by Ali Gharib
There are so many reasons to be angry at Iran. To take just the latest example, the Revolutionary Guards this week arrested a retired Canadian-American professor visiting Tehran and held her incommunicado at the notorious Evin Prison. The recent spate of detentions of dual nationals is a worrisome trend, but it’s only the latest in a long line of Iranian rights violations against its own citizens. Beyond its borders, Iran also plays a bedeviling role in a handful of countries, most notably Syria, where it helps to prop up Bashar al-Assad’s brutal dictatorship.
With all this going on, I thought it a little strange that Bloomberg View columnist Eli Lake would dedicate his latest column to something much less dramatic: Iran’s military budget. But here’s the catch; Lake is distraught not because Iran is spending money on its military—though surely that doesn’t please him—but because a small portion of the budget came from the United States.
Lake’s column is titled “U.S. Taxpayers Are Funding Iran’s Military Expansion.” There’s something to that, but Lake doth protest too much. Let’s let Lake explain, with my emphasis:
Republicans and some Democrats who opposed Obama’s nuclear deal have argued that the end of some sanctions would help to fund Iran’s military. But at least that was Iran’s money already (albeit frozen in overseas bank accounts). The $1.7 billion that Treasury transferred to Iran in January is different.
A portion of it, $400 million, came from a trust fund comprising money paid by the government of Shah Mohammad Reza Pahlavi, a U.S. ally, for arms sold to Iran before the 1979 revolution. Those sales were cut off in 1979 after revolutionaries took over the U.S. Embassy in Tehran and held the American staff hostage for 444 days. The remaining $1.3 billion represents interest on the $400 million principle [sic] over more than 36 years.
In other words, the $1.7 billion payment wasn’t actually that different. Like the frozen funds released, it was actually Iranian money, but with interest. The money belonged to the Iranian government under the Shah—who was both a U.S. ally and a brutal dictator. His reign was propped up by anti-democratic U.S. support and, yes, the very arms purchases the Iranian government handed over $400 million to the Americans to make. The U.S. was by far Iran’s largest arms supplier, and “Iran is the largest single purchaser of U.S. military equipment,” according to a 1976 congressional report. That must’ve been nice for the U.S. arms industry, but it wasn’t so nice for the Iranian people. The revolution, as Lake says, ended this boon to U.S. weapons makers. Though the U.S. was no longer delivering weapons, it nonetheless held on to the money Iran had sent the U.S. to buy them.
Lake, for his part, seems to be outraged about a handful of things: that the U.S. is paying back Iran money from its military budget that the U.S. seized 36 years ago; that Iran then took this military money and put it into its current military budget; and, most of all, that the U.S. paid Iran back with interest.
Let’s talk for a moment about Iran’s military budget. The article Lake quoted is from Saeed Ghasseminejad of the neoconservative Foundation for Defense of Democracies. Ghasseminejad wrote that Iran would see a “90-percent increase in military spending compared to the previous year”—owing, he said, to the nuclear deal. But is the 90-percent figure right? Ghasseminejad puts current spending at $19 billion, but according to Politifact some recent expert analyses put Iran’s recent annual military budget at $14 billion or perhaps $17.7 billion. The Congressional Research Service estimated Iran’s 2015 military budget at around $15 billion. Either way, Iran’s military budget is a fraction of what other U.S. allies in the Middle East spend and an even smaller fraction of our own massive American military outlay.
That aside, we are left with the issue of the U.S. payment of interest.
Perhaps Lake believes in a strict reading of sharia-compliant banking, where no interest can be charged (if so, Eli, I’d like to borrow some money). Barring that, however, it only makes sense that money wrongfully seized—that is, money that belonged to Iran—would be paid back with appropriate interest. This is an accepted norm for just about any interaction in modern society where one party holds another party’s money. Since the U.S. government, which is funded by the U.S. taxpayer, was holding Iran’s money, the U.S. government, and therefore the taxpayer, is responsible for paying the interest.
When it’s been 36 years, that interest adds up to a lot of extra dough. I used a simple compound interest calculator on the Internet and found that for a $400 million principal (which Lake has incorrectly rendered as “principle”), a rate of 4.11 percent would give you a total of $1.7 billion over 26 years. That doesn’t seem outrageously high. When Secretary of State John Kerry announced the settlement, he said, “Iran’s recovery was fixed at a reasonable rate of interest and therefore Iran is unable to pursue a bigger Tribunal award against us, preventing U.S. taxpayers from being obligated to a larger amount of money.”
Kerry, at the time, called the interest rate a “compromise”—and that, I suspect, is exactly the problem for Lake. Ideologues are not prone to compromise. This aversion is at the heart of much neoconservative disdain for any diplomacy with Iran: in their fevered imaginations, the U.S. is tough and strong and ought to just give diktats to other countries. There can be no compromise whatsoever, even to stymie Iran’s nuclear program or if legitimate debts are owed.
The claim at hand—the $400 million, or $1.7 billion with interest—was wending its way slowly through The Hague, and it was about time it was settled. The principal was clearly Iranian money; if the U.S.’s possession of it had continued, the only likely result would have been an even larger interest payment.
So, what’s Lake’s alternative? Perhaps he thinks the U.S. should just hold Iran’s money indefinitely and run up a bill. For my part, I’m glad to see another outstanding issue between Iran and the U.S. resolved. Lake can, of course, write about whatever he wants, but the outrage here is a tempest in a teapot. Lake’s petty objections to paying back owed money aside, there are serious issues with Iran that need to be dealt with.
Photo: Eli Lake