The economic upshot of the Iran deal

For all the hot air in Washington this week from Republicans denouncing the historic deal the United States and five world powers reached with Iran, keep in mind that gasoline may soon fall back to $2 a gallon.

That is just one of many economic benefits to America, Europe and the Middle East we can anticipate because the smart use of economic sanctions and diplomacy produced a peaceful solution to the confrontation over Iran’s nuclear program. Since 2006 the U.N. has granted authority to its members to thwart Tehran’s development of nuclear bombs and the missiles to deliver them.

Throughout we have had political donors such as American casino mogul and pro-Israel hawk Sheldon Adelson, foreign leaders such as Israeli Prime Minister Benjamin Netanyahu and a host of Republicans on Capitol Hill openly state or suggest that the best way to deal with Tehran was war.

War is not just an ugly business, it’s bad for economies. Its costs are often carried by those born long after conflict ends. The peak year of personnel spending — on pensions, medical care and other costs for veterans — for World War II was 1993. At that time more than half of Americans were 33 or younger, born at least 15 years after the Nazis were defeated and the Japanese surrendered. The bills for that most necessary of wars will continue to come in for decades because of survivor benefits and interest on the debt taken on, but never repaid.

Opponents of the deal include those who think war and threats of war are better options than negotiation and who talk in terms of an idealized world, rather than the actual options in front of us. If we had a universal draft — that is, one without exceptions for the politically connected — we would learn very quickly just how much popular support exists for bellicose policy and those who advocate for war.

One of the silliest arguments made by opponents of the nuclear deal is that by further tightening economic sanctions we could have forced Iran to its knees, giving up every pound of uranium. Tell that to Cuba, still sovereign after more than a half century of American sanctions. Applied smartly, economic sanctions can bring the recalcitrant to the bargaining table, provided they see a path to relief without humiliation. That is just what Secretary of State John F. Kerry and other Western negotiators did.

As for the costs of war, compare the economic effects from how we dealt with Iraq, the bill for which could grow to more than $6 trillion. Five years before the U.S. invaded Iraq based on phony claims, the price of oil was about $25 a barrel (about $36 in today’s dollars). More significantly, the futures markets indicated this price was likely to persist for more than a decade. Instead, the price of oil peaked at more than $140 a barrel as market manipulators took advantage of the effects of war on access to oil.

But now we can look to the price of oil falling back to under $50 a barrel and maybe even below $40. (A barrel is 42 gallons, but when refined it expands so a barrel of crude produces more than 42 gallons of fuels and feed stocks.)

Just as the fall in the price of oil has not been an unmitigated good, as I wrote about in December, the Iran deal will also have its benefits and detriments. But among what we can expect:

Oil prices. Flat to falling oil prices as Iran brings oil to market. Iran has more than 11 percent of the known recoverable oil reserves worldwide. The sanctions reduced its oil exports by two-thirds and Iranian officials talk of doubling exports, which would not bring the volume back to where it was four years ago. That suggests these public statements understate the likely increase in the volume of Iranian oil exports a few years down the road. That extra supply is good for prices at the pump, but not so good for workers in the fracking zones of the American shale patches.

Foreign investment. Big American, and European, companies began sounding out Iranians about what they might buy in terms of goods, from computers to machined parts. That should be a small positive for American exports and jobs.

Uranium prices. Iran agreed to get rid of 98 percent of its stores of the radioactive fuel, which should at least temporarily put downward pressure on prices. Russia, already straining under lower prices for the oil and natural gas it exports, will not like this.

Paying debts. More than $100 billion of Iranian assets overseas have been frozen since the first sanctions were applied in 1979 when Jimmy Carter was president and Iranians invaded the American embassy. The agreement is 159 pages long, but 60 pages simply list frozen assets, including 12 pages of aircraft and ships.

That means suppliers have gone unpaid. During negotiations the Obama administration freed $3 billion, a carrot to encourage the Iranian government to keep working toward an agreement.

As part of the deal the Iranians get speedy access to $11.9 billion of that money, a trifle to the world economy but no doubt important to various individuals and firms that did business with Iran. It will also create more work for lawyers, accountants and others as long delayed claims get sorted out in private negotiations and courts.

This deal is also good for Iran. Although its economy roughly equals that of metropolitan Boston, it has 80 million people, 16 times as many as metro Boston. In the short-term the Iranian economy is likely to grow by a quarter or so to $450 billion, about the size of metropolitan Washington, D.C.

Iran is a country with a highly educated population and a rich tradition of intellectual achievement. Iranians can expect further rapid economic development in the next few decades, provided their leaders abide by the agreement. That is good news for Iranians and for countries selling to Iran.

A prosperous Iran is also good for the entire Middle East. As those who overthrew the Shah’s dictatorship slowly fade into history, this agreement opens the prospect that new generations of leaders will build new and productive relations with their neighbors and with America.