Full report
Three Major Threats to the Long-Term Implementation of the Iran Deal
Commentary by Richard Nephew • September 10, 2015
Energy Explained
Get the latest as our experts share their insights on global energy policy.
China’s Slowing Oil Demand Growth Is Likely to Persist and Could Impact Markets
China’s demand for oil, long an important driver of global oil demand growth, slowed dramatically during January–September 2024. Between 2000 and 2023, China accounted for 50 percent of...
Podcasts
Hear in-depth conversations with the world’s top energy and climate leaders from government, business, academia, and civil society.
Where Climate and Trade Policy Meet
In passing and signing the Inflation Reduction Act in 2022, Congress and the Biden administration infused hundreds of billions of dollars into the energy transition. It was the...
Events
Find out more about our upcoming and past events.
November 15, 2024
• 10:00 am - 11:00 am
est
Institute of Energy Economics Japan: Outlook 2025
A presentation and discussion of the IEEJ’s (Institute of Energy Economics, Japan) Outlook 2025: “How to Address the Uncertainties Surrounding the Energy Transition”
Event
• Center on Global Energy Policy
1255 Amsterdam Ave
1255 Amsterdam Ave
Three Major Threats to the Long-Term Implementation of the Iran Deal
Commentary by Richard Nephew • September 10, 2015
On September 8, the Obama Administration reached a critical threshold with respect to its ability to bring the Joint Comprehensive Plan of Action (JCPOA) into effect, with 41 Democratic Senators having committed to support the deal in future votes. This level of support ensures President Obama holds a decisive margin in the legislative process and that even if a joint resolution of disapproval is passed by the Congress on largely partisan terms, his veto will not be overridden.
But, as support for the deal was closing on this threshold, opponents were already turning from their initial focus on killing it in Congress and toward a more subtle – if still transparent – approach: legislating new sanctions and unilateral modifications to the terms of the deal.
This started with a move in June to consider the extension of the Iran Sanctions Act (ISA) nearly 18 months before it is set to expire in December 2016. And, it has accelerated with the drafting of bills that would seek to establish conditionality on the implementation of the JCPOA or impose new sanctions on Iran for its support for terrorism or violations of human rights. Though certainly some good faith supporters of these modifications and sanctions exist, it is hard to escape the logical notion that these efforts are intended both box in the Administration in the implementation phase and provide Iran with incentive to halt its part of the bargain.
Either would be a tactical and potentially major strategic mistake. Now that the implementation of the JCPOA is assured, it would be in the US interest for its erstwhile opponents to support its implementation in a robust fashion, showing the kind of solidarity that used to mark foreign policy matters in the US political system. Confusion as to the credibility of US commitment to the deals that it makes is inimical to future negotiations – which will doubtless be conducted by Presidents of both of our major political parties – and runs the risk of the failure of the JCPOA being blamed on the United States. This threat, which JCPOA advocates have strongly warned against, will not go away with the conclusion of the present Washington drama. Far from it: with the deal in place, there will be a need for all sides to both comply with its terms and be seen as complying with its terms in order to avoid problems in the future.
This post will examine three potential paths to a crisis in the implementation of the JCPOA and what must be done to avoid them.
Implementation Crisis 1: Iran cheats and gets away with it.
Far and above any problems with US implementation, there remains a significant risk that Iran will cheat on the terms of the JCPOA. As the Obama Administration has taken pains to emphasize, it does not trust Iran to keep its word with respect to the JCPOA. Instead, there is an expectation shared between advocates and skeptics of the JCPOA that Iran (or, at a minimum, some people in Iran) will look for opportunities to cheat.
This is in part because the constraints on Iran are significant and will stand for a long period of time. Iran has some incentive to try to find ways in which to advance its centrifuge research and development while it is being restrained, in part because it knows that the restraints it has accepted will render its advanced centrifuge program impotent for a decade and nascent for potentially a decade beyond that. Put more simply, Iran is operating 1970s uranium centrifuges now, it will continue operating only those in any significant fashion until 2023. To put this in perspective, it is the equivalent of trying to keep a 1976 Oldsmobile Cutlass in working order and your primary means of transportation. Some in Iran will chafe under these restrictions, as well as others restrictions governing the import of materials or potentially the production of enriched uranium. This could result in implementation violations. Moreover, and compounding the problem, some violations could also occur as a result of neglect or misunderstanding of the terms of the JCPOA by lower levels of the Iranian scientific establishment.
Whatever the origin, the best response to such problems is swift remediation via the dispute resolution process agreed to in the JCPOA. This could take many forms, including: 1) taking one-time corrective actions; 2) greater transparency steps being taken on a voluntary basis by Iran; 3) imposing limitations on Iranian nuclear-related procurements for an agreed period of time; 4) the reimposition of limited sanctions by the United States and its partners.
