U.S.-Iran Deal Includes $300 Billion Fund
When Washington published its memorandum of understanding with Tehran last week, many were appalled by the inclusion of a $300-billion “reconstruction” fund. The clause was widely misunderstood as free cash for the Islamic Republic — reparations, essentially — but the truth is more complicated, albeit still disastrous.
Details about the fund are still murky, but it appears that it will primarily consist of private investment in the Iranian market. This means that American financiers, and likely their counterparts in the Persian Gulf, will deploy their capital into the country in exchange for ownership stakes in recipient projects — a relationship that is fundamentally transactional, not charitable.
Not a Modern Marshall Plan
To be clear: this is not some modern-day equivalent of the Marshall Plan, where the United States rebuilt postwar Europe largely through non-repayable grants. Rather, it resembles U.S. President Donald Trump’s earlier plans to pacify eastern Europe by launching joint investment funds with both Ukraine and Russia (these initiatives, being half-baked, never gained traction).
Yet that doesn’t mean that an Iranian fund would come at no cost to American taxpayers. Prospective investors will obviously be skeptical about sinking their money into a country that Washington just went to war with — especially if the final U.S.-Iranian peace deal seems brittle. Reciprocally, the Islamic Republic will fear losing control of important infrastructure and will presumably maintain a firm grip over western-backed ventures.
Subsidies and Government-Backed Loans Likely
In such an environment, the United States would need to incentivize foreign investment by compensating for elevated risk, which, in practice, would likely mean offering subsidies and government-backed loans. These handouts would represent only a fraction of the overall reconstruction fund and would often flow back into American hands, but would nonetheless come at public expense and represent a liability for the treasury.
Even if the ultimate cost to American taxpayers is far less than $300 billion, would the return on investment be worth it? Would expanding economic ties with the Islamic Republic help de-radicalize its leaders and make the world safer? The answer is likely “no.”
Failed ‘Peace Through Trade’ Strategy
After the Cold War, many western policymakers assumed that globalization, with all the interdependence it engendered, would usher in an era of peace. Their theory was that impoverished autocracies would liberalize after their elites had more contact with western capitalism; that rising living standards would foster pro-democracy movements; and that it would be economically suicidal for major trading partners to war with each other.
But the “peace through trade” strategy failed — mostly because it naively underestimated how cunning and brutal the west’s adversaries are. One need only look to China and Russia to understand this.
For decades, Beijing accepted a deluge of foreign investment while merging its economy with that of the United States. Yet Chinese policymakers placed heavy restrictions on foreign capital and kept joint ventures firmly under their thumbs. Market reforms were implemented only if they did not threaten the hegemony of the Chinese Communist Party, and political liberalization was not pursued.
