The uncertain future of the Iran Deal

Spearhead Analysis – 17.09.2018

By Hira A. Shafi
Senior Research Analyst, Spearhead Research

john kerry iran collusionThe US re-imposed the first round of sanctions on Iran on the 7th of August 2018, the second round is due to snap back on the 5th of November 2018. Following the announcement of US withdrawal from the deal, President Trump stated that Iran continues to threaten the interests of US and its allies. Whereas, The White House stated that “President Trump will continue to stand up to the Iranian regime’s aggression, and the United States will fully enforce the reimposed sanctions.”

European diplomats on their part have vowed to preserve the nuclear deal. The joint statement from the European diplomats, stated that the JCPOA is not only working to deliver its goal, but the UN inspectors have also confirmed in eleven consecutive reports that Iran is adhering to the deal.

Russian officials have also denounced the US withdrawal from the JCPOA and have termed it as a violation of UNSC resolution 2231. The Russian Foreign ministry said that the international community shouldn’t allow the Iran deal to be “sacrificed to American attempts to settle scores with Iran on issues unrelated to the Iran Deal”.

The Iran Deal is an accord between Iran and the U.S, Russia, Britain, Germany, France, China and the European Union. The US unilateral withdrawal from the deal continues to pose legal questions on US actions. However, owing to the US clout over global economic institutions, it is yet to be seen if the collective efforts of the other signatories can assuage the spirit of the deal- Especially since the US has stated that those who “fail” to abide by the US sanctions against Iran will “risk severe consequences.”

So far, the EU has instructed European firms not to comply with the sanctions and has allowed them to sue in court to recover damages resulting from US sanctions and has created legal frameworks to protect European businesses.  In the wake of the recent Iranian economic crisis, the EU also sent Iran £16.3million in aid to offset the impact of the sanctions. It is said that Russia and Iran will intensify work with Europe and China in the near future to counter US attempts to undermine the deal. Some are encouraging opening alternative payment channels that are not subject to US sanctions.

Despite that, many investors are spooked by doing business in Iran. Total has recently pulled out from developing South Pars gas field in Iran. Reportedly, Airbus may halt the planned delivery of 100 passenger jets. Boeing has also lost a $20bn contract in Iran. Some are of the view that EU lacks the political ability to counter US sanctions and protect businesses. While on the other hand, the withdrawal of many western businesses is creating a space for other regional powers to invest in Iran. India is reportedly looking for alternative payment methods to preserve its oil trade with Iran. Turkey says it will not comply with the sanctions and continue trade with Iran. China National Petroleum Corporation- has reportedly offered to replace Total’s share in the South Pars field.

Iran’s official unemployment rate is 12 percent. Iran is also witnessing difficulties in harnessing its Youth bulge which is said to be at a 25% unemployment rate. The recent developments post sanctions- have sparked a series of local agitations. This has also created shifts in Iran’s political landscape and has added weight to the stances of the ‘hardliners’ while enhancing political pressure on the Rouhani administration. Iran’s supreme leader recently warned that Iran might abandon the nuclear deal and casted doubt on the ability of European states to save the deal.

There is also a growing perception that US may be creating preconditions to offset a regime change by fueling socio-economic discontent within Iran.

The recent efforts by John Kerry indicate that some segments in the US continue to support the deal. However, the Secretary of State Mike Pompeo was quick to denounce Kerry’s efforts as ‘inconsistent with the US foreign policy’.

It is unlikely that the US would retreat from its decision to re-impose sanctions- in the foreseeable future. Instead, it may try to bring Iran to the negotiating table to broaden the scope of the deal in ways which halts the Iranian ballistic missile program and removes the sunset date on Iran’s nuclear enrichment capacities. Some point out that a US push for re-negotiating a deal makes little sense since Iran has already shut down its nuclear programme and reportedly, after approximately 23 missile tests, the country has not launched a medium nor long-range ballistic missile in more than a year.

It needs to be seen if Iran can successfully lobby with its European partners and pro-JCPOA sectors within the US.

The second situation is the alleged US aspiration to support a regime change within Iran- but such a push may produce unpredictable outcomes and may further embroil the US and regional players into protracted conflicts and regional instability.