March 30, 2018

Pompeo Foreshadows Problems with Europe



Citing a difference of opinion on the Iran nuclear deal, President Trump fired Secretary of State Rex Tillerson two weeks ago and announced he would replace him with current CIA Director Mike Pompeo. Pompeo is known for being an Iran hawk, calling the nation a “despotic theocracy”  and “thuggish police state”  and claiming the Iran deal to be a disaster. The nomination therefore indicates that the president is looking to follow through on promises to scrap the Iran deal. This past Friday’s appointment of John Bolton, who called the deal a “strategic debacle,” further underscores the Trump administration’s desire to see it renegotiated soon.

However, renegotiating the deal will prove tougher than Trump and Pompeo likely expect. European allies, who played a key role in sanctions that forced the initial conversations, have economic incentives to maintain the current status quo. They are also well-insulated from whatever security pressure the United States may enact against them ensuring that this issue will only result in further damage to transatlantic relations.

In January, Iran signalled in no uncertain terms that it was not interested in renegotiations. Provided Tehran sticks to that line, the United States would be forced to explore options that compel Iran to enter negotiations. The most likely option would be to re-impose the sanctions that initially brought Iran to the negotiating table. For the sanctions to have any bite, however, America’s European allies have to participate – especially since large economic competitors, namely Russia and China, are very unlikely to roll back their own economic ties with Iran.

Europe would face an interesting economic situation if the president and Pompeo pressured them to renegotiate the Iran deal. Prior to the 2012 sanctions, European-Iranian trade was valued up to $32 billion. The sanctions brought this number down to just $8.4 billion, marking a net loss of over $20 billion in annual trade. Added on to this economic opportunity cost is an estimated $120 billion in potential trade losses from strong, U.S.-backed sanctions against Russia imposed following the 2014 Crimea crisis. Against the European Union’s current levels of global trade, these two largely American-driven policies would account for over a four percent (up to $200 billion total) loss in potential trade revenue.

Given this economic burden, European countries have a strong incentive to resist pressure from the Trump administration to impose new sanctions. Also of crucial importance to any European calculation is that Iran has signaled that it would continue to uphold the Iran deal with the EU even if the United States reneged on the agreement – thus preserving the EU’s economic benefits and providing a strong rationale to fight American renegotiation attempts.

The most likely way that the Trump administration could threaten the EU would be through retrenching NATO support – granted NATO and the EU are not identical in composition. However, the president can use a variety of measures targeted at the transatlantic alliance to pressure its EU-member states to agree to renegotiations. These options include reducing the number of American troops stationed in Europe or decreasing funding to the European Reassurance Initiative that is designed to deter Russian aggression.

But, for the president to actually attempt these measures, he would have to prevail against domestic obstacles. The most prominent battle would be going against his own National Defense Strategy that labelled Russia as an international strategic competitor. Backing out of his own military policy by reducing support for NATO would prove difficult given the commitments the administration has already made. Knowing that the president is constrained in this way, NATO allies could reasonably be expected to call Trump’s bluff if he threatened force reductions or funding cuts to persuade them. The domestic hurdle is simply too large for his threats to be credible. And even if he did manage to overcome this hurdle and unilaterally withdraw from the deal, Europe probably would reject renegotiation attempts and humiliate the United States for acting irrationally.

Still, threats over a proven effective deal, even if they are not actually enacted, do not help the diplomatic situation. They isolate the United States further from its democratic, transatlantic allies in a time when authoritarianism is on the rise and serve to undermine Western power as threats from Russia and China grow.

The Pompeo and Bolton appointments suggest President Trump is ready to uphold his promise to challenge the Iran nuclear deal. Challenging this deal will be a difficult task for the president as European allies have significant economic incentives to stay and domestic politics prevents his pressure from being credible. Yet, he will still attempt to renegotiate, and that will only serve to separate the United States further from his transatlantic allies.