The financial fallout of an Iranian regime ‘peace’ deal

The baffling repercussions of President Trump’s peace deal with Iran are still being absorbed. Instead of reflecting the military advantage won because of the US-Israel bombing campaign, designed to remove Tehran’s terror threat to the Middle East, there is escalating concern that the Iranian regime may emerge economically triumphant.

Before the war there was evidence that financial sanctions, together with largely disabled oil exports to the West, had brought the mullah-led nation to its knees. The currency was in freefall, inflation rampant and protestors on the streets.

As a vice-chairman of International Division of the Board of Deputies in the late 2000s, I was instrumental in organising a meeting with the then Chancellor of the Exchequer Alistair Darling, to persuade the Gordon Brown-led UK government to toughen the financial sanctions on Iranian banks.

Britain may no longer be relevant as a strategic force. But the City of London is home to the greatest number of international banks in the world and has played a critical role in seizing and releasing assets of rogue regimes such as Libya when there is regime change.

Darling listened sympathetically to our delegation and soon after the Treasury acted. There are several studies showing that starving rogue regimes of access to global finance, if properly applied, is an effective strategic tool.

Iran, if the fragile truce in the Strait of Hormuz holds, has an economic lifeline. As a reward for political normalcy, including keeping the Strait freely open to tanker traffic, Iran has been granted the right to sell oil and gas to Europe. Before the conflict, it was restricted to shipping to Asian markets and covert sales.

There also is the frightening prospect of Iran regaining access to some $100bn of frozen assets as well as the restoration of up to $60bn a year of income from selling oil. Republican Senator Ted Cruz of Texas is among those who are outraged. ‘Giving billions of dollars to theocratic lunatics who want to murder us, is not a good idea,’ he argued.

Indeed, when and if a final deal is concluded, there is even the possibility of a $300bn international fund being established for reconstruction. As much as Iran’s neighbours may be pleased that the ballistic missile and drone attacks are on the wane, if not fully halted, the prospect of an unfriendly regime in Tehran regaining access to funds to renew offensive weapons stocks and fund proxies such as Hezbollah, the Houthis and Hamas is, quite frankly, terrifying – especially for Israel.

There is a view that Trump had no political option. As the US summer driving season gets into full swing, ordinary Americans seek access to cheap gasoline. Affordable fuel is seen in the US, especially in energy rich states such as Texas, as a God-given right. Elevated prices since the conflagration began have been moderated by the Administration running down strategic reserves. However, these stocks have been running low and the prospect of a Republican wipe-out in November’s mid-term elections is imaginable.

Patience on Capitol Hill is running thin. There is already anger, not just among Democrats, that Trump joined a war by executive order and did not seek to activate the War Powers Act, enacted because of presidential excess in Vietnam, before bombing Iran.

The cost of the Gulf battle to the US budget, already under serious pressure, is estimated at $132bn, according to credit agency Moody’s Analytics. The consequences are felt on global bond markets where the yield on American treasuries (borrowing by the US government) has been hovering a record levels.

The biggest mystery in the Memorandum of Understanding between the US and Iran surrounds the proposed $300bn reconstruction fund. Trump insists it will not contain a cent of US money. The fund, if established, is contingent on a final settlement. The idea is that the money would come from corporations across the globe keen to break back into a market of 90 million people with ample energy resources.

The restoration of Iran to the global stage, after 47-years of hostility to the West, might appear a rose-tinted scenario. Iran is not Venezuela; the theocratic Iranian Revolutionary Guard Corps (IRGC) is not going to engage in an unconditional peace. The transfer of vast resources to an unbowed leadership in Tehran is a clear and present threat, leaving Israel and its Abraham Accord allies in the line of fire.

Alex Brummer is City Editor of the Daily Mail