A lot of people have strong opinions about the looming deal to delay Iran’s nuclear weapons program. Strong facts are in shorter supply.
Some politicians opposed to the deal are making it sound as if Americans will somehow be subsidizing Iran’s Islamic government if the deal goes through. “If you vote to send billions of dollars to jihadists who have pledged to murder Americans, then you bear direct responsibility for the murders carried out with the dollars you have given,” Texas Senator and Republican presidential candidate Ted Cruz said at a recent rally against the deal. Donald Trump, another presidential wannabe and critic of the deal, has said the accord will make Iran “unbelievably rich.”
Will it? Well, that depends on what you consider “rich,” but Iran is not on the verge of becoming a diamond-encrusted sultanate. Here’s what is really going on:
The sanctions enacted by the United States and Europe in 2011 and 2012 included the freezing of Iranian assets in many international banks. Nobody knows the total amount of frozen assets, but it’s probably about $100 billion. Estimates go as high as $150 billion, the number some critics of the nuclear deal use to make the “windfall” coming to Iran seem larger than it probably is.
The deal would release those assets, allowing Iran full access to them. But the money belongs to Iran in the first place; it’s not coming from some other country. Iran owes some major debts to countries such as China, and it would use perhaps $50 billion to pay those, according to an analysis by the Brookings Institution. The big question is what it will do with the rest of the money.
If Iran pumped $50 billion into terrorist networks such as Hezbollah, or shared it with unsavory dictators such as Syria’s Bashar al-Assad, it would undoubtedly be destabilizing and lead to the kind of bloodshed Cruz warns about. But many analysts think Iran won’t use the money to fund terrorism and will instead pump it into the Iranian economy, which needs some help.
Contrary to what Donald Trump seems to think, the Iranian economy is pretty weak, especially for a nation with the fourth-largest proven reserves of oil in the world. Sanctions contributed to a recession in 2013, which seems to have ended last year. Inflation soared to 35% and has now fallen back to around 15%, according to the World Bank. The job market has improved, but the official unemployment rate is still 10.3%, and economists think the real rate could be as high as 20%. GDP per capita in Iran is about $5,300, one-fifth the level of Saudi Arabia and one-tenth that of the U.S.
Once sanctions are removed, the CIA thinks Iran will spend most of its spare money on economic priorities, such as building roads and bridges and shoring up the nation’s energy infrastructure. Treasury Secretary Jack Lew says the dilapidated Iranian economy needs $500 billion worth of repairs and investment, so $50 billion would be a small down payment.
The CIA could be wrong, and Iran could funnel billions to enemies of America (and Israel), in addition to whatever it already spends to support terrorism. President Obama, in fact, has said he expects Iran to continue sending money to certain terrorist groups, with or without a nuclear deal. And Iran will remain on the State Department's list of countries that support terrorism, which means other penalties that have been in place longer than the nuclear sanctions will continue to be imposed. That includes rules barring most American companies from doing business with Iran.
As for oil, the nuclear deal would allow Iran to resume selling oil to Europe and other nations that stopped buying it after sanctions went into effect. A lot of countries, including China, Japan, India and South Korea, never participated in the sanctions and have continued to buy oil from Iran. Still, Iran lost sales of about 1.2 million barrels per day, or about 45% of its total exports.
That cutback cost Iran about $60 billion per year in lost revenue. If exports bounced back to normal levels, Iran’s annual haul would probably be less than $60 billion, because oil prices are a lot lower now than they were before the sanctions. New oil supplies from Iran might even push oil prices—now around $48 for Brent crude, the type Iran produces—down by $5 or $10 per barrel. Still, Iran would enjoy an important new (old) source of revenue.
Put it all together and Iran would benefit from one-time access to about $50 billion in uncommitted funds held in its own accounts, and maybe $40 billion per year in new revenue from resumed oil sales. That’s a significant monetary infusion. Since nobody can control how Iran spends its own money, nobody can say for sure whether Iran would use it for constructive or destructive purposes.
A “snapback” provision in the nuclear deal would allow the United States and Europe to reinstate sanctions at any time. But that would only be triggered if Iran broke the rules regarding nuclear-weapons development—not if western leaders disapproved of the way Iran spends its own money. In short, if Iran wants to spend more on terrorism, it will probably be able to—as long as it accepts the cost to its own economy.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.