January 4, 2018 – In the aftermath of the multinational fight against ISIS-Daesh forces who had held large parts of Iraq and Syria, geopolitical divides are emerging as regional powers turn their focus to economic issues, sanctions and security alliances.

One sign of the shift is the near weeklong demonstrations in Iran, which started Dec. 28 near Iran’s border with Afghanistan and Turkmenistan. The protests started in Mashhad, Iran’s second most populous city, and quickly spread to other parts of the country. They are the largest mass demonstrations the country has seen since 2009 when protesters in Tehran disputed the presidential election. Most media outlets reporting on the recent unrest say the government has not used violence to tamp down on the protests as it did in 2009. The government has shut down social media outlets, which activists had used to coordinate demonstrations, and called on pro-government supporters to march in response.

At least 21 people have died during the demonstrations. It is not clear how they died.

U.S. Support for Protests

U.S. President Donald Trump was quick to respond in a series of comments via Twitter, saying, “Iran is failing at every level despite the terrible deal made with them by the Obama Administration. The great Iranian people have been repressed for many years. They are hungry for food & for freedom. Along with human rights, the wealth of Iran is being looted. TIME FOR CHANGE!”

A U.S. State Department spokeswoman said the president is not calling for regime change but is challenging the government to invest its funds in its economy rather than fund military activities abroad.

“We’ve heard from some of the protesters their concerns about that nation’s money being spent on exploits in other countries – Syria, Iran’s support for Hizballah, Iran’s support for weapons being sent around the world – as opposed to spending that money on its own people. So I think when the President calls for change, he’s calling for the Iranian Government to make changes for its own people and the same thing that the Iranian people are calling for,” said State Department Spokeswoman Heather Nauert.

Those comments along with the Trump administration’s backing away from U.S. commitments in the 2015 nuclear deal to lift sanctions prompted Iran to complain that the United States and its allies in the region are intervening in its domestic affairs.

Conversely, the protests in Iran and the government’s crack down on social media might influence President Trump’s decision about whether to issue new sanctions against Iran.

Economic Snapshot of Iran

In contrast to the 2009 protests, the latest wave of demonstrations appear to be among Iran’s poorer population. According to the BBC, demonstrations that started out against inflation, corruption and economic policies turned to protests against government leaders.

Following the 2015 nuclear deal, Iran’s economy improved as oil exports increased. However, benefits to the oil sector did not reach the population. Unemployment remains high at 12.5 percent, and inflation of 10 percent outpaces economic growth of 4.2 percent a year.

The International Monetary Fund has called on Iran to reform its financial sector, state-owned enterprises and monetary policies. The IMF completed its economic consultations with the Islamic state last month.

“Despite recent improvements in the business environment, Iran needs to reduce red tape, reform state-owned enterprises and improve transparency about corporate beneficial ownership to attract investment and develop the private sector,” the IMF report said.

Obstacles to Private Investment

Private investment by foreign banks is limited and hampered by several factors. One is the economic role played by Iran’s Revolutionary Guards, who have called for a self-reliant “resistance economy” that softens the impact of international sanction. Their involvement in the Iranian economy and in financing overseas activities is one area that is worth exploration.

Another factor impeding private investment is uncertainty over the remaining non-nuclear related sanctions and on the wavering U.S. position on the nuclear deal itself. U.S. President Donald Trump refused to certify the nuclear deal last October, giving Congress a chance to issue new sanctions, and has gone after individuals and entities conducting business with Iran.

Iran Blames Foreign Influence

Iran has been quick to blame foreign interests in inciting the demonstrations.

President Trump’s Twitter comments and public statements indicate U.S. support for protests. It is not clear if that support goes any deeper. Iranian sources think it does.

Iran’s Public Prosecutor Mohammad Jafar Montazeri said the unrest had been planned by U.S. and Israeli intelligence officers and funded by Saudi Arabia. The state-run Islamic Republic News Agency reported the details, saying the plan is:

  • called the “Consequential Convergence Doctrine,”
  • being carried out in bases in Afghanistan and in Erbil, Iraq, and
  • uses ISIS-Daesh Takfiri groups to incite unrest.

The last point raises larger questions about where ISIS-Daesh fighters are going as they exit Iraq and Syria.

Alliances and Diplomacy

Meanwhile, a larger diplomatic battle is brewing between the United States and Iran, particularly as the fate of the 2015 nuclear deal remains uncertain.

Furthermore, the United States and Israel have reportedly reached a joint memorandum of understanding on a strategy tof counter Iran’s support for Hezbollah, its involvement in Syria and its nuclear weapons.

On Dec. 28, Israeli  Television Channel 10 reported that the agreement came about from a Dec. 12, 2017 meeting at the White House between U.S. and Israeli national security chiefs H. R. McMaster and Meir Ben-Shabbat.

The Global Economic Report has not independently verified existence of the joint memorandum. However, the Channel 10 story was picked up by a multitude of news outlets and not denied by the White House.

Security Council Unlikely to Meet

Both the United States and Iranian envoys to the United Nations have asked for the Security Council’s attention.

U.N. Ambassador Nikki Haley held a press conference Jan. 2 and said she would be calling for emergency sessions in the council.

Iran’s envoy to the United Nations issued a letter Jan. 3 to the UN Security Council saying the Trump administration had “crossed every limit in flouting rules and principles of international law.”

It’s not clear if the Security Council will respond to the complaint. It should be noted that the United States is a permanent member of the UN Security Council with veto authority over decisions.

The greater significance is the impact on regional alliances, particularly as the civil war in Syria winds down and Daesh (also referred to as ISIS) fighters disperse, and on the impact that current and potentially new sanctions could have on individuals and private entities doing business in Iran.

Even as the street protests subside in Iran, as they appear to be doing, the diplomatic clash appears to be just getting started.

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