US-Iran Relations: From Nuclear Deal to Renewed Tensions?

By Christopher M. Davidson - 05 May 2017

This is a chapter from the e-book 'The Future of the Middle East' co-produced by Global Policy and Arab Digest, and edited by Hugh Miles and Alastair Newton. Freely available chapters will be serialised here and collected into a final downloadable publication in the spring

For those hoping for smoother and more prosperous US-Iran relations, numerous developments over the past few years have given grounds for cautious optimism.  At the very least, it seemed, both the Barack Obama and Hassan Rouhani administrations had been making considerable headway in turning important domestic events in Iran into some sort of mutually beneficial arrangement.  Very recently, however, at least some of the pillars underpinning this tentative rapprochement would appear to be eroding, as evidence builds that indicates the US ultimately prefers to see no all-powerful regional hegemon emerging in the Middle East, and instead seeks to manage a new and perhaps more sectarian ‘competitive balance of rivalries’ between Iran and longstanding Western allies such as Saudi Arabia.

Opening up the economy

Long-planned, and firmly in the pipeline well before the recent bouts of turmoil, powerful elements of the US, British, and other Western governments had been pursuing an opening up of the Iranian economy under the pretext of a ‘nuclear deal’. If signed and ratified, this was to lead to Iran agreeing to abide by various limits and restrictions on its civilian nuclear energy programme in exchange for sanctions being lifted. Justifying it best was a British minister, who as early as 2007 stated that ‘we want Iran to be much more engaged, because Western Europe needs Iranian gas very badly’ and ‘there are sixty-eight million people in Iran, and it is a market that the Chinese are positively slavering at. I do not think that any of us want to isolate Iran.’

Given the vagaries of Iranian leadership and its troubled history with Washington, not least with the Israel lobby and the heavily AIPAC-influenced US Congress, the White House could never have been sure everything would work out. But with Tehran emerging as a relative oasis of stability in an increasingly destabilized region, and with Rouhani’s ostensibly more moderate presidency focused on delivering improvements in standards of living and thus preventing a second ‘Green Revolution’, a sufficient chunk of the US political and economic elite had begun to see only a ‘win-win’ situation in bringing Iran in from the cold. In this sense, an important US ‘wild card’ seemed to be turning up trumps, as long before the deal finally went through and the sanctions began to come off in January 2016, a veritable gravy train of Western officials and businessmen had already begun to arrive in Iran.

Amidst numerous pieces in Western newspapers extolling Iran’s distinguished culture and advertising luxury tours of its ancient wonders, as early as Spring 2015 reports also began to circulate that ExxonMobil was engaging lobbying firms to monitor all political activity relating to the nuclear deal and Iran’s negotiations with the US government. Soon after, it transpired that several European oil companies had begun to send their executives to Tehran, with the CEO of Italy’s Eni SpA stating that investments in Iran could begin very soon and that Iran’s national oil company had an ‘outstanding credit position’. By the summer, Royal Dutch Shell was similarly establishing a presence, while Russia’s Lukoil kept quietly meeting with Iran’s oil minister on his trips to Vienna.

Industry analysts soon reasoned that Iran ‘represented an easy path to growing production … you could get a pretty good bump pretty quickly’, while one senior Western executive described Iran as a ‘multibillion-dollar candy store ready to open its doors’. Even better, Iranian experts had begun to indicate that Rouhani wanted to make the investment environment as favourable as possible by treating the oil multinationals as ‘partners’ in long-term thirty-year joint ventures that would ‘look and smell like production-sharing deals’. According to Iran’s deputy oil minister, there would be as many as fifty such projects worth over $185 billion ‘up for grabs’ including many in the huge and mostly undeveloped North and South Pars gas fields and others in some of the world’s biggest oil fields containing hundreds of billions of barrels of oil.

With the nuclear deal continuing to build momentum, the final months of 2015 saw things really take off, with Royal Dutch Shell and Total announcing they would each build a hundred fuel stations across Iran as soon as the sanctions lifted, and with British Petroleum having dispatched its own fact-finding mission to Tehran. After Iran claimed that $2 billion worth of European investments had already been agreed, France’s foreign minister visited in person and promised that hundreds of French business leaders were due to follow in his footsteps to ‘cash in on oil and cars’, and that Rouhani was going to be invited to Paris for a state visit. Even Japan’s deputy trade minister turned up for what the Japanese media described as a mission ‘to avoid [Japan] being beaten by European and US companies’.

