Nuclear Deal With Iran - Donít Give Away The Store
FORECASTS & TRENDS E-LETTER
IN THIS ISSUE:
1. US & P5+1 Nations Close to Nuclear Deal With Iran
2. Why Would We Lift Any Sanctions on Iran?
3. Stratfor: A New Era in US/Iran Relations
4. President Obama, Don’t Give Away the Store
5. “Handing Down Your Legacy” E-Booklet
Obama administration representatives are quietly negotiating with Iran in an effort to stop its nuclear program. Under the proposed agreement, the US would relax or eliminate some of the tough sanctions that have crippled Iran’s economy. This is happening at the same time Congress is threatening to impose even tougher new sanctions on Iran.
One question about this new negotiation is whether or not it’s a good deal for America and our allies in Europe. Another is, how will we be able to enforce its terms if Iran decides to cheat? And finally, why would Iran agree to halt its nuclear program at this time? The answers may surprise you. In any event, you need to know what is happening with Iran and why.
At the end of today’s letter, there is a reminder for any of you who may not have ordered our new Handing Down Your Legacy, a free e-booklet in which to store all of your important investment/financial information in one place. Handing Down Your Legacy will help you manage your affairs now and will benefit your family too should you become temporarily or permanently disabled, as well as help them when it is time to settle your estate.
Finally, what if there was a way to participate in the stock market’s rally without the worry of getting creamed when the Fed eventually takes its foot off of the monetary pedal? Be on the lookout tomorrow for an e-mail from me in which I will tell you about a specialized asset with the potential to do just that.
US & P5+1 Nations Close to a Nuclear Deal With Iran
While the nation has been fixated on the disastrous rollout of Obamacare, UN negotiators are coming ever closer to a new deal with Iran, supposedly to halt its efforts to produce nuclear weapons. The negotiations broke down earlier in the month but will resume again tomorrow in Geneva. There is a possibility of a preliminary deal as early as the end of this week.
Negotiating with Iran are representatives from the US, Britain, France, Russia, China and Germany – the so-called “P5+1” (all Permanent members of the UN Security Council except Germany). In reality, however, the negotiation is largely between the US and Iran.
It appears that President Obama is willing to give Iran some relief from the tough economic and financial sanctions in return for a promise by Tehran to limit its uranium enrichment program to non-weapons grade levels. His about-face on Iran comes at a time when Congress is debating even stricter sanctions on Iran. These new sanctions have already passed in the House, but Secretary of State John Kerry has urged the Senate not to pass the bill while the current negotiations are underway.
Administration officials said on Friday that Iran would get only “minor relief” from economic sanctions under the latest proposal to prevent it from producing nuclear weapons. They were seeking to calm concerns in Israel and on Capitol Hill that the US and its allies are giving away too much to Tehran.
Four Republican senators – Kelly Ayotte (NH), Marco Rubio (FL), John Cornyn (TX) and Illinois' Mark Kirk – wrote to Obama on Friday expressing serious concerns that the US was considering sanctions relief for Iran, while the government would not be required to dismantle a single centrifuge or close a single facility. Despite these concerns, the talks resume this week.
Obama administration officials are optimistic that an initial deal with Iran can be reached during this next round of talks, although tough issues remain unresolved. The initial deal, designed to stop the Iranian nuclear program from advancing and roll it back in key areas, would be the first step toward negotiating a comprehensive agreement later on. The initial agreement reportedly would include stepped-up monitoring and tighter verification aimed at preventing Iran from doing anything in secret.
The officials would not disclose the exact details of the proposal offered to Iran because negotiations have not yet been concluded, but they offered explanations on the implications of what sanction relief is being discussed. The officials spoke on condition of anonymity because they were not authorized to discuss negotiations publicly.
Why Would We Lift Any Sanctions on Iran?
Sanctions have taken a toll on Iran’s economy. Last year, Iran’s GDP contracted by more than 5%, and its oil exports are down from about 2.5 million barrels a day in 2011 to about 1 million barrels a day now. These declining exports cost Iran about $5 billion a month and overall about $120 billion during the past several years.
Sanctions also have limited or barred Iran’s access to about $100 billion in cash frozen in international bank accounts. If the agreement allows Iran to repatriate some of that money during the initial phase, it reportedly would not be nearly enough to significantly ease the effect of sanctions on the Iranian economy, the official said. Moreover, core sanctions, such as the US trade embargo, restrictions on Iranian banks and Iran’s use of its oil revenues, will all reportedly remain in place as well as sanctions related to Iran’s support of terrorism and abuse of human rights.
Overlapping international sanctions have isolated Iran from the international banking system. Because of the sanctions, Iran cannot easily move money around the world. Even if Iran is given limited access to some of its funds, it would continue to have a difficult time moving and using the money.
Administration officials are worried that if Congress slaps new sanctions on Iran, as proposed by the House, Tehran will think the US is negotiating in bad faith. But Democratic and Republican lawmakers argue that if the deal does not force Iran to put its nuclear program on hold, the US should not ease sanctions and may even add more.
