From Bolton’s “Shah scenario” to regime change
The Trump administration has greenlighted clandestine efforts to weaken Iran’s “moderates” hoping to incite “hawks” into strategic moves that could be used as a pretext for regime change. In April 2018, Trump hired the neoconservative uber-hawk John Bolton as US National Security Advisor (he was booted less than a year and half later). A relic of the Bush era, Bolton had engaged in the “weapons of mass destruction” pretense that led to the Iraq War. Now he advocated regime change in Iran and other countries.
By November 2017, Bolton urged the US to have a contingency plan for a “Shah of Iran scenario” and regime change before February 2019; the 50th anniversary of the Iranian revolution. His change agent was Mojahedin-e Khalq (MEK), an Iranian opposition group which advocates a violent coup in Iran. In the early 2010s, the UK, EU and the US considered MEK a terrorist organisation until then-State Secretary Hillary Clinton de-listed the group, to exploit it in US-led destabilization.
To support his economic sanctions with clandestine operations, Trump named Michael D’Andrea as the head of CIA’s Iran operations. Nicknamed “Ayatollah Mike,” he inspired the character of The Wolf in the Oscar-awarded movie Zero Dark Thirty (2012). Although D’Andrea failed to track Nawaf al-Hazmi, one of the hijackers who crashed American Airlines flight 77 into the Pentagon on September 11, 2001, he was made head of the CIA’s Counterterrorism Center few years later. With President Obama’s blessing, he also presided over hundreds of US drone strikes in Pakistan and Yemen. His operatives oversaw several interrogations, which a US Senate report has described as torture. And he has been blamed for the Camp Chapman attack in Afghanistan in which seven CIA operatives were killed.
When the then-CIA chief Mike Pompeo became Secretary of the State, his deputy Gina Haspel took charge of CIA. Following 9/11, Haspel oversaw a secret CIA prison in Thailand, which housed suspected Al-Qaeda operatives. Relying on “enhanced interrogation techniques,” she, like D’Andrea, was deeply involved in the detention and interrogation program condemned by the 2014 Senate report.
Worse, Haspel played a key role in the destruction of 92 interrogation videotapes that showed the torture of detainees in black sites. While the Bush and Obama era CIA leaders supported her CIA nomination, more than 100 retired US generals and admirals expressed “profound concern,” due to her record.
Plunging oil production
D’Andrea and Pompeo favor regime change in Iran and some observers see their covert-operation influence in the 2019-20 Iranian protests in many cities. As Iranians have greatly suffered from US efforts at domestic destabilization and international insulation, some demonstrators are obviously motivated by economic woes. But it also seems that Bolton’s Shah scenario and its variations remain on the table, as evidenced by the role of the US-sponsored Pahlavi loyalists among some protesters.
In contrast, Iranians see oil as the main reason to US interest in the Middle East. Iran and Iraq hold some of the world’s largest deposits of proved oil and natural gas reserves. Combined, their reserves exceed those of Venezuela, which has the world’s largest proved reserves.
Between 2010 and 2013, the sanctions hurt Iran’s economy contributing to the fall of crude oil exports from 2.5 million barrels per day to 1.1 million by mid-2013. That, in turn, was compounded by the plunge in oil prices since early 2014. Following the nuclear deal, Iran’s production soared back to 4 million barrels. With Trump’s efforts at regime change, the capacity steadily decreased to 3.7 million barrels per day (Figure 1). Recent OPEC estimates suggest it has plunged to 2.8 million barrels.
Figure 1 Iran’s petroleum production and consumption, 2011-2018
Source: EIA; Difference Group.
If Iran’s production capacity takes a further hit, that will penalize particularly its biggest importers China, India, South Korea and Turkey.
Diminished prospects
Since Russia and China were expected to stay behind the Iran nuclear deal, the real question was whether the European powers – Germany, France, the UK, and the EU itself – would defend it. Unsurprisingly, the Trump administration targeted European businesses that did business in and with Iran after the nuclear deal. In June 2019, the EU created a mechanism (INSTEX) that allows European countries to trade with Iran despite US sanctions. But it was too little, too late. Brussels failed to sustain the Iran nuclear deal against Trump’s unilateral moves.
Before 2015, Iran’s economy shrank by 9 percent two years, due to sanctions. After stabilization, sanctions relief enabled Iran’s oil exports to return to nearly pre-sanctions levels, permitted Tehran to regain access to funds held abroad, boosting 7 percent overall economic growth in 2016. Foreign energy firms made new investments in the energy sector and major aircraft manufacturers sold Iran’s commercial airlines new passenger aircraft. The relief contributed to the victory of Iran’s President Hassan Rouhani in the 2017 presidential election. Growth broadened to the non-oil sector. Real GDP growth was projected to rise toward 4.5 percent over the medium-term as financial sector reform was anticipated to take hold.
But then came the Trump U-turn. In May 2018, he had the U.S. withdraw from the nuclear deal, while secondary sanctions drove Iran’s economy into mild recession as major companies exited the country rather than risk being penalised by the US. The value of Iran’s currency declined sharply. Even before the US escalation, Iran’s economy was expected to undergo a second consecutive year of recession and contract by 8.7 percent in 2019/20. Inflation was estimated to reach 38 percent annually with mounting fiscal pressures. Economic expansion, which began after the nuclear deal, has been undermined. Neither is stagnation enough for the Trump administration. What the White House is fostering is progressive contraction (Figure 2).
Figure 2 Iran: GDP growth and supply side components, 2011-22
Source: World Bank; Difference Group
Following the drastic re-escalation, Iran’s economy will have to cope with even more challenging downward risks. And if oil exports were to be curtailed further, the economy could enter into a steeper recession and suffer from high inflation rates. In such a status quo, the challenge of protecting the vulnerable households would put additional pressure on the government finances and potentially the rial. Unfortunately, that may be precisely the White House’s objective.
“The challenges highlight the crucial role of further economic diversification by focusing on non-oil sources of growth and government revenues,” the World Bank stated in a recent update. In reality, economic diversification can only be built on peaceful conditions and political stability, which allow governments to proceed with a medium-term diversification. Such preconditions predate Trump’s Iran policy that has undermined years of international, multilateral diplomacy.
The net effect is the most dangerous escalation in the Middle East in decades and possibly the last nail in the fragile global economic prospects that could cause a synchronized global contraction in the course of 2020.
DAN STEINBOCK
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net
The original commentary was published by the UK-based World Financial Review on January 10, 2020.
