There’s “no harm” in talking with the West, Iran’s supreme leader said in a recent speech, sparking hopes among some of the country’s adversaries that a nuclear treaty could be on the horizon.
But verbal assurances aren’t good enough, according to twice-shy U.S. officials. From the State Department: “We are far away from anything like [a deal] right now.”
Last month, U.S. Secretary of State Antony Blinken warned that Iran could produce enough enriched uranium fuel for a nuclear weapon given less than two weeks’ notice.
“Where we are now is not in a good place,” Blinken said. “[Iran hasn’t] produced a weapon itself, but that’s something of course that we track very, very carefully.”
A previous deal between Iran and the U.S., brokered in 2015 under Obama, came to a heated end during Trump’s presidency with the then-U.S. president calling it “one of the worst and most one-sided transactions the United States has ever entered into.” Under that deal, Iran agreed to limit its uranium stockpile and nuclear facilities in exchange for relief from crippling sanctions. But the fragile agreement was swiftly broken, as Iran expanded its nuclear capacity far beyond the negotiated limits.
“This disastrous deal gave this regime … many billions of dollars, some of it in actual cash,” Trump said of his decision to terminate the arrangement. “At the heart of the Iran deal was a giant fiction that a murderous regime desired only a peaceful nuclear energy program.”
Biden, in turn, spent more than a year of his presidency negotiating a fresh compromise. These efforts led nowhere as both sides complained of each other’s “unreasonable” demands. Meanwhile, U.S. sanctions on Iran seem to be doing little harm to the country’s economy, despite National Security Council claims that no sanctions have been lifted.
“Iran is deriving significant economic benefits from pervasive sanctions evasion,” more than a dozen senators warned in a bipartisan letter earlier this year. “Iran’s economy [is] growing by four percent annually.”
That’s a more rapid GDP growth than the U.S. has seen in decades, except immediately post-COVID when the economy began to recoup its losses.
Any conflicts with Iran–including the ongoing Israel-Palestine crisis–have obvious ramifications for global oil and gasoline markets. Shortages, sanctions, and retaliations could lead to price spikes that will eventually trickle down to consumers at the pump. These markets, in turn, drive green energy policy as officials seek alternatives to gasoline-powered vehicles. Any shortage of fuel suggests EV production will steadily increase, and more inflationary regulations will be imposed in an attempt to force consumer compliance.
That’s the best-case scenario. If the U.S. becomes actively involved in any such crisis, the economy could pay the price for the leaders’ failure to broker a peaceful solution. From Peter Schiff: “[Middle Eastern conflict] is going to be increasing our deficits, more fiscal stimulus which is inflationary, and that is going to result in bigger deficits and more money printing.”
While the U.S. government has pledged to use “all elements of national power” to prevent Iran from acquiring a nuclear weapon, the absence of a clear diplomatic path raises serious questions about the potential economic fallout. Investors are left in a precarious position, trying to hedge against the risks of both a diplomatic failure and the possibility of military conflict. The stakes are high, and the financial markets are keenly aware that the consequences of missteps in this arena could ripple across the global economy, impacting everything from energy prices to interest rates and beyond.
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