The Day After A Deal: What To Expect From Iran

A nuclear agreement will inject a large cash windfall into Iran’s ailing economy. The regime will benefit from increased oil sales in Asian and European markets, the ability to sell oil at market prices, and the ability to receive cash for all oil sales.  Iran’s leaders will also be granted access to over $100 billion in frozen assets—nearly 25 percent of Iran’s 2014 GDP.[1] Iran will unquestionably use some of this influx of revenue to expand its military and cyber capabilities, increasing the threat Iran poses to American interests and allies at home and in the region.

Iran’s leaders will likely invest a significant amount of post-sanction funding into the domestic economy, particularly the energy, infrastructure, and agricultural sectors.[2] The regime has made it clear, however, that its priorities include supporting proxies in Syria, Iraq, and Lebanon, boosting its other military capabilities, and expanding its cyber infrastructure. Supreme Leader Ayatollah Ali Khamenei, in fact, released on June 30 a declaration of the regime’s spending priorities for the next five years, which prominently included calls for developing the “resistance economy” as well as the regime’s missile arsenal and cyber infrastructure.[3] His statement should remove any doubt about whether some of the sanctions relief will be used to expand Iran’s military and security strength.   

Iran’s leaders, including Khamenei, have explicitly stated many times that a nuclear deal will not affect larger U.S.-Iranian relations or Iran’s activities in the region.[4] Some Western media have seized on the handful of more moderate or hopeful statements, especially the one by Foreign Minister Javad Zarif on July 2, to suggest that there might be a broader thaw.[5]  But the regime’s core ideology is founded upon an interpretation of history that views Iran as the rightful hegemon of the Middle East and the U.S. and Israel as its enemies.[6] This worldview is amplified by the regime’s perception of relative insecurity, which prescribes expansion as a means of defense.[7] The Supreme Leader has emphasized that the nuclear negotiations are “not about regional issues. America’s regional goals are the exact opposite of ours...”[8]  The observance of Qods [Jerusalem] Day on July 10 has produced anti-American and anti-Israeli vitriol at the same volume and tenor as in previous years.[9] There is no evidence that any larger détente is in the offing.

Iranian officials have, however, expressed their intent to develop the regime’s military capacity, with or without a deal. The sixth five-year development plan [FYDP] announced by Khamenei on June 30 is meant to guide government policy from 2016-2021 and, in particular, to frame (without controlling in detail) the annual budgetary process.[10] Its call for developing the regime’s missile arsenal is very concerning. Analysts already assess Iran to have the largest strategic missile force in the Middle East, with an estimated 800 short and medium range missiles.[11] Even without nuclear payloads, Iran’s missiles threaten neighboring countries, U.S. forces in the Middle East, and maritime trade in the Gulf. An expanded Iranian missile arsenal incentivizes neighboring states to develop both offensive and defensive countermeasure capabilities, furthering a regional arms race that is already under way.[12] One report has assessed that Iran has invested at least one billion dollars in its missile program so far.[13] Just one percent of Iran’s cash infusion from the nuclear deal could double that figure in a short time.

Khamenei’s plan would also increase Iran’s “defense capability in the regional power balance [teraze qodrate manteqi]” and allocate five percent of the general budget to do so.[14] Khamenei also calls for boosting the capacity to produce weaponry and defense equipment “to deter and in accordance with different threats.”[15]  Iran’s conventional military remains relatively weak today despite its advanced asymmetrical capabilities. The Iranian air force fields largely outdated aircraft, while Iran’s land forces lack advanced equipment, despite numbers that are large by regional standards.[16] With the cash flowing from sanctions removal—to say nothing of the removal of the arms embargo now being floated by negotiators—Iran would be poised to develop its military forces dramatically.  It could use these resources both to purchase advanced weapons from China and Russia and to develop its indigenous military industry, as the plan mandates.[17]

Previous research conducted by AEI’s Critical Threats Project and Norse Corporation has highlighted the growing cyberthreat posed by Iran and suggested that the regime might exploit the nuclear deal to increase investment in its cyber infrastructure and gain access to more effective technology.[18] The sixth FYDP confirms this assessment. Khamenei calls for aggressively investing in Iran’s cyber infrastructure so that “Iran will become a top regional country.”[19] Khamenei also calls for increasing technology cooperation with other states, “gaining technology,” and transforming Iran into “the regional leader in electronic government.”[20] These are not new proposals articulated in the FYDP, but they echo comments made by numerous other senior officials.[21] They also reflect realities in the regime’s existing security strategy. A robust cyber capability protects Iran’s critical infrastructure against attack while supporting the regime’s deterrence against the United States and its regional allies.[22]

The investment in Iran’s domestic economy outlined by the plan is also aimed to support its regional activities and aspirations. The “resistance economy” doctrine, one of the “central pillars” of the sixth FYDP, provides the framework for how Iran’s leadership will view economic policy in the wake of any agreement.[23] The key objective of the resistance economy, a doctrine first developed by President Hassan Rouhani and promulgated by Khamenei in February 2014, is to harden the economy against any future re-imposition of Western sanctions.[24]  It is designed, in other words, to protect Iran from any “snap-back” of sanctions. 

It also reflects a securitized view of Iran’s domestic economy that places military and strategic priorities over economic growth. The overall goal of the resistance economy is to lower the costs of an aggressive foreign policy through insulating the state from Western sanctions.[25] Rather than “creating an Iran with a real stake in the international order,” as some contend a deal will do, the relaxation of sanctions coupled with the economic doctrines articulated by Khamenei will only create a more confident, but still expansionist, Iran.[26]

A nuclear deal will transform an isolated, economically-stricken Iran into an even more powerful and potentially aggressive regional state. Anticipating that economic growth would moderate the regime’s strategic calculus in the short-term is unrealistic and not supported by the evidence. Increased revenues would certainly raise the economic prospects for a good number of Iranian citizens. But any cash inflow would be carefully controlled by Iran’s leaders in order to achieve the goals of its “resistance economy doctrine” and enhance Iran’s military capabilities as well.

U.S. policy makers must consider the regional implications of an emboldened Iran. The regime could move to increase funding for its operations abroad, particularly in Syria or Iraq. Increased Iranian military capabilities will threaten U.S. military bases and Western economic interests in the region.  A surge in Iranian military and economic power will likely also encourage neighboring countries to militarize further in an effort to deter perceived Iranian aggression.[27] The resulting escalation of tensions would amplify instability—unless, of course, the United States maintains a predominance of force in the region to mitigate fears of Iranian aggression.