrilled about the prospect of interruptions in its energy supplies. China imports almost 60% of its oil from the Persian Gulf, and its largest trading partner is Iran. This means that the odds of China agreeing to the only sanctions that would really hit home in Iran—a gasoline embargo—are slim to none, since economic weakness directly translates to innerpolitical turmoil and trouble for the Communist Party. The only worse prospect is armed conflict, which would almost certainly close off the Straits of Hormuz entirely.
France—Sarkozy has been clear that France will not tolerate a nuclear-armed Tehran. Iran’s numerous and continuing infringements against UN resolutions give the administration a legal basis to an increasingly militant posture.
The UK—in line with France and the US. Will not tolerate a nuclear-armed Iran, but like both countries, would prefer to avoid commitment of armed forces (for obvious reasons of economic and political costs and risks).
Germany—Germany is in a much more conflicted position than some of the government’s rhetoric would lead one to believe. For one, Germany (and close relative Austria) has substantial commercial interests in Iran. Secondly, although people and government are publicly very anti-nuclear-proliferation, both distrust US leadership, and have absolutely zero appetite for any type of conflict anywhere in the world, let alone in the neighborhood of Iraq, which is widely viewed as a symbol for All That is Wrong With America. The Germans have a tendency to view all conflict as fundamentally driven by self-interest, which is therefore intrinsically immoral (unless Germany’s own interests are at stake). Finally, Germany’s increasingly cozy relationship with Russia, borne both from energy dependence and diverging interests with the US, means that Germany is unlikely to form a united front with the rest of the West to exert pressure on the other stakeholders in the brewing conflict.
Russia—Russia already has extensive commercial ties with Iran, specifically in two sensitive and lucrative sectors: nuclear technology (the Buschehr plant) and armaments (particularly SU-300 SAMs). The country therefore has a vested interest in business-as-usual, except that the alternative (strict sanctions or war) have a potential to be even better for the Kremlin’s bottom line. A closing of the Straits of Hormuz would lead to an explosion in oil prices, and gasoline sanctions would allow Russia to make a killing exporting fuel overland to Iran at inflated prices. Even more importantly, Russia would like to see nothing more than to see the Middle East suck in American resources even further, since this would allow it to continue reasserting control over its sphere of influence in the former Soviet Union (particularly Ukraine and the Caucasus). The only balancing aspects are that Russia is also interested in a stable Afghanistan, meaning that a shift in US combat capabilities out of the country would require added expenses by the Kremlin to secure that border; and secondly, a nuclear-armed Iran will likely further push US ballistic missile defense system proliferation in Eastern Europe. News that the US has shelved these plans, whether true or not or for whatever reason, do not change that long-term reality. Overall, though, between its oil export capability, potential to disrupt American air attacks by the dissemination of air defense systems, and even nuclear support, Russia can make a difficult situation just that much worse.
The US—the US doesn’t really want war, and can’t afford it. The latter is not just a matter of defense appropriations and budget deficits, but also opportunity costs and the deep socioeconomic malaise that would follow the inevitable rise in crude prices following Persian Gulf action. However, the US cannot tolerate a nuclear-armed Iran, for the following reasons: 1) it is illegal under the NPT and would weaken the international state system, 2) it would constitute an existential threat to all US allies in the region, particularly Israel; 3) it could very well lead to an arms race in the Middle East that harbors immense fat-tail risks. Finally, Obama is seen internationally as young, untested, and possibly weak, and he is a Democrat, which means that at the domestic level he must constantly prove his foreign-policy steel. He cannot afford to appear even slightly weak here.
The Gulf States—America’s Sunni allies in the Persian Gulf, and chiefly Saudi Arabia, are extremely concerned about the prospect of nuclear armament in the region and its potential to shift the balance of power. Many battle with social issues around the integration of Shiite minorities within their own borders. The question, as always, is not only one of capability, but of political will—how to balance their populations’ antipathy to everything Israeli with the confluence in national interest? As is the case with Palestinian support, rhetoric will sharply diverge from policy.
