13th annual Municipal Finance Conference


13th annual Municipal Finance Conference


On Balance, A Good Deal For Israel

The terms of the interim deal between the P5+1 and Iran appear to be significantly better from the Israeli perspective than the terms floating around just two weeks ago. In fact, most of Israel’s main previous concerns have been addressed.

In particular, based on the fact sheet distributed by the White House, the deal curtails further construction at the heavy water reactor at Arak — key to a plutonium route to a nuclear bomb, it neutralizes the stockpile of near-20% enriched uranium, and it imposes daily inspections on the key Iranian facilities, in particular those at Natanz and Fordow. Much remains for a final deal, and especially dismantling Iranian capacity to return quickly to a nuclear weapons route, but in the interim, it appears that Iran will be further away, not closer to nuclear weapons capabilities.

However, the Israeli reaction, as Israelis awoke to the news, was very negative. Prime Minister Benjamin Netanyahu called the deal a “historic error” at the start of the weekly cabinet meeting Sunday morning, and senior ministers join in. Minister of Defense Moshe Yaalon declared that the agreement was a “surrender to the Iranian charm and smiles offensive.” Foreign Minister Avigdor Lieberman declared the deal to be Iran’s “biggest diplomatic victory since the Khomeini revolution.” And Minister of Tourism Uzi Landau, of Lieberman’s party, even claimed that the “winds of Munich are blowing from Geneva,” alluding to the appeasement of Nazi Germany in the Munich Agreement of 1938.

Substantively, the Israelis are concerned that low-level enrichment will proceed. For the Israelis, the deal gives Iran its first international license to enrich — the “right to enrich” in the Iranian interpretation. They are further concerned that the Iranian commitments in the deal are all reversible, while the sanctions relief may prove difficult to turn back. They also note the lack of physical dismantling of the program, although Iranians are committed to physically detaching elements of the enrichment process as a temporary assurance to the P5+1.

Of course, absent from these critiques is the fact that the most important sanctions, including those on banking and international financial transactions as well as those on oil exports, are still in place, and will remain biting. Furthermore, the stockpile of low-level enriched uranium at the end of the interim phase is limited to its present level, in addition to all-important neutralization the higher-level enriched uranium.

Are the Israelis simply opposed to any deal?

The short answer is no. Most Israelis would far prefer a deal that would truly constrain Iranian progress to a military strike, certainly one that Israel had to carry out on its own. And yet the Israeli leadership, especially under Netanyahu, is wary of any deal short of their maximum demands, a full dismantling of Iran’s nuclear capabilities.

Moreover, Israel sees itself as the necessary “bad cop” in these negotiations, tasked with bettering the terms of any deal, even at the cost of appearing intransigent. Israel in this view provides the radical flank for the world powers, allowing them to harden their stance. Israel’s frequent warnings of a potential attack on Iran’s nuclear sites might be viewed through this lens as well, as I argued here. What the Saudis do privately and through thinly-veiled diplomatic steps, Israel must undertake publicly, many feel.

Indeed, one might argue that the barrage of unfettered Israeli criticism two weeks ago may have helped shape the outcome today; that without Israel’s alarm, France and other may not have rallied to toughen the terms. Whether or not this is the case — and this depends on the precise details of the negotiations, about which we do not know much at present — Israel might have opted to declare victory today.

But declaring victory now would undermine the long game Israel is playing, with the permanent deal due in six months and the real outcome still in play. Hence the clearly coordinated public messaging by the Israeli leadership, often down to the talking points. The staunchly pro-Netanyahu publication “Yisrael Hayom” (funded by Netanyahu’s American donor Sheldon Adelson and distributed free of charge) came out with scathing critiques of the deal, focusing mostly on the continued low-level enrichment. Along the with other cabinet ministers, even the moderate Minister of Finance Yair Lapid declared the deal to be a bad one, which “doesn’t dismantle even one centrifuge,” but added that Israel now faces two tasks: shaping the permanent deal and — notably — repairing relations with the United States.

But in another sense, any deal between the world powers and Iran worries Israel as well as Iran’s Arab neighbors — most notably Saudi Arabia. Underpinning the Israeli caution is not just the concern over Iran’s nuclear program, but Iran’s wider aims in the region. For decades, Israel has been contending with Iran’s proxies, most notably with the Lebanese Hizballah, with Iran’s support for terrorism in Israel, via the Palestinian Islamic Jihad and, at times, Hamas, and with Iran’s international terrorism, including against Jewish targets worldwide. From this perspective, a rapprochement between Iran and the world powers, short of a deep transformation in Iran’s regime, is unwelcome. The words of Iran’s Supreme Leader this week did little to suggest a fundamental change in Iran, when he called the Israel prime minister the “rabid dog of the region” and said that “Zionist officials cannot be called humans, they are like animals, some of them,” adding that “(t)he Israeli regime is doomed to failure and annihilation.”

At present, Israel walks a fine line between its steadfast determination to keep the pressure on Iran, and the real risk of appearing so intransigent that it would reject any deal at all. This risk touches upon the one issue that the Israeli leadership sees as strategically equal to the Iranian nuclear program: Israel’s relations with the United States.

It would benefit Israel and the world powers if in the coming months, as the permanent deal is negotiated, relations between Israel and the powers, and especially the United States, are conducted in a less public and more closely coordinated manner.