- 2 days ago
After nearly 50 years of on-off sanctions, proxy conflict and nuclear brinkmanship, tensions between the US and Iran reached an apex this year. As the situation evolves rapidly, many hope for a long-lasting peace agreement.
What would such an agreement look like and how would it affect the rest of the world?
What would such an agreement look like and how would it affect the rest of the world?
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00:07Thank you to the World Economic Forum for organizing this event. These
00:12conferences, of course, are a fantastic opportunity to consider long-term trends
00:20in the world, where the world may be heading, structural issues, but it's also
00:28a fantastic opportunity to look at contemporary events closely and to discuss them with some
00:35of the leading experts who are here. And when it comes to current events, I think there's
00:44hardly any issue that's more current and more pressing than the state of Iran and its relationship
00:52with the West, with the world, and with the United States in particular. To discuss that
01:01issue, we have a series of excellent experts here. And to just lay the groundwork a bit,
01:13at this moment, peace negotiations are ongoing in Switzerland after several weeks of war.
01:23And one of the most common analysis has been that this war has only restored the relations
01:31with Iran back to the sort of pre-war condition that they were in. That raises the question,
01:40of course, of what pre-war time we mean. There are various analogies that could be raised there,
01:48whether it's 2025 in terms of the post-12 day, 10 day war period with Iran, when both all sides
02:02were
02:02were preparing essentially for the outbreak of another war potentially. Another analogy would be 2015,
02:10when the Obama administration agreed on a nuclear deal with Iran, and both sides seemed to
02:20think that that could hold. But then there was a regional disequilibrium that eventually led to its
02:27falling apart. There are other analogies even further back that one could point to. 1972 might be an
02:35example, when the United States sought out Iran as a partner in the region, creating arms deals with Iran
02:46and treating it as a pillar of security in the Gulf. But given that we are in Dali and China,
02:54another
02:55analogy from 1972, of course, is when Richard Nixon went to China and created a new partnership with
03:04China of an entirely different sort, rather than a kind of subordinate ally in the Middle East of the
03:13sort that Iran had been. It sought an ally in China that was one of mutual recognition of a kind.
03:24So which of
03:24these analogies exactly holds, time will tell. But in the meantime, we have the perspectives of these
03:34experts on the panel here with me. And to start off with, I wanted to ask Mahmoud about the domestic
03:44situation in Iran, because the question of what exactly happens next clearly depends on who exactly is
03:50in charge in Iran right now. And there's been a leadership change. But who has that left exactly
03:58in charge? And what are the implications for that going forward?
04:01Yeah, I think that's a great area that requires quite a bit of exploration. There's not much talk about
04:09who are the decision makers in Iran today.
04:13I do not think that there is a change of regime in Iran. But there are two fundamental changes after
04:22February 28th. One is a change of inertia. And I will say a few things about that. And another one
04:32is the process of decision making in Iran. I believe there are far less rigidities compared to the past. And
04:42about the inertia, I think the number one change is that the military in Iran today has almost
04:50absolute agency in the process of decision making, which is, you know, in comparison to the past,
05:00there are other institutions in Iran that were instrumental. Now it is fundamentally the military
05:08that is making the decision. A second change in terms of inertia in Iran is that there is a new
05:15perception of the United States. It's far less ideological. And just compare that to the past where
05:25Iranians did not speak to the Americans directly, or it was limited. Now they are in the same room,
05:35not only speaking directly, but also negotiating, not just on the nuclear issue, but on a range of
05:45issues that I will call a package kind of a context. The third fundamental change in the Iranian leadership
05:55after February 28th is that I believe this very small circle of decision makers, they have come to the
06:04understanding that their survival in the near to medium term hinges on economics, not much geopolitics anymore.
06:17And if we trace the role of the proxies during the war, it was really this small.
06:25The other element that is not highlighted much, and I believe it's very important
06:31to look at this new context in Iran, is the role of China and Russia. And I believe one of
06:40the reasons why
06:41the United States kind of rushed to a memorandum of understanding is a crucial Russian role,
06:49not only in intelligence, but also in weapons procurement in the Iranian operations during the
06:57war. So there is this international element to how Iran is conducting its operations today.