Israel—has made its position abundantly clear: Iran will not be allowed to acquire nuclear weapons. Netanyahu is playing a complicated political game balancing domestic and international politics (best shown in settlements ‘freeze’). In recent weeks, he has tried to buy the Russians, cajole the Americans, intimidate the Iranians, and ratchet up the pressure as much as possible. To mount an attack across Iraqi/ American airspace, Jerusalem needs Washington’s approval. But the wild card here is Obama’s perceived coolness to the Israeli cause—if the Israelis do not predict help as forthcoming, they may feel freed to undertake radical action themselves.
Iran—is playing the usual games. They are attempting (and succeeding) and changing the debate from revolving around nuclear issues, to revolving around the debate itself. They have done this by proclaiming first that nuclear issues are not on the table during the upcoming negotiations (scoring domestic political points and adding another hurdle for foreign diplomats), then proposing Tehran as the negotiation site (which is impossible, since negotiations are at head-of-state level, but would be a major victory if agreed upon), by making small meaningless concessions. (such as letting inspectors back into an enrichment plan), and finally, by releasing a position paper. The last bit allows the more recalcitrant participants (Germany, Russia, China) to claim that diplomacy is making progress and thus oppose stricter sanctions, when really the situation has not changed at all. The hoped-for outcome is that, after a year of meetings, all players go home exhausted, and with even fewer options than before.
The point is, everyone has very different priorities, and everyone is trying to push the situation as far as possible thinking no one else will act. For example, no one thinks Israel will act without US support, and no one thinks the US will (or can) act at all; but these assumptions don’t necessarily hold true. Expecting a few months of negotiation with no tangible outcome simply does not make sense when some players simply cannot afford to let that happen at almost any cost (particularly Israel and the Arabs). Also, Obama is thinking of Kennedy and the Cuban missile crisis, and has a strong incentive to move fast. With so many miscalculations and moving pieces, the situation could escalate rather quickly.
There are a few possible accommodations that could be made to change the constellation of players. The most intriguing is a Grand Bargain between Russia and the US (of which the recent US scrapping of missile defense systems may well have been the starting gun). It would really cost the US, above all in credibility, since it would basically have to withdraw support from Georgia, the pro-western sections of Ukraine, and even to some extent Poland, and lessen its presence in Central Asia; but policymakers might well decide that this is worth it since n the long-term, these losses can be regained. If the West were truly unified—Germany being the problem here, not France—then this would be more easily achievable, since Russia would both see a bigger stick waving and could be offered more carrots.
Another possibility is a massive change in US strategy. It would take a while to implement because of the formidable logistical obstacles, but the US could shift forces right back out of Afghanistan into the Gulf region, abandon the Afghan effort altogether (thereby creating a liability for Russians), to ratchet up pressure on Iran and signal a willingness to fight.
A wild-card here, ignored in most discussions, is China. How would the Middle Kingdom react to military action in the Gulf that reduces oil imports or raises their price? For that matter, could the country be convinced to support sanctions if the only alternative is war (which would be even worse economically)? The Chinese talk like a superpower, but haven’t paid the costs yet—maybe they will begin to here?
In any case, no matter what pattern of escalation follows between Iran and the West, or Russia and the US, or whichever constellation of powers, nuclear war is not the risk. But the odds of an economic disruption of some sort are rising with every day that there is not a realignment of the interests described above. And thus, it might well make sense for investors to hedge what could be a substantial fat-tail risk. In almost any scenario, crude oil and Russian indices should do well, and the US (and most of the rest of the global economy) should do relatively worse. Alternative energies would get a boost. And given that the popular media coverage of the situation has been muted thus far, this kind of protection should still be affordable.
Special thanks to my brother (who knows much more about geopolitics than I) for his input into this article. This article is a product of a long phone conversation with him, and the ideas in it should be considered his more than mine.
