Polly Diven, professor of political science, researches and teaches international relations and U.S. foreign policy. She discusses the diplomatic challenges, regional dynamics and long-term implications of the agreement for U.S. foreign policy.
Paul Isely, professor of economics, examines how the agreement could ease some of the economic uncertainty created by the conflict and affect consumers, businesses and financial markets.
What makes this agreement significant compared with the previous U.S.-Iran diplomatic efforts, including the Joint Comprehensive Plan of Action (JCPOA that the Obama administration negotiated in 2015?
The terms of this agreement remain secret and unclear. There does seem to be a 60-day ceasefire in place, during which the U.S. and Iran will negotiate the future of Iran’s nuclear program and the future of the U.S. blockade and the Iranian blockage of the Strait of Hormuz. There are already key differences in how the two parties are portraying the ceasefire agreement. For example, President Trump has stated that the Strait of Hormuz will reopen to transit without charges, while the Iranians say they will continue to levy tolls for some of the vessels transiting the Strait. In addition, Israel does not seem to have been included in the negotiations, so while Iran says Israel agreed to pull out of Lebanon, Israel says they will maintain a troop presence in Lebanon.
Wendy Sherman, deputy secretary of state under President Biden and lead JCPOA negotiator, has noted that the conditions of any agreement with Iran are less advantageous to the U.S. than the 2015 JCPOA. Since the U.S. formally left the JCPOA in May 2018, Iran has increased its highly-enriched uranium from roughly 20% to 60%. So we are now dealing with a country that is closer to having nuclear weapons capacity and with tougher terms to negotiate. Before the U.S. and Israel initiated the bombing of Iran in March, there was free and open transit of the Strait of Hormuz. One of the primary criticisms of the JCPOA that Trump noted was that the U.S. would be unfreezing Iran’s assets held in U.S. banks if they continued to comply with the agreement. Today, it seems that the same “reward” is what the U.S. is offering Iran if they comply with the dilution or removal of their enriched uranium.
How this conflict and the subsequent agreement reshaped America's relationships with key allies, both in the Middle East—such as Israel and Saudi Arabia—and with long-standing partners like Canada, Mexico and the European Union?
In my opinion, this agreement has strengthened AND challenged our relationship with Israel. We have been allied in the attacks in Iran, for sure. However, this military activity has made it very clear that the U.S. and Israel have different objectives for any war with Iran. Israel has called for the destruction of Iran, and its own security in the region is paramount. For the U.S., we ally ourselves with Israel and support their attacks on Iran, but no U.S. president wants a prolonged war. The U.S. people have clearly indicated that they do not support another lengthy military involvement, especially one that they connect to higher prices of gasoline.
Let me just take up how the U.S. war in Iran has impacted our relationship with Europe. The Europeans, including our long-standing allies in the UK, will not prioritize involvement in this conflict. Their populations won’t tolerate it, and they are already fully committed to the Russia/Ukraine conflict that is closer to home. Several European leaders have demonstrated that they are willing to increase NATO military contributions as a result of President Trump’s criticism. However, they have also demonstrated that they will not be bullied into contributing money or troops to any U.S./Israel military intervention in Iran.
If this agreement holds, what are the most realistic best-case and worst-case scenarios for U.S.-Iran relations over the next five years?
President Trump will face increasing pressure to end U.S. military involvement in Iran as the midterm elections get closer. He will need a way to spin this as a “win” in the very near future. Unfortunately, I fear he has undermined the Iranian progressive movement that was once so critical of the current Iranian administration. President Trump is fond of saying that he has decapitated the regime, but I believe it is more likely that the regime is stronger than it was before the war broke out.
What should we watch for over the next 60 days to determine whether this agreement is succeeding or failing?
If the Strait of Hormuz fully reopens, that is a very positive sign. I think many large transit vessels are fearful that mines laid by the Iranians are still in place. If international shipping companies feel it is safe enough to move through the Strait, that is good news. Any military activity, even by Israel against Hezbollah in Lebanon, is a sign of renewed troubles. For the sake of civilians throughout the region, let’s hope this doesn’t happen.
With the U.S. and Iran agreeing to a preliminary deal, do you think this will alleviate some of the economic pressure that a lot of Americans are feeling?
Yes. It will cause immediate moves in two areas.
What economic indicators will you be watching over the next several months to determine whether this agreement is having a real impact?
Again we will be watching oil prices carefully to fully understand how the logistics of moving oil around the world is impacted. It is the physical market not the financial markets that will be moving the prices if we see the strait reopen. This will begin to give us a better idea of how long the effects will last. We will also be watching consumer confidence and retail sales to see if the consumer is feeling better about the world.
What industries in Michigan stand to benefit most from this agreement?
Real estate because interest rates will retreat faster than oil prices if this is a lasting agreement. We could quickly see mortgage rates below 6%, and this will lead to increased demand in the real estate market.
Agriculture because it had effects from the price of oil on fertilizers and diesel fuel as well as interest rate effects. The cost structure in agriculture probably increased more than any other industry in Michigan as a result of the war. As this cost structure normalizes, it will help Michigan farmers and take pressure off of food prices as we enter the fall.
What lessons has this situation taught us about the connection between geopolitics and economics?
The world is highly connected and something happening in one place has unintended consequences in geographies and businesses that seem to have little to do with the actual event happening.
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