America’s decision to impose sanctions unilaterally on Iran is not only a diplomatic gamble but also an economic one. The purpose is to leave Iran diplomatically isolated and its economy damaged. The risk is that the US ends up suffering a similar fate.
Five years ago, when America invaded Iraq, it had a strong dollar behind it and no real global rivals. That gave it a virtual free hand to act around the world at very little risk to itself.
But that is no longer the case.
The US hopes its decision to act alone after months of stalled United Nations (UN) negotiations will encourage other countries, particularly China and Russia, to put pressure on Iran to dismantle its nuclear facilities. No one wants a Middle Eastern war or a nuclear-armed Iran for that matter.
But as with all high-stakes poker, the credibility of the player matters as much as the strength of the hand.
And while no one disputes America’s military might, its credibility has taken a battering since 2003, partly due to mistakes made in Iraq. Today, the dollar is weak and getting weaker, the US economy is slowing and the US faces intense competition for resources from increasingly powerful global competitors. All these problems require global solutions that are at odds with America’s unilateral approach to foreign policy.
In the financial sphere, the risks are clear. If the US remains isolated, it will be harder to achieve an orderly rebalancing of currencies to allow the US to reduce its trade deficit and maintain growth without triggering inflation. Of course, if it comes to war, the economic consequences don’t bear thinking about. The stakes could not be higher.
But is President Bush a good gambler?