The Iran Deal

Spearhead Analysis – 09.08.2018

By Hira A. Shafi
Senior Research Analyst, Spearhead Research

The Iran deal was seen as an important diplomatic achievement of the Obama administration. The JCPOA sought to bring Iran in from the cold- one reason being- to inculcate a positive change in Iran’s alleged regional role. Since the onset President Trump has remained a critic of the deal and has vowed to re-negotiate what he calls a ‘flawed deal’. In the Middle East arena Trump supported cementing of existing ties as opposed to forging new ones.

The traditional regional allies along with voices in the Trump administration are concerned about the future transitions stipulated in the JCPOA– especially the expiration of physical restraint on enrichment after 15 years is seen as insufficient restriction time. It is also assumed that Iran’s alleged role in the Middle Eastern conflicts and its ballistic missile program violates the spirit of the agreement. However, the European signatories of the deal along with IAEA have till date acknowledged Iran’s compliance to the deal.

Iran on its part believes that despite the sanction uplift businesses remain spooked and the country has been unable to maximize on economic advantage of the deal due to US rhetoric. They are also of the view that the ballistic missile program is for the purposes of self-defense and not in the scope of nuclear weapons and JCPOA.

The US and Iran are on a confrontation path and escalation to conflict is possible. Iran is in the region where a mighty Persian Empire once held sway. The US is relying on its capability to project sea based power and its alliance with others who oppose Iran. So far US policy in the region has created more problems than it has resolved.

The JCPOA TIMELINE:

Source: Brookings

On 8th May 2018, Trump officially pulled out of the Iran Deal and called for restoring US economic sanctions on Iran. This stance was welcomed by US traditional allies in the Middle East. Whereas, the European partners lobbied to prevent a total rupture. Soon after Trump’s announcement in May-  President Macron presented Trump with a proposition of carving out a new deal with Iran to tackle the concerns that fall beyond the scope of nuclear weapons. Macron also proposed blocking any Iranian nuclear activity until 2025 and beyond, discuss Iran’s ballistic missile program and look for political solutions to Iran’s alleged role in Middle East conflicts. Iran resisted these proposals and called on the European allies to preserve the deal in its current shape. Reportedly, Iran also stated that it would resume industrial scale enrichment unless Europe provides guarantees to maintain trade ties reinstated under the deal. In line with this, On May 16 the EU began working out an economic plan to keep the Iran nuclear deal alive.

While on the other hand, the US placed several Iranian state groups on its blacklist, for alleged human rights abuses and censorship. The US also announced its own timeline for imposing sanctions on Iran in two phases.

The first phase imposed on 7th August 2018 entails: 

  1. Blocking Iranian purchase of US currency.
  2. Sanctions on Iranian trade in gold and precious metals.
  3. Sanctions on sale of auto parts, commercial passenger aircraft and related services.

The second phase is due to be imposed in November- which aims to restrict sales of Iranian oil and petrochemical products and banking transactions. Trump has also stated that Individuals or entities that fail to wind down activities with Iran risk severe consequences.

The United States and Iran have remained embroiled in exchange of heated rhetoric especially over US talks of blocking Iranian oil export lifeline. Iran has often responded with talks of blocking the Strait of Hormuz. Reportedly, Iran recently conducted naval exercises in the strait as a show of power while the US navy signaled it was ready to confront Iran militarily in response to ensure freedom of navigation.

The Iranian socio-economic situation:

The news of sanctions has incited a wave of unrest in Iran, sporadic protests have been breaking out since January 2018. The protestors are denouncing corruption, mismanagement and reversion to tight economic conditions. Recently, the Iranian Rial hit an all-time low in the wake of US Treasury Department initiatives to cut off Iran’s access to the dollar.

The Iranian government is currently working on a financial rescue package and has recently approved plans by the Central Bank of Iran to strictly limit official expenditures, tighten the process of allocating foreign currency to businesses and crack down on corrupt practices and currency manipulation.

Iran is also aiming to sell as much oil as possible before the second phase sanctions hit in November.

The talk of sanctions on Iranian oil has recently caused a surge in oil prices- some expect this situation to continue. Many are of the view that the near future envisions Iranian oil to be replaced by US shale and Saudi oil.