07:05So the decision making structure is much smaller. It's military. And I think
07:13regardless of our opinion about the nature of the regime in Iran, I think they're far more
07:20economically oriented than in the past. And although they're all veterans of the revolution of 1979,
07:29but there is that kind of a shift of paradigm in terms of their thinking. But one thing that needs
07:37to be
07:37highlighted is that they have not come to that conclusion because now they value economics far
07:48more than geopolitics. It is out of compulsion. They have no other choice in order to survive to turn to
07:57economics. And I think, in many ways, perhaps it should be welcomed, not only in the region,
08:03but by the outside world.
08:08Sanam, Vakil, you obviously also focus on domestic politics in Iran, but I'm curious about what the
08:16rest of the region may have to say about some of these shifts that we've been talking about.
08:21Thank you. Well, I think there's a lot to say. First of all, Iran attacked all of its neighbors
08:31effectively over the 38 days of war. This was very unprecedented and seen to be unjustified by Iran's
08:42neighbors. It's worthwhile mentioning that over the past few years, there had been a normalization of
08:48ties between Iran and most of the Middle East, including Egypt, for example. And there was a
08:56hope that through incentives and continued diplomacy and transactionalism, if you will, that ties would
09:06be managed and tensions could be contained. However, this war, of course, has upended a lot of the tools
09:15in the region's toolkit to manage and address Iran. It also connects with concerns over
09:23U.S. staying power and investment in the Middle East versus America's broader geopolitical priorities.
09:31Gulf states, in particular, have been worried for quite some time that the U.S. is going to continue
09:37to be unreliable or unpredictable in the Middle East. And many of these countries, through the context of
09:44this war, but through the past few years of instability in the region, have been looking to anchor
09:51the U.S. institutionally in the region. And so this connects to this war because with worries about the
10:00U.S. role in the region and an unpredictable Iran that has survived, I think the region is worried
10:09more broadly about how this war ends. They were against this war. They lobbied the Trump administration
10:15individually and collectively against this war. And they were thinking that they had a good
10:24relationship with President Trump last May. He was in the region. He promised no regime change. And here,
10:31the U.S. administration, the U.S. administration was pursuing a regime change light strategy that was
10:36very destabilizing. So in the context of geopolitical shifts and regional shifts, I think the neighbors are
10:44worried about how this war ends. They wanted the United States to remain engaged and in tandem have taken
10:51a quite strong role in playing the mediation card over the past few weeks and months. This is despite the
11:01level of attacks and strikes that they experienced over the course of this war. They recognize that
11:09obviously geography is their destiny. They can't sort of deal with the realities in any other way.
11:16And so I think the strategy going forward for the neighborhood and particularly the Gulf states is
11:23to diversify their defense relationships, to build up their defense capabilities
11:32over the short and medium term, but also to continue managing the diplomatic track. They see an agreement
11:40and some kind of resolution as being very important to their long-term sustainability,
11:46to the delivery of their visions that are still very much lingering on the horizon, perhaps delayed to a
11:54certain degree. And ultimately, they worry that a no-deal scenario will result in continued instability and
12:04perhaps another round of war. So that's certainly looming on the horizon. They recognize that
12:12another round of war will further impede the economic prospects of the region, but also
12:18impact the other conflicts in Lebanon, in Yemen that nobody talks about, in Palestine that remains
12:24unaddressed. And even if Iran is contained, even if, let's say, we remain in a no-deal, no-war situation,
12:36it means that the region will be left bearing the responsibility, carrying the bag, perhaps
12:43seeing a sort of model that they implemented vis-a-vis Saddam Hussein in Iraq after the first Gulf War
12:52as well.
12:53So this is a very uncomfortable moment for the countries of the Middle East. The conflicts are interconnected.
12:58Iran has survived, perhaps is more pragmatic, is also concerned about how this war ends. But
13:07the region needs to play a role in shaping the outcome of this war as well, and not just outsourcing
13:13it to
13:13the Trump administration.