The facts of the case would determine the necessary action. But, either way, the critical element will be a response by the United States and its partners, just as took place during the Joint Plan of Action (JPOA) implementation phase. During the JPOA, the United States expressed concerns with several reports of Iranian implementation problems, starting with the attempted installation and operation of the IR-8 centrifuge in December 2013. But, a major crisis was avoided by taking on those problems quickly and decisively with resolutions agreed to by the JPOA participants.
Implementation Crisis 2: The United States imposes new sanctions that Iran believes are inconsistent with the JCPOA, potentially prompting Iranian implementation halt.
Much as US observers are convinced that Iran will cheat on the deal, Iranians both supportive of the deal and opposed to it are certain that the United States has not abandoned its goal of regime change and that – as a consequence – the United States will seek to find ways to apply pressure on Tehran to that end notwithstanding the JCPOA. It is for this reason that text was negotiated into the JCPOA that would seem to preclude any attempt to reimpose any of the sanctions halted under its terms. Iranian negotiators were (and likely are) convinced that even if the Obama Administration held to its commitments, there could be no guarantees made with respect to Congress or future US presidents. As such, they sought to ensure that any implementation violations by the United States would be definitive so that they could (like the United States) make the best case to the international community should the deal collapse.
Some have suggested that this is a material defect in the JCPOA or that the text could have been reasonably written to ensure that Iran fulfills its commitments even if the United States abandons its side of the bargain. Such a view suggests a fundamental lack of understanding as to how negotiations work among willing protagonists. Worse, it suggests a lack of understanding as to how the real world works. Even if Iran had agreed on paper to fulfill its commitments in perpetuity regardless of US action, there would always be the possibility that Iran would reconsider this decision in the face of outrageous US provocation. Opponents of the deal have called this “nuclear blackmail,” but it is really just common sense: if one side of a bargain feels that the other has stopped doing its part, then it may reconsider its position in response.
Theory aside, there is a very real possibility that the United States could – accidentally or intentionally – goad Iran into halting its nuclear steps at some point between now and the end of the deal. The imposition of new sanctions is the most likely provocation, though other US policy decisions could also be interpreted by Iran as a violation of the more general commitment in the preamble of the JCPOA to “implement this JCPOA in good faith and in a constructive atmosphere, based on mutual respect, and to refrain from any action inconsistent with the letter, spirit and intent of this JCPOA that would undermine its successful implementation.”
Does this mean that the United States should refrain from any response to other problematic Iranian activities or its misadventures throughout the Middle East? Certainly not, and both the Obama Administration (most directly in the President’s letter to Representative Nadler and in Secretary Kerry’s speech on September 2) and deal supporters such as myself have argued strongly in favor of a robust response to such activities by Tehran. In fact, some supporters have also argued in favor of a standing Authorization to Use Military Force (AUMF) in cases of severe Iranian violations of the JCPOA and the expansion of US sanctions to combat Iranian regional activities, positions that I would endorse. But, such activities must be undertaken with full recognition that what Washington deems as reasonable steps, Iran may view as otherwise.
With this in mind, it is important to take a sensible, proportional approach going forward, one that is based on a realistic understanding of the practical consequences of our actions.
For example, there is consideration now of seeking the reimposition of restrictions on Iran’s ability to engage with the international financial sector in a broad way. Some have speculated whether sanctions on the Central Bank of Iran (CBI) ought to stand or be reimposed due to the CBI’s facilitation of nefarious non-nuclear activities. Doing so would substantially undermine the economic lift that Iran would enjoy under the terms of the JCPOA and, proponents would argue, this would limit both Iran’s economic resiliency and ability to support terrorism.
But, as I have written about extensively (e.g. here and here), it is simply not true that cutting off Iran’s ability to engage the international financial system will cut off its ability to support terrorism. Tehran has been under tremendous pressure in this regard since 2006 but has continued to support groups like Hezbollah without fail. Reports that Iran had to scale back its support due to lower resources substantiate to some degree the argument that reducing Iran’s available national revenues can have an effect on its support for terrorism. But, this had much more to do with restraints on Iran’s ability to sell oil and general economic outlook than it did Iran’s ability to access the international financial system overall. Even then, Tehran continued to support these groups, even as it entered recession and lost billions in annual revenues. Iran demonstrated its willingness to sacrifice “butter” in the name of “guns,” and it is pure speculation on the part of advocates of continued strategic-level economic sanctions that Iran could have been convinced of otherwise given how cheap it actually is to support terrorism. Compounding this problem is the reality that most governments around the world have a different view than the United States on the Middle East and Iran’s place in it. For example, the United States designated Hezbollah a terrorist organization in 1997; the EU only designated its military wing as such in 2013. Maintaining – or reimposing – strategic level economic pressure in order to target Iranian support for terrorism would not be an easy sell internationally, in addition to being an unnecessarily provocative to Iran.
