The Iranian economy is under strain but not collapsing, anti-government demonstrations have been contained and the Iranian state retains control over the domestic means of coercion. Iranian influence persists from Beirut to Baghdad. While hairline fractures in the pressure tank of Iran’s political economy may yet turn into visible rifts under the economic burden of US sanctions and the Covid-19 pandemic, for the moment the US maximum pressure strategy falls short of realising its objectives.
What has changed, though, is that the conservative and ‘radical’ elements of Iran’s political elites have been strengthened in the wake of its 2020 parliamentary elections and may also carry the presidency in 2021. The bid of the ‘modernists’ to accept a temporary limitation of Iran’s nuclear sovereignty in exchange for reintegration with the global economy has been rewarded with US-initiated economic ostracism. Their influence and status have correspondingly weakened. At the same time, the growing pressure on the Iranian government has forced a closing of the ranks and a reassertion of state power – as exemplified in the recent execution of Navid Afkari. Sanctions have exposed and aggravated some of the existing performance issues of the Iranian government that include poor economic performance, corruption, an outsized social, political and economic role of its military-security complex (especially the IRGC), and poor relations with parts of the Middle East – but they have also smothered prospects for reform.
It is the kind of environment in which an external threat may just enable Iran’s rulers to consolidate and survive, akin to the early years of the Iran-Iraq war. Such a scenario could easily reinforce the geopolitical effects outlined above, which are undesirable from a European perspective. It is also the kind of environment in which the Iranian government has little to lose. It already stands with its back against the (economic) wall. This induces greater risk taking that shortens the road to armed conflict.
In the short term, the immediate priority for the EU should be to ease some of the pressure with the aim of reducing any need Tehran perceives to take radical measures. Such a step cannot wait until after the US presidential elections since months will be needed for a new US administration to settle in and more months to operationalize its Iran strategy. The most straightforward way for the EU to realise this priority is to deliver large-scale EU ‘humanitarian’ aid via INSTEX over the coming months in support of Iran’s economic recovery during and post-Covid-19. It is officially sanction-exempt and could bring INSTEX into adulthood. It is also a way to restore some EU credentials among the Iranian population.
Once a modicum of stability has been restored, the EU should launch an economic connectivity initiative that immediately grants preferential access to its internal market for industrial and agricultural goods from the Middle East (subject to safety and health standards), akin to its Everything-but-Arms (EBA) legislation (for Iran via extended use of INSTEX). This should be attractive to Iran and Turkey given their sizeable industria base and the Gulf countries are likely to find it attractive in the future given their need for economic diversification.
In the medium term, such an initiative could work towards a regional free trade zone and explore common ground between the EU and China to strengthen regional transport infrastructure from both ends via the Asian Infrastructure Investment Bank and the EIB respectively. Such an approach leaves essential security matters out of account since these cannot be resolved without US involvement and require a separate track to be developed after the November 2020 US presidential elections. But it has the advantage of offering a longer-term economic escape hatch from the Catch-22 of the region’s current security dilemma.