JCPOA, Dollar, and International Monetary Relations

The internal conflicts in the United States regarding the Joint Comprehensive Plan of Action (JCPOA) have reached new dimensions, with supporters and opponents of the text, which was signed on July 14 in Vienna by representatives of Iran and the group known as the "P5+1", resorting to arguments that can be described as "unexpected" or "extraordinary". One of the most important questions currently facing U.S. foreign policy is the approval or disapproval of the U.S. legislative body regarding the comprehensive agreement on the Islamic Republic's nuclear program, a text for which the White House in Washington played a decisive role in its long diplomatic process and eventual approval in the Austrian capital. Americans who consider this text detrimental to their country's interests do not shy away from presenting any scenario to discredit it. Supporters of the JCPOA naturally emphasize the dangers that could threaten the security of the United States and even global peace if the U.S. ultimately rejects the Vienna agreement. The latest argument in favor of the "Vienna Agreement" was presented by John Kerry, the U.S. Secretary of State and the main architect of this text, in the economic sphere. According to Reuters, Kerry stated on Tuesday that if the U.S. discards what was achieved in Vienna and rejects the agreement, it would create the best conditions for the dollar to lose its position as the world's reserve currency. From his perspective, if Washington nullifies the Vienna agreement and asks its allies to either comply with U.S. legislative decisions or abandon the use of the dollar in their international transactions, the authority of the U.S. greenback as a global payment method would be undermined. Kerry's warning has faced strong opposition and even ridicule from powerful factions that have mobilized all their energy against the JCPOA. They argue that the relationship Kerry established between the final rejection of the Vienna agreement and the future of the dollar is incorrect and completely exaggerated. First, critics point out that Kerry's warning ignores the vast gap between the economies of Iran and the U.S. and fails to consider that Washington's allies will not hesitate to choose between Iran's small economy and the powerful economy of the United States. In fact, the U.S. GDP as the world's leading economic power exceeds eighteen trillion dollars, which is forty-three times Iran's GDP, which stands at four hundred billion dollars, placing it at twenty-ninth in the world. Second, there is an astronomical gap between the import markets of the U.S. and Iran. The U.S. purchases two trillion two hundred billion dollars worth of goods from the world annually. In other words, every year, goods equivalent to five and a half times Iran's total GDP are imported into the U.S. According to reports from the Iranian Customs, Iran's total imports in 2014 were below fifty-three billion dollars. If we add about eighteen billion dollars of smuggled goods to this figure, Iran's total annual imports reach seventy billion dollars. Even if we consider Iran's annual imports before sanctions to be one hundred billion dollars, the U.S. still offers a market twenty-two times larger than Iran's to the world. In this regard, critics argue that Washington's allies (if the JCPOA is ultimately rejected) will not be willing to jeopardize their interests and distance themselves from the dollar to access the Iranian market. The two criticisms that Kerry's opponents raise against his warning seem quite convincing at first glance. It is true that in the global economic arena, if we rely solely on quantitative criteria, the power relationship between Iran and the U.S. appears significantly unbalanced. However, if we go beyond this purely quantitative comparison, we will see that Kerry's warning and the connection he makes between the fate of the JCPOA and the role of the dollar in the international monetary system is by no means unfounded. One of the biggest factors that opened the door for the U.S. to impose very heavy sanctions against Iran and even opened a new chapter in the application of international economic penalties was the full cooperation of the European Union. Europeans accompanied Washington step by step in imposing sanctions against Iran and in the very complex and tedious negotiations over the past two years with the Islamic Republic, even forcing some of their reputable companies, which had very profitable relations with Iran, to completely sever ties. If after all this effort and the noisy text that was signed on July 14 in Vienna, the U.S. discards this agreement and even opens the way for further sanctions against Iran, will Europeans and Asian allies of Washington (excluding Russia and China, which have different positions) be willing to remain alongside the U.S.? Of course, the United States, within the framework of its domestic laws and the regulations set for the final approval of international treaties by its legislative body, can decide on the Vienna agreement. The issue is that if this agreement is ultimately rejected, some U.S. laws against Iran, due to their "extraterritorial" dimensions, will question the choices of other countries regarding their relations with Iran. In other words, European economic actors must either comply with U.S. laws regarding Iran or face punishment from the Americans. We know that over the past five years, more than ten banks outside the U.S., mainly European, have been penalized by the U.S. judicial system for engaging in transactions with Iran and have paid billions of dollars in fines. A bank that wants to avoid these penalties must withdraw from operations on U.S. soil and distance itself from international dollar transactions. Which reputable bank would want to withdraw from operating in the territory of the largest economic power in the world or forgo the use of the strongest currency in the world? European powers have not raised an eyebrow over the past few years as their banks have been penalized by Americans, and given their positions regarding the Islamic Republic, they have effectively recognized the legitimacy of U.S. sanctions and the enforcement of U.S. laws outside its borders. But will this continue now, considering all the costs incurred for preparing and signing the Vienna agreement? This is where Kerry's argument seems entirely logical. Given the signing of the JCPOA and the prospect of lifting sanctions, dozens of European companies consider a return to Iran imminent. If the U.S. nullifies this text and maintains and even intensifies sanctions against Iran, what approach will European companies take? It is evident that without establishing normal relations between Iran and the international banking system, economic cooperation with Iran is impossible. This is where the issue of the dollar arises. How can we tell European economic circles and public opinion that because the Americans have decided to disregard the Vienna agreement after all that effort, European companies and banks should bow their heads and surrender to the outcome of a surprising conflict between the executive branch and Congress in the U.S.? There is no doubt that initially, European banks will be terrified of the prospect of U.S. economic penalties. But the serious question will arise as to why a global reserve currency like the dollar should be so used in service of the political and strategic tendencies of Washington's lobbies and in relation to the composition of the House of Representatives and Congress in the U.S.? If the scenario of the final rejection of the Vienna agreement materializes, it will create the best conditions for countries like China and Russia to establish a new propaganda campaign against the U.S. dollar and its position in international monetary relations. From this perspective, it can be said that Kerry's warning, contrary to what his opponents claim, is by no means exaggerated.