13:14the region. Jason Bordoff, obviously this war has been inseparable from energy markets. The closure
13:25of the Strait of Hormuz created turmoil around the world as a result of oil shipments being blocked.
13:38In the short-term and also the long-term, what are the prospects for energy markets now that this war
13:44seems to be coming to a conclusion? And is there a contrast between what the short-term outlooks and
13:50the long-term outlooks of energy markets are right now?
13:53Yeah, thanks, Cameron, for the question. And to the WEF for the invitation to join the briefing.
14:00Largest oil supply disruption in history. We all know the facts at this point. 20% of the world's oil
14:05and
14:05oil products, 20% of the world's LNG. So for people who are doing energy security scenario planning,
14:12you know, this was kind of the mother of all nightmare scenarios for disruption to global energy
14:18markets. We can come back maybe to what actually transpired and why it was not as catastrophic as
14:25would have been anticipated, I think, if you'd surveyed lots of energy and other commodity analysts in
14:30January before this started. But from this point forward, I think from a technical standpoint,
14:37things can be restarted reasonably quickly. It doesn't happen overnight, but weeks to a few
14:43months to bring most oil supply back online. There hasn't been much physical damage to a significant
14:50extent to the oil infrastructure in the region, a bit more to the Qatari LNG infrastructure,
14:55which could take longer to come fully back online. Production was reduced, but not completely shut in
15:04because of workarounds like the east-west pipeline to the Red Sea, the pipeline that the UAE had to
15:10Fajera, a little bit of flows going back and forth from time to time. So that allowed producers to keep
15:16wells warm and rotate shut-ins and makes it easier to bring things back online. That'll be a little bit
15:21easier for countries like Saudi Arabia and the UAE. It might be a bit harder, take a little bit longer
15:28for Iraq or countries with more mature and older fields. The question, though, is not what's
15:33technically possible. It's what that actually looks like in a moment of tremendous uncertainty.
15:39It takes time and effort and cost. It can do damage and is costly to shut in production and restart
15:47production. Every day, things seem to change about what the status quo is. Is the strait open? Is it
15:53not? Are you supposed to use the UAE shipping lane or the Omani shipping lane? There are still mines in
16:00the strait that need to be understood and cleared. If ships enter now, they worry about the ability to
16:06exit, given the uncertainty about what is presumably a 60-day deal and whether that holds. There is an
16:14enormous amount of oil and oil products, around more than 100 million barrels, ready to come out. And
16:19some of that is starting already. But slowly, at first, it's going to take some time to build
16:26confidence that this strait is open, free of attack, random drone attacks or other things. And then the
16:33minute there's some flare-up and violence in southern Lebanon, people pull back and they're cautious with
16:37the lives of their people and their company and their assets like large tankers. So that uncertainty
16:44is going to mean that it takes time for production to restart and for energy markets to normalize.
16:52I think the reason for optimism that the deal might hold is it does not seem yet like either the
16:59US or
16:59the Iranians want it to fall apart. For Trump, he said in his press conference, I don't want to be
17:03remembered as Herbert Hoover. I see the economic damage coming if things stay closed, including
17:09because oil prices were reaching the point where there were limits to how much global inventories
17:14could make up for this lost supply. And once that happens, you start to see prices increase in a
17:19parabolic fashion, not a linear fashion. For Iran, the incentive to keep the deal in place is it's a
17:25really good deal. I mean, when you compare it to where Iran was before, waivers have already been issued for
17:32sale of oil, the ability to sell oil and oil products and petrochemicals with formal sanctions
17:38waivers, which presumably will allow that to be sold at a higher price, to be sold in dollars,
17:45without having to really give up much of anything other than a promise not to develop a nuclear
17:49weapon, which Iran has been making for decades. So from Iran's standpoint, it's a reasonably good
17:53deal. Reasons to be pessimistic that it might hold. I think Prime Minister Netanyahu is probably top of
17:58that list. This deal is not a good one for him politically in Israel. And the question is what
18:04the Israelis might do to try to scuttle it. And what backlash, if any, there may be from critics
18:09on the right in the United States or from Congress, which presumably, I think, if you read the law,
18:14is responsible for playing a role in determining when sanctions on Iran are eased or waived. We
18:19haven't always seen Congress exert its formal authority relative to what the Trump administration has
18:23tried to do. So we'll see if Congress pushes back. But those would be some of the reasons that
18:27you might be skeptical. In the longer term, we can talk about what the implications of this energy
18:31crisis are compared to the 1970s. Does it spur a transition away from oil and gas? Remind everyone
18:37oil and gas is geopolitically risky. We can come back to that if you want about sort of the
18:41longer term implications. But first, I guess maybe a last question for each of the panelists.
