Presidential Review: U.S.

Policy on Establishing Diplomatic

Relations with Iran

November 9, 2023

Key Judgments

● This paper focuses on two related questions regarding the

options for establishing an official diplomatic relationship
between the United States and the government of the Islamic
Republic of Iran (IRI).

o How would the transitory and long-term strategic costs weigh

against the potential benefits of diplomatic normalization?

o Is there currently a practical route to diplomatic

normalization that accommodates the material, societal, and
institutional constraints within both Iran and the U.S.?

● The U.S has an existential stake in developing strategic

arrangements in SW Asia that are less burdensome on the
military and taxpayers that are still protective of energy
interests and critically important waterways around the
Arabian Peninsula.

● As the unipolarity of global U.S. power recedes, it is vital

that mutually beneficial relationships are built and
maintained with reliable, self-sufficient state actors.

● Power vacuums generated by exhaustive U.S. occupations in Iraq

and Afghanistan, coupled with the 2008 global financial
crisis, exposed U.S. and allied weaknesses and resulted in
increased Iranian regional power in SW Asia.

● Decades of reflexive U.S. policy and sanctions have led Iran

to collaborate and reach trade agreements with Russia, and
more importantly for the Iranian economy, energy sector and
infrastructure; China.

● With the world’s 2nd largest natural gas reserve and 3rd
largest oil reserve, Iran is a valuable trading partner as
well as a potential hedge against adversarial energy-
exporters.

● Iran has a mixed economy with a hybrid presidential system of

governance. While more alike than not, a major difference
 between the U.S. system and Iran is that directly elected
Presidents in Iran do not command the military and hold little
non-performative power outside the Iranian domestic economy.

● Despite costly U.S. efforts to contain them through a variety

of sanctions, military postures, use of regional proxies,
direct action, and diplomatic isolation, Iran’s continued
economic development and regional ascendance are testaments to
their value as a potential ally.

● It may have been cost-effective to provide arms and life-

support to regimes in the region during the oil boom, but it
will soon become untenable. Our adversaries are aware of this
and have made in-roads with Iran, who despite being under
blockade for decades has still managed a High HDI.

● Whether a moderate or hardline government is in power in Iran

has no bearing on the temperature of US-Iran relations. Iran
responds within the context of the U.S.’s regional clients’
actions, its short-term foreign policy objectives, and its
insults. The U.S. has the power to set the tone.

● This is not a zero-sum game between Iran and Saudi Arabia or

Israel. Directly elected officials in Iran may or may not be
vocal anti-Western or anti-Sunni ideologues but it is not
reflective of Iran’s pragmatic, non-ideological approach to
strategic alliances or its true power structure.

● Saudi Arabia and UAE will likely be more resistant to new

Middle East strategic arrangements involving Iran than Israel
or other U.S. allies.

Background

The relationship between Iran and the United States has been
characterized by decades of tension, mistrust, and was shaped by
conflicting interests. Prior to the 1979 Iranian Revolution, the
U.S. had developed a close alliance with Iran, driven largely by
mutual economic and strategic interests, including Iran's role as
a reliable source of oil in the region and a bulwark against
Soviet influence. However, the revolution led to the
establishment of the Islamic Republic of Iran and the subsequent
hostage crisis, resulting in severed diplomatic ties.

It is important to highlight that within the Iranian regime, its

institutions, and its society; distrust in the U.S.’s good faith
began in the early 1950s when the popular government of Mohammed
Mosaddegh was overthrown in a U.S. supported coup.

The key issues that have fueled a strained relationship between

Iran and the U.S. include Iran's pursuit of a nuclear program,
its support for regional proxy groups, and its anti-American
rhetoric. The U.S., in response, implemented a series of economic
sanctions against Iran, aimed at curbing its nuclear ambitions
and influencing its regional behavior. The Joint Comprehensive
Plan of Action (JCPOA) in 2015 briefly offered a diplomatic
breakthrough, with Iran agreeing to limit its nuclear activities
in exchange for sanctions relief. However, the U.S. withdrew from
the JCPOA in 2018, re-imposing sanctions and escalating tensions.

