January 19, 2016

U.S. Sidelines Itself in the Rush to Iran


The lifting of sanctions on Iran is an important milestone that has the potential to herald a new era in political and economic relations between Iran and the West. The big question on the table now, however, is whether the United States will be a part of this new era or whether it will take a backseat to Europe in its commercial engagement with Iran.

Right now, the White House is choosing the latter. As part of the nuclear agreement between the U.S., other major world powers, and Iran, the Obama administration agreed to lift all “secondary nuclear-related economic and financial sanctions” on Iran in return for long-term constraints on Iran’s nuclear program. U.S. sanctions targeting Iran’s sale of its oil overseas, its ability to find insurance for its global shipments, and its conduct of most cross-border financial transactions are now lifted.

However, the U.S. trade embargo with Iran remains largely intact – outside of newly created authorizations for the import of Iran-origin carpets and certain foodstuffs and the sale to Iran of commercial aircraft. Under the trade embargo, U.S. companies are barred from engaging in trade with or investment in Iran – with few exceptions. Violating these U.S. sanctions prohibitions can lead to serious criminal and civil penalties.

This is a significant loss for the United States. Right at this moment, Europe, Japan, and a host of the U.S.’s closest allies are sending trade delegations to Tehran to connect with their Iranian counterparts and snap up new business opportunities, all the while effectively reintegrating Iran with their own respective economies. Having isolated Iran for the past decade, the United States is now left fencing only itself off from Tehran – an unfortunate consequence of the lack of political will and imagination from which Washington continues to suffer with regards to the Islamic Republic.

For what reason has the United States decided to put itself on a lone island of self-exile when it comes to re-engaging Iran in the post-deal period?

From the start of the U.S.-Iran nuclear negotiations, the White House sought to give Iran enough sanctions relief to warrant tough long-term restrictions on its nuclear program, while also not providing so much as to provoke the concern of Congressional Democrats, whose support the Obama administration needed to sustain the nuclear accord. Despite its inclinations to open up space for U.S.-Iran engagement, including person-to-person ties and possible commercial relations, lifting the U.S. trade embargo proved to be a step too far for the White House. As such, the Administration decided that U.S. negotiators would not have the promise of future U.S. trade ties with which to entice Iran’s diplomats.

But at heart was a political issue – not a policy dispute. As one U.S. official told me, reconnecting the U.S. and Iran, both commercially and person-to-person, “is something that this White House would certainly be sympathetic to.” Given absolute discretion over the matter, then, President Obama would likely have sought a broader opening in the U.S. trade embargo – allowing U.S. companies to re-engage their Iranian counterparts – just as he had done with Cuba and Myanmar before.

Politically, however, such trade openings proved too demanding – particularly absent constituencies petitioning it to do such. This was especially true for the U.S. business community, which was notably missing from the debate over the nuclear accord and, as a result, curried no favor with the Obama administration.

U.S. companies’ absence is explainable, perhaps even understandable. First, not having had ties with Iran for decades, the U.S. business community was unfamiliar with the Iranian market. Most companies had not developed a marketing plan for Iran in more than three decades and were hesitant to invest in such a plan so long as U.S.-Iran relations remained uncertain. Moreover, considering the reputational risks of being seen doing business with Iran – which retains somewhat of a pariah status among the American public and which has remained under trade embargo for two-plus decades – few U.S. companies were willing to put themselves out on the limb for the chance to re-engage such an unfamiliar market. The result was that U.S. companies conducted virtually no real outreach to either the Obama administration or Members of Congress, which, in turn, fed into a perception in the White House that it lacked any real constituency for the openings that it could have otherwise supported.

But U.S. companies are interested – just as are their European and Asian counterparts. They just require some reassuring. With a size and population approximating that of Germany, Iran is a significant developing country with the knowledge base and technical expertise that could rival that of Israel in the near future. There’s a reason why some expert trade advisors reckon that Iran poses the single biggest market opportunity in a generation and why passing on it could prove a historical mistake.

The real question, then, is how can the Obama administration leverage this business interest to avoid making such a historical mistake?

It will take work on both sides. As Europe, Japan, and other countries seek to engage Iran commercially, the reputational risk attached to such dealings will slowly evaporate, and U.S. businesses will start to wonder aloud why they are being shut out from an ever-expanding market. It is not too long ago that U.S. companies publicly lamented the imposition of the U.S. trade embargo with Iran in the first place.

To speed the process up, the Obama administration will need to show the courage of its convictions and give public notice that it is interested in commercial engagement with Tehran – particularly in areas where Iran’s young people have shown their ingenuities, such as Iran’s budding tech sector. A quiet but evolving dialogue with the U.S. business community is useful, but what U.S. companies need is a White House willing to lead the way on this issue. President Obama will have to compensate for the fear that successive administrations have provoked in the U.S. private sector when it comes to trade with Iran.

Undoubtedly, this is a venture that carries with it some risks. But it also has enormous potential upsides. Encouraging trade ties between the two countries can be a positive first step towards repairing broken relations and could be the preface to a more formal diplomatic relationship. At the very least, such commercial ties could develop the constituency that the nuclear accord needs to sustain itself over the next couple decades. To get us there, however, President Obama will need to test the hypothesis, as he has done with Cuba and Myanmar before, that the United States loses nothing through direct engagement with its adversaries.

This piece originally appeared in The Huffington Post.

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