If it seems that more wild cards are at play in U.S. Middle East policy this year, perhaps it’s because wild cards are the new game. Consider the scenario still uneasily at play between the Trump Administration and Iran.
In an appearance at the Council on Foreign Relations in New York on Tuesday, ex-U.K. Prime Minister and erstwhile Middle East peace envoy Tony Blair called last month’s killing of General Qasem Soleimani by U.S. forces “justifiable retaliation” against a recent escalation in anti-U.S. activities by the Iranian Revolutionary Guard Corps.
“I think its wisdom in the end will be judged by whether it’s part of a strategy and not simply an isolated act,” he said.
As to whether the unpredictability of U.S. action in the region had become de facto strategy, Mr. Blair was circumspect. He said the killing of General Soleimani had the effect of throwing the Iranian regime— “possibly temporarily”—off balance, unable to predict the proportionality of U.S. response.
“It’s not really a facetious comment to say that unpredictability [on the part of the U.S.] is a strategy, and it’s also a strategy that has some coherence in its own terms, provided it’s part of a wider approach to the threat that Iran poses,” Blair said.
Externalizing the problem
Blair acknowledged that the resumption of U.S. sanctions under the Trump Administration had resulted in an “immediate and severe” impact on the Iranian economy over the past year. Facing a 60% devaluation in the Iranian rial, a sharp contraction in GDP, and protests attacking not only the Iranian government’s economic record but also its ideological and authoritarian nature, the regime “decided to externalize the problem.” It did so by attacking Saudi oil facilities last September in a bid to test the region’s willingness to engage, and to impose a price on the U.S. policy of “maximum pressure” against Iran.
The result, he said, was not what the regime expected. While the attack showed the region did not have much appetite for conflict, Iran also found that the Americans were willing to retaliate in a “direct and unpredictable” fashion.
“We are now in this position: the regime is internally vulnerable, [and] has discovered that there is no desire for war, but has no risk-free options in taking steps toward one in order to force a change in policy,” Blair said.
Looking ahead, Blair’s operating assumption is that Iran must have sanctions relief, and cannot afford status quo. Assuming that the regime mitigates its actions, the U.S. and the region as a whole could return to a strategy of containment, rather than pursue active regime change in Iran.
Step one, he says, would be for Iran to enter into new commitments in respect of its nuclear program. Second, Iran should “buttress” that with commitments on ballistic missiles and destabilizing activities in the region, including threats to erase Israel from the map.
Third, the U.S. should accept that if these commitments are implemented, then Iran should be part of the discussion about the region and resolution of its challenges.
Fourth, sanctions relief should accompany such changes. And finally, the West should continue to support the cause of transformational change in Iran, and leave the door open for such change to bring about a wholly new relationship with it, but without taking active steps to undermine the regime from outside.
“This would amount, effectively, to a much broader strategy of containment, and one that does not mean abandoning those in Iran who want a new future,” he said.
For all players, the risk of accidental escalation due to policy miscalculation remains high.
Risk of “misstep”
In a recent client call, Cedric Chehab, Singapore-based Global Head of Country Risk at Fitch Solutions, said that the unpredictability factor in relations between the U.S. and Iran would pose a risk this year for oil prices, due to the Strait of Hormuz conveying 30% of all global maritime oil transports and the accompanying risk of passage chokepoints.
While neither recession nor supply shock are base case scenarios for the firm, Iran tensions are the prevailing risk factor for oil prices this year, particularly given oil inflation already running 15% higher than at this time last year. Chehab said the prevailing risk is one of unintended policy “misstep.”
“With heightened tension, there’s a risk of a policy misstep or mistake between the U.S. and Iran, and that could lead to an unintended rise in oil prices or inflation that would be negative,” Chehab said.