18:48It does sound like one consensus is that Iran is hoping to integrate economically
18:57with the world, again, that the new leadership in Iran may have this pragmatic
19:04goal in mind. And I'm curious what each of you thinks the prospects for that kind of economic
19:14integration for Iran really is. I mean, what are the opportunities? What are the constraints,
19:19whether domestically, regionally, internationally, from a perspective of the political players or
19:28investors who may be thinking about Iran as a potential new economic location?
19:35If we take a look at the statistics and the consequences of the war, especially the second war,
19:45they're astronomical. 70% rate of inflation. The damage to private property and infrastructure is
19:55somewhere between 200 to 250 billion dollars. There's a minus 10% industrial output after the war.
20:085 million people have lost their jobs. And through the fall of 2026, there's a potential that 10 million
20:18people are going to lose their jobs, especially in the service sector. And 8 million Iraqi tourists
20:26are not coming to Iran anymore. And over the last quarter of a century, Iran has lost 1200 billion dollars
20:38in terms of sanctions, economic sanctions on its economy. And the petrochemical exports were decreased by 70%
20:50after the war. Some two months of Iranian oil income was lost because of the war. And 4,000 people
20:59died. So,
21:01if we look at the totality of the economic damage to the state and society, I think that's kind of
21:09driving
21:10the paradigm to move into a compromise with the United States. The Strait of Hormuz, I believe,
21:21is a short-term source of deterrence for Iran. It cannot serve even as a medium-term source of deterrence.
21:33The real deterrence for Iran is its nuclear power. And let's just assume that Iran's
21:40Fordu and Natanz and all the other installations are taken out. Let's just presume that the 440-kilo
21:49enriched uranium is either diluted or taken out of the country. I think Iran still does have the R&D
21:59and the personnel to pursue a nuclear program. Now, how it can leverage that capability
22:08into economic gain will depend on the new leadership, how they're going to negotiate
22:14with the United States. Already in just a few days, we hear that Iran has agreed that the IAEA will
22:22have
22:23inspections in Iran very soon. Qatar played an instrumental role in kind of in the process of
22:33releasing some funds to Iran. So, I think if the new leadership kind of gains the momentum of releasing
22:43more and more funds, they'll be willing to compromise on the nuclear program.
22:59So, I think there's a potential there, but it will all depend on how domestic politics are played out
23:08both in Iran and the United States. My last point, there are potentially two disruptions to this process.
23:16One is the Israeli calculus before the October elections in Israel. And second, what will be the
23:24Republican Party calculus if they maintain a majority in both houses after November?
23:32So, again, domestic politics in three countries, the United States, Israel, and Iran, will determine
23:40the outcome of this negotiation. Thank you.
23:44Can I ask a question? Is that allowed?
23:45Yes, please. I would also like to turn to the...
23:47Oh, okay.
23:48If you can quickly follow up.
23:50Yeah, well, just on the straight weapon moving forward, I do think it'll be less of a constraint
23:55moving forward, because you're going to see lots of countries build pipeline routes around the
23:58straight. So, we can go back to that. But I'm just curious your point about, like, the economic pain,
24:01because you mentioned two months of lost income. When Trump was in office his first term, he brought Iranian oil
24:07exports down to just a few hundred thousand barrels a day for two years. So, does that not tell us
24:12that
24:12they can withstand a lot of economic pain for a long time?