With the lifting of sanctions almost a certainty, more than five hundred European executives arrived in Geneva at the end of September 2015 to meet with delegates from Iran’s national oil company, the Tehran stock exchange, and several other entities. As the conference’s organizer explained, the event was not just about oil and infrastructure, but was also about ‘the biggest prize … to access Iran’s eighty million population’. As the representative of a Western drilling company remarked, ‘the nuclear agreement with Iran has effectively opened up a sleeping giant and the last major untapped emerging market economy … Iran has the potential to become a G20 country within a short space of time.’ This was definitely no exaggeration, as within days of the nuclear agreement going through, Iran began to reveal details of dozens of mouth-wateringly huge contracts that were being prepared, including a massive $25 billion purchase of 118 new Airbus passenger jets to replace its national carrier’s aging fleet.

A new Iran, a new balance of power?

Although so-called ‘secondary sanctions’ on Iran have remained in place, as have sanctions on institutions connected to the Islamic Revolutionary Guard Corps, and a general ban on US trade with Iran, some of the recent deals have nonetheless been just as good as those that Western companies had been signing with the Gulf monarchies during their heyday, or under Shah Mohammed Reza Pahlavi’s regime in the 1970s.  Certainly by 2016 it seemed Iran had once again become a sort of respected, albeit this time discreet, partner. With such big investments at stake, and the promise of much more to come, it was becoming essential that the new Iran should never be directly attacked or significantly destabilized by its regional rivals, including Saudi Arabia and its other Western-armed neighbours. For Washington, the best way to safeguard against this, it seems, has been to return quietly to the older, tried-and-tested strategy that seeks to ensure that neither of the Middle Eastern hegemons will ever be able to defeat the other. In this context, with direct lines to both Riyadh and Tehran, and long before the ink had dried on the nuclear deal, the US had already begun to try to manage and contain something of a stalemate between the two camps. Ideally neither Saudi Arabia nor Iran would be able to press home advantages in their various proxy wars, while both sides would have to commit indefinitely to heavy military spending and the strengthening of their security apparatuses.

In many ways the US’s new position on the Saudi–Iran stand-off is reminiscent of Harry Truman’s views on Nazi Germany before the US entered the Second World War. After all, as his well-documented remarks on Adolf Hitler’s invasion of the Soviet Union reveal, he and others did not really want to see either side winning, while any long-drawn-out fight between the two sides was seen as ultimately suiting US interests. In the Middle East itself, the desire for such similarly balanced conflicts is of course nothing new, with the Iran–Iraq War of the 1980s having helped cancel out the two major powers of the day, while the rest of the region was left to cower under the West’s protection. After all, even though the US had officially banned arms sales to both combatants, Baghdad was being heavily armed by the Western powers, while creative covert mechanisms were developed to ensure that Iran still got what it needed. As historian William Blum notes, this had the effect of ‘enhancing the ability of the two countries to inflict maximum devastation upon each other and stunt their growth as strong Middle East nations’.

With Iran’s predominantly Shia population and Saudi Arabia’s Sunni majority, sectarian politics sadly also seems to having been playing a role in this.  The usefulness of encouraging and promoting such religious divisions in the region of course also has much pedigree, not only to help spur and sustain such conflicts but also to prevent any shared senses of community or common identities forming, in this case between Sunni and Shia. As a British secretary for India once noted, ‘This division of religious feeling is greatly to our advantage,’ while another British official once observed, ‘The better clashes of Muhammadans are already a source to us of strength and not of weakness.’ Fast-forwarding to the late twentieth century, as Columbia University’s Mahmood Mamdani explains of the Ronald Reagan administration’s Middle East strategy, it was not only about trying to push Sunni extremists into a holy war against the Soviet Union, but was also aimed at developing ‘a religious schism inside Islam, between minority Shia and majority Sunni, into a political schism … thereby it hoped to contain the influence of the Iranian revolution as a minority Shia affair.’

Even in the wake of 9/11, as the US began to launch its largely successful Saudi Arabia blame-deflecting strategy, it seems a main backup plan also relied on stoking up sectarianism. Notably, when George W. Bush’s first chairman of the Defense Policy Board co-published his memoirs on the War on Terror with a prominent Bush speechwriter, it was revealed that the White House had already identified the Saudi Arabia’s Shia minority as potential agents provocateurs in the event that the US needed to turn publicly against Riyadh. As they put it, ‘independence for the eastern province would obviously be a catastrophic outcome for the Saudi state … [and this] might be a very good outcome for the US. Certainly, it’s an outcome to ponder. Even more certainly, we would want the Saudis to know we are pondering it.’ Making much the same point, the Hudson Institute’s Max Singer argued that the secession of the Shia… might well accelerate the fall of the Saudi regime, and if that was the case then ‘so be it’.

