Iran and The Israeli Straddle – Round 2

This post is, like a Swiss Army Knife, many things in one. It is part mea culpa, part investment strategy update (not really, never take anything this blog posts as advice, good or otherwise, etc.), and part criticism of the Obama Administration.

Mea Culpa: When a deal was reached with Iran regarding the status of its nuclear program, we offered a fairly favorable review of the results. We should have read the fine print. Yesterday, from Reuters: ” Iran and the European Union will hold a two-day meeting in Geneva on Thursday to discuss implementing a landmark nuclear deal between the Islamic state and major powers, Iranian state news agency IRNA reported on Tuesday.” This is…erm…bad. Achieving a deal isn’t really worth much if it never actually gets operationalized.

Investment Strategy Update: When the deal was first announced we concocted a stunningly brilliant investment thesis which we cheekily named “the Israeli Straddle”. The idea was that further talks would likely take the full six month allotment, at the end of which either a deal would be announced and Israeli assets would soar, or the talks would collapse and Israeli assets would follow suit. To prepare appropriately, we suggested May 2014 options on Israeli assets might not be a bad buy, counting six months from late November (when the deal was announced). The general thesis holds, but any options purchases now have to be delayed until implementation is announced.

Obama Administration Criticism: How can you leave something like implementation out of the deal? This seems like a crucial piece of actually getting any agreement to work in any helpful sense of the word. State Department spokesperson Jen Psaki’s “I guess” regarding when the six-month clock (which includes the actual freezing of the Iranian nuclear program) would start is not particularly reassuring.

What’s perhaps more surprising than the fact that implementation measures were left out of the announced deal is that both Obama’s and the deal’s opponents (as best I can tell) have not made a huge deal out of it. I suspect this is true for two related reasons. First, they recognize that the deal and its current lack of implementation doesn’t do anything to change the status quo. The status quo is not ideal (hence the efforts to negotiate it out of existence), but it’s one that America and the rest of the Middle East has accommodated for years now. Second, they recognize that while opposition to the deal may be politically expedient, openly supporting the logically necessary alternatives such a position requires is not. If you oppose this deal, you cannot help but endorse one of the following positions:

1. We should have negotiated a different (presumably better) deal (sure, I guess. Maybe. It’s hard to see what else the Iranians would have been willing to give up that they haven’t already)
2. We shouldn’t have negotiated any deal – tougher sanctions would have convinced Iran to give up more (good luck getting Russia and China to sign up for those, and if this deal fails we are no more or less capable of imposing tougher ones unilaterally)
3. We shouldn’t have negotiated any deal – Iran’s nuclear program needs to be destroyed by force (good luck selling the American people on another war in the Middle East. If we can’t even muster the support for pinprick strikes in Syria, what are the odds of pulling off the massive air strikes that would be necessary to degrade Iranian nuclear capabilities?)
4. We shouldn’t have negotiated any deal – a nuclear Iran is nothing to fear and could increase regional stability (we’ve voiced our doubts about this claim before, and domestically it’s a political non-starter)

Those are all a combination of politically impossible or enormously unappealing. So it’s perhaps not a surprise to see Obama getting a temporary pass on the implementation miss – nobody (with good reason) wants to argue for doing it differently.