24:16But it's still, and over the last five years, they have lost quite a bit, the Iranian kind of the
24:22government. And there is more population. And the budget deficit is now 40 percent. So,
24:30they need far more income to sustain the economy and society. So, they cannot go on with this state
24:38of the economy.
24:39Okay. My name is Jody Wenjing. I came from Tsinghua University, China. I have one question. We know
24:46during Obama's administration, it took almost 18 months to get a negotiation. But now,
24:52U.S. tried to get a negotiation in 60 days, right? I think it's very unbelievable. So, this is my
24:59thinking about that. My question is that we see this in this negotiation, there's only bilateral
25:05negotiation between U.S. and Iran. And Qatar and Pakistan as the local country, they are doing the
25:12mediation. But I think the power is very limited. So, my question is how to advance a multilateral
25:19negotiation in this part, in this part, in the current stage? Maybe you have to have one, two,
25:25the other question is that we know for my understanding, right now the strategic
25:32focus of U.S. side is still in the Pacific. Or we can see China and Russia. But we all
25:41know where
25:41we can see that right now the U.S. is trapped in the Middle East. So, how to, I mean,
25:46how to solve
25:47this problem from U.S. side? How to balance your strategy in the Pacific and also your policy in
25:53the Middle East? This is my question. Thank you. They are involved. This is a bilateral negotiation.
26:01I mean, first, second time that they're in the room together, which is the U.S. and Iran, which is
26:06really unprecedented. But these negotiations are being facilitated and mediated by a whole host of
26:13countries, not just supported by Qatar and Pakistan, but also Egypt, Saudi Arabia, Turkey,
26:21alongside China playing a role, Switzerland representing Europe and playing a role. So,
26:27this might not appear to be multilateral, but it is multilateral. And should both sides get to an
26:33agreement, and I share your skepticism about the 60-day timeline, I think that that is going to be very
26:39hard to achieve. And I fully expect that there will be one or two extensions, perhaps a deal not even
26:46being reached before the midterms, but after the midterms, or there is a no-deal scenario that could
26:52be delivered after the midterms, depending on the outcome. But, you know, for the Iranians, how an
26:59agreement is maintained or guaranteed is very important. This is part of the strategy to internationalize the
27:05war, to, of course, spread the pain, and to ensure that there are more international guarantees, whether
27:13there is a resolution at the end of the UN Security Council, or there is much more buy-in
27:20with commitments on the investment side from Europe, from Asian countries, in order to protect the deal,
27:27to invest in this so-called reconstruction or this so-called 300 billion dollar development fund.
27:35Those are ways to ensure that this deal is much more sustainable. But certainly, it's the U.S. that has
27:43the capabilities to unlock the long-standing sort of endemic challenges, and it's the U.S. financial
27:50system and U.S. Treasury sanctions, as we've seen as being really important to facilitate much more
27:58of that multilateral buy-in. I don't think it is a good thing at the beginning to have all of
28:04these
28:05countries at the table. Why? Because it won't deliver in the short, medium, or long term. Every European
28:11country has about 20 items on their agenda of issues that they want to address. Every regional country also
28:18has 20 items on a piece of paper that they want to address. So the question is, how can we
28:24quickly
28:26unlock some of the deeper challenges with the Strait of Hormuz and Iran's nuclear program? And I think that
28:32is where the U.S. and Iran have to make progress in a short amount of time. But what the
28:39rest of the
28:41world, Europe and the Middle East, really need to do, and this is a lesson from the JCPOA in 2015,
28:47is not give
28:48up on a second or third phase of negotiations. What else needs to be agreed upon in order to try
28:55and
28:56resolve the bigger portfolio of regional conflicts? This requires a discussion on non-aggression. This
29:02requires a discussion on non-interference. This requires a broader discussion on regional security.
29:08Thank you to all our panelists. Thank you to the World Economic Forum for having us. And yeah,
29:14hopefully we'll continue the discussion here. Thank you.
29:17Yeah.