The Hidden Costs of the Iran Deal
What I Think

The Hidden Costs of the Iran Deal

What did the Iran deal cost the U.S.? Keeping adversaries like China and Russia at the negotiating table was likely expensive – even though both have much to gain from the relaxation of international sanctions on Iran. Both look forward to ramped-up arms sales and increased trade with Iran, but even so, neither China nor Russia hands out diplomatic wins to the United States without some payback. The proposed acquisition of high-tech chipmaker Micron by a state-owned Chinese company may signal the sort of quid pro quo we will see in months to come.

The very day that President Obama announced that the P5+1 nations had reached an accord with Iran aimed at reining in that country’s nuclear ambitions, China’s Tsinghua Unigroup Ltd. announced its intention to bid $23 billion for Micron Technology, the last remaining U.S. supplier of memory chips. This would be the largest Chinese takeover of a U.S. company to date; the prior top acquisition was the $7 billion takeover of Smithfield Foods by Shuanghui International in 2013.

Related: The 8 Most Important Things to Know About the Iran Nuclear Deal

Some analysts are skeptical that the deal will go through. First, the apparent premium of 19 percent for a stock that is off 50 percent in the past year is stingy. Investors have sold the shares because of slowing demand for PCs, the biggest market for the type of memory chips that Micron produces. Second, the transaction should raise red flags for security reasons.

China has long made it clear its intent to build a high-quality domestic semiconductor capability, an essential building block for today’s technology industries and one it has yet to develop. Tsinghua's potential purchase of Micron would be a giant step forward in reaching that objective. Memory chips are vital to many consumer goods like smart phones and cameras, but are also an essential ingredient in high tech defense products.  
Will the United States object to the deal? The Committee on Foreign Investments in the United States, representing multiple federal agencies, is tasked with blocking any acquisitions that could undermine U.S. security. In 2005, such considerations led CFIUS to nix the purchase of Unocal by CNOC, China’s state-owned oil company.

That suggests a likely challenge to Unigroup’s takeover of Micron. A lengthy 2012 piece on China’s semiconductor quest in a Wharton periodical noted, “China’s semiconductor designers and manufacturers still face some restrictions on access to technology due to longstanding worries over use of such know-how in military applications.” Will those ongoing concerns drive CFIUS to object to the purchase of Micron? Or did China extract a wink and a nod from John Kerry that if they backed the Iran agreement, the U.S. might become a little more lenient on exporting our technology. Stay tuned.

Related: Tom Cotton Sharpens His Knives for Obama’s Iran Nuke Deal

It is not only China that may have required sweeteners to stand by the U.S. Russia, too, may have needed some wooing. That likely accounted for the otherwise unfathomable public relations coup Secretary of State John Kerry handed Vladimir Putin when he met the Russian leader in Sochi this past May. Even The New York Times recognized the photo op for what it was – a “diplomatic victory” for the former KGB head whom the Obama administration had been ignoring and attempting to isolate for months.

As The Times noted, the meeting “was widely interpreted [in Moscow] as a signal of surrender by the Americans — an olive branch from President Obama, and an acknowledgment that Russia and its leader are simply too important to ignore.” Russia, said The Times, had proved “stubbornly important” on the world stage, especially “in the negotiations that secured a tentative deal on Iran’s nuclear program.”

Keeping Russia in place may also explain our refusal to provide Ukraine with lethal weapons – despite encouragement from Congress for providing such assistance. In recent comments made to legislators, both Defense Secretary Ashton Carter and incoming Chairman of the Joint Chiefs, Marine General Joe Dunford said they were in favor of providing lethal arms to Ukraine.

President Obama and John Kerry were desperate to clinch a “legacy-making” agreement, and willing to make enormous concessions to that end. The frantic push to conclude a deal with Iran led the Obama team to backtrack on numerous early demands, such as dismantling Iran’s nuclear infrastructure, promised “anytime, anywhere” inspections – including military sites -- and the insistence that Iran provide information about past weapons-related research on detonators and delivery mechanisms. What we don’t know is what other concessions were made to our negotiating partners. 

Related: The Long, Confusing History of Iran’s Frozen Assets

Skepticism about the deal springs not only from the sense that the U.S. was willing to give up more than the Iranians (even though it’s their economy that needs help), but also from the lack of any gestures of good will from Iran. They still hold at least three Americans hostage; they still march through the streets shouting Death to America; they still support terrorist groups in the Middle East. Just six days ago Iran extended a $1 billion line of credit to Syria – a good clue as to where the $100 billion they will receive from sanctions relief might go.

Skepticism also arises from the self-congratulations offered up by Iran’s President Rouhani, who said that the deal satisfied all of Tehran’s objectives: termination of all sanctions (including arms and proliferation sanctions) as soon as the agreement goes into effect, continued nuclear research and development on advanced systems, and ongoing operation of its main enrichment plants. Mr. Rouhani must have a sense of humor; he stressed that “Iran will keep a watchful eye on powers’ compliance” since “certain powers have left a dark record in complying with their undertakings.” He added, for good measure that “Iran is only after peace and security in the region.”