Israeli Prime Minister Benjamin Netanyahu is also vigorously opposed to the proposal being discussed with Iran. He has spoken out in many forums and took to Twitter on Friday to continue to warn against rushing into what he said was a “bad deal.” He went on:
"The proposal enables Iran to develop atomic bombs and build long-range missiles to reach the U.S. and Europe. Iran is getting everything and giving nothing."
The Obama administration insists the proposal being discussed with Iran is tough. If it were not, they argue, why hasn’t Iran accepted it already. The problem is that we don’t know the details of the proposed agreement or how they will be enforced.
Iran refuses to completely give up uranium enrichment – but the level of enrichment has become a key aspect of the ongoing Geneva talks. The US and the other P5+1 nations no longer appear to demand a complete halt to enrichment and are concentrating on curbing the highest-level production, currently at 20%. Such material is needed only for Iran’s lone research reactor, which makes isotopes for medical treatments. The problem is at 20%, the process is only a few steps away from nuclear warhead level at more than 90% enrichment.
Stratfor: A New Era in US/Iran Relations
Whenever important geopolitical events unfold, we always look to our good friends at Stratfor.com and its founder, Dr. George Friedman. George has weighed in on the current deal being negotiated with Iran, and he brings some fascinating thoughts to the discussion, as usual. I’ll try to summarize them below.
In George’s most recent book, The Next Decade, he predicted that the US and Iran would move toward a “strategic alignment” in the next few years, and he believes that the current negotiations are the first step. George believes that Iran desperately needs to realign with the US at this point, such that they may actually honor the terms of the deal and not cheat. But why now, you might ask.
Stratfor believes that Iran might actually be willing to put its nuclear plans on hold in order to rebuild its tattered economy and financial condition. If the nuclear issue is resolved and the sanctions are removed eventually, then the relationship with the US and other nations could potentially improve even further. Matters such as controlling the dangerous Sunni extremists, investment in Iran and maintaining the regional balance of power would all be on the table. If the nuclear weapons problem is solved, the prospect of a new US-Iranian relationship would have to be taken seriously.
George warns, of course, that such an alignment won’t be easy and may not happen at all. Iran has long regarded the US as the “Great Satan” and the US has long regarded Iran as part of the “Axis of Evil.” Still, George believes a realignment is at least possible. As a precedent, he points to the thawing of US/China relations in the 1970s. Both nations despised each other, but both feared the Soviets more than they feared each other. By moving the relationship from total hostility to minimal accommodation, the strategic balance changed and the Soviet Union eventually fell apart.
Getting back to Iran, Stratfor has long argued that the Iranian nuclear program was primarily a bargaining chip to be traded for guarantees on its security and recognition of its regional power. As George put it, “It was meant to appear threatening, not to be threatening.” If that sounds like a stretch, it is. Stratfor doesn’t stretch unless it’s pretty confident. We can only hope they are right on this one.
Stratfor believes that Iran has finally accepted that it can no longer withstand the economic repercussions of the severe sanctions. In light of Iran’s expensive failures in Syria and Iraq over the years, and the current economic and financial crisis, Iran’s new president Hassan Rouhani and the Supreme Leader may indeed be sincere in putting the nuclear program on indefinite hold. Again, we hope Stratfor is right on this one.
President Obama, Don’t Give Away the Store
Stratfor believes that the most likely scenario is a ‘strategic alignment’ between the US and Iran. Maybe it happens in the current negotiations, or maybe not, but they see a significant change in US/Iran relations in the near future. In any case, Stratfor does not believe that the changing relationship with Iran will rupture relations with either Saudi Arabia or Israel – if handled properly. The balance of power in the region only works if the United States maintains strong relationships on all sides.
In summing up his latest analysis on the changing US/Iran relationship, George writes:
“It is hard to imagine this evolution, considering what the United States and Iran have said about each other for the past 34 years. But relations among nations are not about sentiment; they are about interest. If Roosevelt could ally with Stalin, and Nixon with Mao, then it is clear that all things are possible in U.S. foreign policy.
For their part, the Persians have endured for millennia, espousing many ideologies but doing what was necessary to survive and prosper. All of this may well fall apart, but there is a compelling logic to believe that it will not, and it will not be as modest a negotiation as it appears now.”
This latest analysis on the US/Iran negotiations may sound dubious to many of you. I was very concerned when I first heard of these P5+1 negotiations, and I still am. However, Stratfor is the best in the intelligence world, in my opinion, so I don’t discount anything they say.
My greatest concern is that Obama may settle for less than is necessary to make absolutely sure that Iran is carrying out its end of the bargain, just to ensure that such a landmark foreign policy accomplishment is a part of his legacy.
In the P5+1 negotiations that failed earlier this month, it was actually France who called the deal off and walked away, not the US. France? Really? Yes. That’s pretty sad, but good for them for taking a tougher stand. Hopefully, the P5+1 members will keep Obama from giving away the store!
Finally, my sincere thanks to Stratfor and George for allowing me to share their analysis with my clients and readers for many years.
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Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.