The Current Situation:

A few days prior to the recent re-imposition of sanctions, Trump showed a surprising willingness to talk to Iran. It was seen as a last opening window for Iran to renegotiate the deal before the sanctions officially snap back. The Iranian leadership did not respond to the offer and it has been noted that Rouhani’s recent rhetoric is largely in line with the hardliners- the Iran expert at Crisis Group –Ali Vaeez– foresees this stance to solidify. Many are of the view that the failure of the deal has adversely impacted Rouhani’s political legitimacy back home, some have also cautioned that the current US pressures would likely find its reaction in more legitimacy for the hardliner elements in Iran. 

The US on its part claims that these pressures are aimed at changing the behavior of the Iranian role in its alleged regional role and to make Iran re-negotiate the JCPOA. While, the Iranian perception is that the US is encouraging regime collapse and unrest by inciting economic insecurities.

The first set of sanctions snapped back on the 7th of August 2018, the EU on its part issued a Joint Statement denouncing this development. Alongside EU’s blocking statute in support of the Iran nuclear deal has also been enforced- aimed at blocking the effects of U.S. court actions in Europe and allowing European firms to recover damages arising from the sanctions from anyone who causes them. However, there is an apprehension regarding the efficacy of the blocking statute, as many businesses and banking channels globally are spooked by US sanctions.

It is yet to be seen how Iran would tackle this wave of challenges- so far re-negotiating the table with US does not seem to be on the table. Apart from harnessing EU support, in the recent past Iran has also remained actively engaged in reaching out to key regional players- especially China, Russia and Turkey. Shortly after the 7th August snapback, Iran hosted its North Korean counterparts to discuss bilateral ties and regional situation. The regional players should take actions keeping in view their energy insecurities, regional development and trade and regional peace and stability.

As a postscript the US State Department statement on Iran is given below;

“—-and that is Iran and the re-imposition of sanctions that were rolled out today. — the President’s executive order entitled “Re-imposing Certain Sanctions with Respect to Iran” went into effect. The executive order is re-imposing sanctions on Iran’s automotive sector and on its trade in gold and precious metals, as well as sanctions related to the Iranian rial, in support of the President’s decision to cease U.S. participation in the JCPOA. A number of provisions of this order became effective today, while others will become effective on November the 5th. The United States is fully committed to enforcing all of those sanctions.

The United States is seeking, a new deal, rather, that will comprehensively address the Iranian regime’s destabilizing behavior – not just their nuclear program, but also their missile program, their support for terrorism, and their malign regional behavior. The United States is willing to engage in talks with the Iranian regime, but we are looking for a commitment that they are willing to make fundamental changes in their behavior. Iran will need to think seriously about the consequences of its behavior and the consequences that it’s having on its country, and especially on the Iranian people, and they should choose to correct their course of action going forward.

—let’s keep the focus on where it belongs, and that is the Iranian regime. The reason people there are frustrated and have been increasingly frustrated over the years is because Iran has chosen to spend the money and resources and the hard work, efforts of its own people on destabilizing the region. They spend it on foreign adventurism, they spend it on attacks in other countries, going into Syria, going into Iraq, you name it. That is all well documented and very well known, and they’re not giving the benefits of the labor back to their own people. And so I think people choosing to protest are expressing their concerns about the government.

— like to see a change in the behavior of the Iranian regime. We’re not ashamed to say that. We’d like to see a change in their behavior where they take care of their own people, they stop their human rights abuses, and they spend their money on their own people, not the foreign adventurism and not terrorism around the globe

—The United States is seeking new detail – excuse me, a new deal, rather, that will comprehensively address the Iranian regime’s destabilizing behavior – not just their nuclear program, but also their missile program, their support for terrorism, and their malign regional behavior. The United States is willing to engage in talks with the Iranian regime, but we are looking for a commitment that they are willing to make fundamental changes in their behavior. Iran will need to think seriously about the consequences of its behavior and the consequences that it’s having on its country, and especially on the Iranian people, and they should choose to correct their course of action going forward. –“

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