The U.S. national security and economic interests in the region

involve Energy Security, Non-Proliferation, and Freedom of
Navigation in key maritime routes. In efforts to protect and
promote these interests, US policy has been to isolate Iran
through a variety of sanctions, military postures, and use of
regional proxies, direct action, and diplomatic isolation.

Iran has 15% of the world’s proven natural gas reserves and 10%
of its proven oil reserves. Both Russia, but especially China’s
economic relations with Iran have posed challenges to US efforts
to isolate Iran on the global stage, often leading to violations
of US sanctions. China plays a pivotal role as Iran’s largest
trade partner for the tenth consecutive year. Bilateral trade
reached nearly $16 billion in 2022, highlighting their growing
economic ties. Iran will join the BRICS summit in 2024.

Issues

Issue 1: What is Iran’s current domestic political, economic,

and sociological status and how do these factors constrain or
promote official diplomatic efforts?
Iran is a theocratic republic, where the supreme leader,
Ayatollah Ali Khamenei, has the final say on all major decisions
and drives national policy. The president, Ebrahim Raisi, who
took office in August 2021, is a hardline cleric. He won the
election with a low turnout due to the widespread
disqualification of reformist candidates. As a figurehead for
Iran, Raisi supports the 2015 nuclear deal but will not make any
concessions with the U.S. beyond that issue. This can be viewed
as a constraint, but the Iranians likely view it as a litmus test
of the administration’s earnestness and good faith.
While the U.S. sees its role in terms of a self-justifying
frontier narrative, Iran views the U.S. as the latest of many
foreign powers seeking domination. Iran draws on its national and
religious traditions and sees its role as defying outside
oppressors while the U.S. views Iran as a terrorist threat and
part of the frontier to be tamed. These national narratives do
not necessarily have to prevail when the two states have strong
mutual interests.

When the U.S. has approached Iran as an equal and not as a vassal
to be dictated to, it has found it receptive, despite hardline
political rhetoric. In the U.S., political rhetoric can translate
into policy whereas in Iran, it is obscured in jurisprudential
consensus and technocratic religious speeches.

The political constraints are largely rhetorical and a matter of

perception to those within the U.S., while Iranian policy will be
responsive to ours—whether it is constructive or destructive.
Socioeconomically there are no true constraints to diplomatic
normalization.

Issue 2: How would U.S. allies react to normalization of

relations with Iran? Particularly the Gulf Cooperation
Council(GCC) countries and Israel.
In recent years, some GCC countries engaged in dialogue and
cooperation with Iran, seeking to reduce regional tensions and
find common ground. Oman and Qatar have maintained constructive
relations with Iran, acting as mediators and facilitators for
regional and international issues. A normalization of diplomatic
relations between the U.S. and Iran might be welcomed by some of
the GCC countries, who could see it as an opportunity to enhance
regional security and stability, and to benefit from economic and
trade opportunities given the size and development of the Iranian
market.
Saudi Arabia and the UAE will likely be wary of normalized
relations between the U.S. and Iran, fearing that it will
undermine their strategic partnerships and alliances with the
U.S., and embolden Iran to pursue its interests and influence in
the region at their expense. Moreover, it might provoke increased
spending on already-absurd levels of Wahhabi evangelicalism
throughout the Muslim world to combat the perceived loss of
prestige. A positive knock-on effect could be increased defense
spending to confront the resulting localized threats.
Israel, similar to Iran but unlike Saudi Arabia or UAE, is
ultimately concerned with the long-term survival and prosperity
of the nation, not just the regime. They might seek to balance
their relations with both the U.S., Iran, and other powers to
that end while ensuring that their concerns and interests are
considered by all parties. The perceived vitriol between Israel
and Iran, as well as the direct action, is rooted in the US-Iran
relationship vis-à-vis the US-Israel patronage.
Issue 3: In aggregate, is there more to gain from establishing
diplomatic relations in pursuit of trade, investment, and
security agreements than there is from the status quo?
The most immediate benefit could be reviving the 2015 nuclear
deal, which would limit Iran's nuclear activities and ensure its
peaceful nature in exchange for sanctions relief and economic
incentives. This would reduce the risk of nuclear proliferation
and conflict in the region and enhance global security.
Lifting sanctions alone would reduce global fossil fuel prices by
an estimated 10-15%. If similar currency guarantees the U.S.
established with GCC countries can be attained with Iran, it
strengthens the U.S. dollar as the global reserve currency.
Trade agreements would benefit Iran’s economy, while opening an
untapped consumer market and massive energy reserves that require
development. Iran has a disproportionately young and well-
educated population, located in the center of the global
petroleum supply, and at the strategic crossroads of Eurasia’s
markets.
Additionally, Iran is a nation-state. Unlike many regional
allies, its identity is broader than clan, less abstract than
“Muslim”, and was not applied by outside colonial powers. With
this, combined with a hierarchical theocratic tradition and a
cultural antipathy toward dynasties; its institutions and
military organizations are far superior to its neighbors. These
are potential reliable allies that could do the security “heavy
lifting” in the region without support. It would significantly
reduce the U.S. burden.
Normalization would be part of a realignment of our security
strategy in the region and could severely undermine US
partnerships and alliances, especially in Israel and the Gulf
Cooperation Council (GCC) countries, who view Iran as a threat
and rival. This could potentially weaken regional US influence
and leverage while fostering resentment. If it is not planned and
executed well, the risk of blowback is severe and generational.
It will be costly to manage challenges and obstacles from
regional and global actors who have a stake in the outcome of
renewed US-Iran diplomatic relations and any agreements it
produces. This could include Iran's allies, such as Russia and
China, who might seek to preserve their influence and leverage in
the region and to undermine US-led initiatives. This could also
include Iran's rivals, such as Turkey and Qatar, who might offer
alternative alliances and partnerships to the region.
In all, the potential benefits of diplomatic normalization with
Iran for U.S. national security outweigh the risks of our
current, rote, reflexive approach.
Options

