Ig-Nobel Cause — Act 2

If Mr Trump thinks he can ‘play’ Tehran as he has Pyongyang he is probably wrong.

“The endgame for [Mr] Trump is different than it is for the hawks like [Messrs] Bolton and Pompeo. [Mr] Trump is much more interested in what comes out for him personally, in terms of a Nobel Peace Prize.”

Vali R Nasr, Johns Hopkins School of Advanced International Studies, 23 July 2018

In my 22 May article for The Global Lead, I argued that one should not underestimate President Donald Trump’s possible (likely?) desire to win a Nobel Peace Prize as a driving force behind his willingness to meet with North Korea’s Kim Jong-un. I was therefore very struck by Professor Nasr’s suggestion, in the wake of Mr Trump’s highly inflammatory tweet of late Sunday, that the President might be similarly motivated in his thinking on Iran. I also would certainly not rule this out.

It would be reassuring to think that Mr Trump’s bellicose threats were a prelude to a similar trajectory to the one which led to last month’s summit in Singapore (even though it is far from clear, to my mind at least, that we are now on an irreversibly positive track with North Korea). And, certainly, Iranian President Hassan Rouhani’s (pictured) reference to the mother of all peace (as well as “the mother of all wars”) in his speech to Iranian diplomats which triggered Mr Trump’s tweet does appear to leave the door open for dialogue. Just as, in response to press questions, the White House did not, reportedly, rule out direct talks with Iran’s leadership in the immediate aftermath of the Trump tweet, I would not therefore entirely dismiss the possibility that Tehran might take a leaf out of Kim Jong-un’s book and test Mr Trump by openly proposing a summit of some sort, possibly even in the margins the opening of the 73rd UN General Assembly on 18 September. This would, in my view, be a smart move, not least in terms of Tehran’s desire to maintain some support among the other signatories to the Joint Comprehensive Plan of Action (JCPOA).

However, Iran is not North Korea as Mark Lander of The New York Times points out, citing three critical differences as follows:

“First, Iran’s leadership is more complex and multifaceted than the one-man state of North Korea, making it harder for Tehran to reverse course like Mr Kim did, and reach out to Mr Trump.

Second, there are well-financed, powerful constituencies at home and abroad — like the Israeli government and the American Israel Public Affairs Committee, a Washington-based lobbying group — which will mobilize against any new diplomatic overture to Iran.

Third, Mr. Trump’s unilateral decision to abandon the 2015 nuclear deal gives the Iranians little incentive to negotiate with the United States, especially since the other five signers — Britain, France, Germany, Russia and China — are still adhering to it.”

[Note: I should acknowledge that the view I express at the end of the immediate previous paragraph about the potential benefit to Iran’s wider relations of reaching out to the US is at odds with Mr Lander’s third point; but I think this difference is consistent with his first point in that different factions in Tehran will have different perspectives.]

Furthermore, as Professor Nasr makes clear, in opting for diplomacy Mr Trump would also have to overcome significant resistance from his own national security team — consistent with concerns I expressed in my 18 March article, published when Michael Pompeo was first nominated as Secretary of State. Nothing in Mr Pompeo’s speech last weekend to Iranian Americans or John Bolton’s 23 July statement in support of his boss’s tweet leads me to believe that they would willingly settle for anything short of complete capitulation by Tehran to Mr Pompeo’s 21 May demands or (preferably, in their view) regime change there (which would, in my view, very likely be the consequence of capitulation — and probably not for the better). In short, I agree with former State Department official Jake Sullivan, who participated in the process which led up to the JCPOA, that:

“Their entire strategy is the pressure itself, with the hope that it brings down the government”.

None of which is to say that we are on the brink of military action of some sort between Iran and the US. But, tail risk though this may be, I am sticking to the view I have held for well over a year now that a miscalculation can certainly not be ruled out — and perhaps especially not in the light of the way in which North Korea/US relations have evolved this year. As Uri Friedman put it in The Atlantic on 23 July:

“…there’s also the possibility that the Iranians, believing Trump to be a bluffer, misinterpret which moves will actually prompt a U.S. military response from an American president surrounded by Iran hawks, raising the chances of war”.

I therefore think that markets got it broadly right on 23 July in triggering a modest — but ONLY a modest — uptick in the price of Brent crude in response to Mr Trump’s tweet (ie the latest example of what I have termed the ‘POTUS premium’). But I also continue to believe that investors should be prepared for prices to go higher still in the coming weeks. Whatever Mr Trump’s personal leanings may be, a diplomatic breakthrough of some sort does seem unlikely, with the consequence that Washington, through the threat of sanctions, will continue to try to force third countries to stop buying crude from Iran by 4 November (notwithstanding the possibility of waivers for some allies). I don’t expect this to be particularly dramatic — notably because I maintain my reservations about Iran’s ability physically to close the Strait of Hormuz, its repeated threats to do so notwithstanding. But, barring an unexpectedly early and major trade war-related ‘hit’ to the global economy, Brent closer to USD80 per barrel rather than USD70 still seems to me to be where we are headed for at least the remainder of 2018.

Update: 31 July 2018

Classic Trump! On 30 July at a press conference with the Italian prime minister, Mr Trump stated that he was ready to meet Iran's leaders with "no preconditions" and "any time they want". On the one hand, we should welcome (in principle at least) Mr Trump's willingness to sit down and talk without preconditions — while noting that within minutes, Mr Pompeo (who may well have been taken by surprise by his boss) qualified the "no preconditions" claim by suggesting that Iran would first have to show a willingness to "change its behaviour". On the other, in practice there are clear 'issues', notably: (a) Mr Trump's record to date in one-on-one meetings with non-allies of the US — especially bearing in mind that he made this offer on the very day the US intelligence agencies claimed that North Korea is "working on new missiles", and (b) the sheer unpredictability of US foreign policy (which, to be fair to Mr Trump, he promised during his election campaign) which risks serious miscalculation by friend and foe alike. Put both of these together and consider how unnerved both Israel and Saudi Arabia in particular must be over the prospect of Mr Trump sitting down with President Hassan Rouhani.

This being said, I doubt that this is about to come to pass anytime soon. The hardliners in Tehran will, if anything, be even more unnerved at the prospect than Israel and Saudi Arabia; and a meeting clearly would not happen without the say so of Supreme Leader Ayatollah Ali Khamenei who will almost certainly side with them. Indeed, an advisor for Mr Rouhani tweeted Iranian preconditions for such a meeting, notably that the US return to the nuclear deal — which is almost certainly not going to happen.

If I am correct in this assessment, it is, in my view, an error of judgement on Tehran's part, ie (and especially if one considers the North Korea trajectory) I think it would be well worth accepting Mr Trump's invitation and seeing what transpired.

Alastair Newton