More recently, the largely beneficial prospects of a worsening sectarian fault line were also raised in a substantive 2008 report commissioned by the US Army Training and Doctrine Command’s Army Capability Integration Center. In rather chilling terms the possibility of a ‘sustained Sunni–Shia’ conflict is discussed, along with predictions of an ‘upsurge in Shia identity and confidence’ and the need for the US to walk a ‘diplomatic tightrope’ between its Sunni allies and the Iranian front. To a great extent, this future US role as sectarian arbitrator was also envisaged by Johns Hopkins University’s Vali Nasr, whose influential 2006 volume, The Shia Revival: How Conflicts Within Islam Will Shape the Future, along with several follow-up articles, argued that ‘the character of the region will be decided in the crucible of Shia revival and the Sunni response to it,’ and that this situation would offer both the US and Iran the opportunity to ‘manage future tensions between Shia and Sunni’.

Writing in 2012, Columbia University’s Hamid Dabashi could see things more clearly in the post-Arab Spring context and demonstrated that the spectre of a ‘Shia crescent’ had indeed been brought back to the region with a vengeance, ‘especially by the West’s allies, most of which are Sunni-led dictatorships’. In his words, this was going to become a ‘manufactured sectarianism … which can divert attention from the main issues afflicting the region’s people’. Returning to the issue in early 2016, Nasr got even closer to the truth, as although he still framed the worsening sectarianism as part of a ‘great power rivalry’ between Saudi Arabia and Iran, with little attention given to any external manipulation of these states by the Western powers, he nonetheless correctly observed that the ‘manipulation of sectarian interests [had] divided opposition movements and shattered the hope for cosmopolitan politics’. Looking into the rather grim future he also warned that ‘sectarian interests are now too tightly interwoven with regional politics, high and low, to subside any time soon.’


Putting all this into practice, the US’s ‘diplomatic tightrope’ has clearly led to some remarkable U-turns since the opening up of Iran’s economy. Washington has softened its stance considerably on Iran’s regional allies, including Hezbollah – which has been deemed more of a liberation movement than a terrorist organization by the CIA – and even Bashar al-Assad, notwithstanding what seems to have been a one-off US missile strike on a Syrian airfield in April 2017. Indeed, senior members of the new US administration have made few explicit calls for al-Assad’s removal with some even hinting at future cooperation and engagement.

Moreover, the US and other Western powers have done very little to ensure that Saudi Arabia actually wins against the Iran-linked Houthi movement in Yemen, as although British advisers are understood to have been helping with target acquisition and there have been a ‘very small number’ of US troops in the country, there is little real evidence of any further assistance. The US, for example, at one point even sponsored a UN Security Council session that drew attention to the ‘dire consequences’ of the conflict, while in summer 2015 senior US envoys reportedly began to meet secretly with Houthi leaders in discussions brokered by Omani officials. While much of the conversation was likely focused on prisoner swapping, the US envoys admitted that the Houthis were ‘acting like a legitimate government’ and that possible political transitions were also being explored.

With regard to Riyadh’s recent ramping up of sectarianism, however, there has rather predictably been little condemnation, with US and other Western officials having done nothing to prevent the kingdom’s beheading of several Shia activists, including the very prominent Sheikh Nimr al-Nimr, on 2 January 2016. Moreover, when the gruesome news hit the international media, the US government was among only a handful in the world not to condemn the killings, with the Department of State’s spokesperson instead trying to focus attention on the retaliatory burning down of Saudi Arabia’s embassy in Tehran.

Moving forward, there is clearly little real incentive for the US to dismantle the Iran deal, even under the new administration, especially as it is already proving so lucrative for major US and other Western companies.  Certainly, there are few serious indicators that this will happen, and already some strong indicators that it will be more or less left in place.  At the same time, however, it seems likely that the proxy, sectarian war with Saudi Arabia and other such longstanding US regional allies will continue to underpin the US’s efforts to impose checks and balances on the re-emerging Iran.  While this is undoubtedly very bad news for those in Syria, Yemen, and elsewhere caught up in the conflict, it is nevertheless good news for those who simultaneously seek to contain a more hegemonic Iran while also maximising trade and investment opportunities as its economy continues to open.



Christopher Davidson teaches Middle East politics at Durham University.  He is the author of several books on the Gulf states and the wider region, most recently Shadow Wars: The Secret Struggle for the Middle East.


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