Evaluative Criteria. Each of the three options discussed below

will be evaluated against the following four criteria:

● Criterion 1: Does the approach account for immediate security

requirements in the region?

● Criterion 2: Will the approach increase energy security for

the U.S.?

● Criterion 3: Will the approach have a long-term positive

impact on U.S. economic interests?

● Criterion 4: Will this approach produce resilient outcomes?

Option 1: Revive The Joint Comprehensive Plan of Action (JCPOA).

In an intentional, good faith effort, commit to reviving the 2015
Iran Nuclear Deal as a first step toward diplomatic
normalization.

Option 1: Analysis

● Criterion 1: Does the approach account for immediate security

requirements in the region?

o This option would remove a considerable source of immediate

fear within the region. This relates more to perceived
security than actual security.
● Criterion 2: Will the approach increase energy security for
the U.S.?

o This option, if pursued openly, will likely cause tension

between the administration and Saudi Arabia. Saudi Arabia
has (and will) use the price of oil to retaliate against the
U.S. for offences. This is not energy security, per se, but
it will be perceived as though it is initially. This would
eventually be offset by Iranian oil coming to market. In the
long view, if this option were pursued successfully with the
necessary concessions to Iran, it is a start toward an end
state far more secure than where we are currently.

● Criterion 3: Will the approach have a long-term positive

impact on U.S. economic interests?

o If the oil waivers included in the 2015 Nuclear Deal went

into effect tomorrow, the U.S. would save roughly $107
billion over the next 12 months. Additionally, this option
would reduce NATO ally reliance on Russia for fuel, and the
leverage they possess. It would reduce the U.S. defense
burden in Europe.

● Criterion 4: Will this approach produce resilient outcomes?

o This option is not resilient. The original Nuclear Deal,

which was beneficial to all parties, was rescinded with an
administration change.

Option 2: Lift significant economic sanctions against Iran,

without preconditions, and assess reaction. Without press or
fanfare, lift economic sanctions that would be most mutually
beneficial to both the U.S. and Iran while removing the
“terrorist” designation from the Islamic Revolutionary Guard
Corps.

Option 2: Analysis

● Criterion 1: Does the approach account for immediate security

requirements in the region?

o Immediate security requirements are external to this option

because it does not have preconditions, would be done
through backchannels, and any security questions would be
accounted for in an existent plan.
● Criterion 2: Will the approach increase energy security for
the U.S.?

o Because this option is not pursued openly, it will not cause

the same tensions between the administration and Saudi
Arabia before Iranian oil can get to market. If this option
were pursued successfully with the necessary sanctions
lifted, it would jumpstart U.S.-Iranian relations and an
energy secure end state.

● Criterion 3: Will the approach have a long-term positive

impact on U.S. economic interests?

o This option is a faster path to denying geopolitical rivals’

exclusive access to abundant energy resources, trade routes,
and a huge untapped market. If approached in a reciprocal
and collaborative way, much of the U.S.’s security costs
would be reduced.

● Criterion 4: Will this approach produce resilient outcomes?

o Because this option is relatively inconspicuous, it is

likely more resilient. If one’s political opponent has not
staked their career to a policy, there are few rewards in
tearing it down. Bold, performative peace negotiations are
easy to dunk on by the opposition.

Option 3: Establish an official diplomatic relationship with

Iran and a U.S. Embassy in Tehran. Unilaterally, lean into a
diplomatic relationship, with normalization being a first step.

Option 3: Analysis

● Criterion 1: Does the approach account for immediate security

requirements in the region?

o This option will likely raise security concerns in the

region. As it will be unannounced, prestige-oriented regimes
in the Gulf will react negatively even if notified through
backchannels. Israel will immediately require additional
assurances and security commitments. Physical security of
State Department personnel in Iran may be tenuous as a
foundation of trust between the U.S. and Iran had not been
previously laid.

● Criterion 2: Will the approach increase energy security for

the U.S.?
 o This option includes significant risk and is thus more
likely to fail, leading to further misunderstanding, and
embarrassment. If that were to occur, the U.S. would be more
overextended than it was previously securing its energy
interests in the region, with now-reluctant allies.

● Criterion 3: Will the approach have a long-term positive

impact on U.S. economic interests?

o This high-risk option is the fastest way to a cost-effective

security and economic arrangement in SW Asia.

● Criterion 4: Will this approach produce resilient outcomes?

o If this option can bear its initial risk, it is very likely

to produce resilient outcomes. It is easier to work through
issues and understand concerns when there is a direct line
of communication. Diplomatic normalization is not the
absence of conflict, it is the management of conflict and
policy differences.

Recommendations

Preferred Option:

The U.S. should lift significant economic sanctions against Iran,

without preconditions, and assess Iran’s reaction.

Rationale:

Iran is an ancient civilization and national identity that

predates the U.S., and even its own religious identity by
millennia. It is has a theocratic political tradition,
underscored by a constitution and separation of powers. The
current regime exists as the result of popular revolutions aimed
at nationalizing oil production. It may be a theocratic (in the
way the Vatican is) but it is not fundamentalist.

But in 2003, after Iran had provided security assistance and

intelligence in aid of Operation Enduring Freedom, the U.S.
President declared Iran part of the Axis of Evil. Presidential
rhetoric became U.S. policy that materially affected the Iranian
economy, and the reaction from Iran materialized as vicious Shia
resistance to the U.S. occupation of Iraq.
This is one of many examples of the way Iran responds to the
U.S.’s lead. In the same way, on the few occasions when
agreements were reached, they typically honored them. U.S.
leadership is not fundamentally dishonest, just transient when
compared to Iran’s true power structure.

But in comparing the two structures, the U.S.’s affords it many

opportunities to get things right. Given geostrategic realities,
economic and military rivals in ascendance, and Iran’s unique
geography and resources, it is in U.S. interests to bury the
hubris that comes with exceptionalism and meet Iran as equals.

By placing wholly unreasonable conditions on sanctions relief,

the U.S. is further destabilizing SW Asia and pushing Iran
further into a nascent China-Russia pole.

This option would see the U.S. discretely lift Iran’s oil and gas
sanctions while removing the terrorist designator from the
Islamic Revolutionary Guard Corps, and therefor their large
industrial holdings. This touches the major economic issues that
negatively impact both U.S. and Iranian economies, without giving
ultimatums. It is a meaningful olive branch and providing it
without any conditions would be as effective as it is out of
character.