Instead, what is required is a much more nuanced and thoughtful approach to sanctions and Iran policy more generally. Using targeted sanctions to cut-off known and identifiable nodes for moving money is more effective for counterterrorism purposes than an economic blockade of Iran. This means that we ought to focus on investigating such nodes and preparing clear, substantive cases to defend our decision to impose sanctions, which can also be used to advocate for similar steps to be taken by US partners. Similarly, we should consider creating new authorities for a comprehensive secondary sanctions regime to address Iran’s import and export of arms.
As the Administration has pointed out, the only sanctions being relieved pursuant to the JCPOA that pertain to Iran’s acquisition or transfer of arms abroad are those in the UNSC Iran-focused sanctions regime. US sanctions will remain in effect – as will UN resolutions governing transfers to Hezbollah and other terrorist groups, and the Houthis in Yemen – and should have an impact on arms transfers. It would be prudent to consider preparing a set of sanctions that would penalize any transfer of any arms to or from Iran, targeting both the Iranian actors as well as their foreign suppliers or customers. Russia and China might criticize such an approach and court the imposition of sanctions against their companies, but a dedicated approach to curtail such transfers could be more effective now that the nuclear deal (and its complicated diplomacy) is out of the way. If Russian, Chinese or other companies ignored our sanctions, then they would be subject to penalties, a situation no better or worse than the status quo prior to the JCPOA. Either way, Iran would find it far more difficult to argue that its broader economic interests were being undermined with such an approach and to defend such activities. It also means that it would find a decision to withdraw from the JCPOA in response a far taller order, and it would be a harder sell to those nations which the United States would count on to introduce snap-back sanctions. (It is also worth noting that Iran may also face pressure from its international partners to moderate its support for terrorist groups and others so as to ensure that US can be satisfied with such a careful, nuanced approach.) And, beyond sanctions, a broader strategy must also be undertaken to confront Iranian support for terrorism in a regional context.
Likewise, there are more thoughtful approaches that can be undertaken to respond to Iranian government violations of the Iranian people’s human rights. Sanctions already exist that target the assets of government officials responsible for such violations as well as their travel to the United States. But, more can be done to stigmatize such individuals, including seeking asset freezes and travel bans for them in Europe and their family members around the world (though exceptions can be made for those family members who have publicly dissented from their relation’s activities and other special cases). Again, such sanctions would proportionally target Iranian officials for their bad conduct, casting aspersion on their names and ensuring that they themselves are limited in their ability to take advantage of any economic openness that the JCPOA may bring.
Overall, the United States must ensure that it does not given Iran an excuse to walk away from the deal in order to apply sanctions that would arguably do little good in affecting the root behavior for the measures and could instead prompt a renewal of the nuclear crisis the JCPOA resolves.
Implementation Crisis 3: Overheated Iranian popular expectations for economic resurgence lead to implementation collapse in the out-years.
The most serious risk to the JCPOA’s implementation is one on which is getting too little attention: that despite the best efforts on all sides to see the deal through, Tehran turns against it in a flailing bid to maintain popular support because Iran’s economy continues to struggle.
It is entirely conceivable that Iran’s economy will improve as a result of the JCPOA, but nowhere near the degree to which Iranian optimists (and, ironically, US JCPOA skeptics) project. Iran continues to have structural problems in its economy that the JCPOA will help the Iranians to fix, but not resolve directly. Among others, the IMF has long reported on the various challenges facing Iran – from an unwieldy bureaucracy with far too much red tape for effective business operations to inefficient subsidies requiring further reform – and how little to do with sanctions many of them have.[1] Sanctions relief may be an essential condition for Iran to fix its economy, but it is far from given that it is a sufficient condition.
As a consequence, it is possible that after a few years of grace, domestic critics of the Rouhani government (assuming he engineers re-election in June 2017 in part on the basis of expected economic performance) will latch on to the JCPOA as a failed endeavor. US sanctions posture in the intervening period could help hardliners make this argument by suggesting that US implementation of the JCPOA has been insufficient and, possibly, that the United States itself has violated the terms of the JCPOA through even a careful application of sanctions tools as outlined under the second potential crisis I described.
In such an environment, it is not difficult to see either a Rouhani government repudiating the JCPOA to quell domestic opposition. Nor is it difficult to imagine the Supreme Leader or a successor government doing the same to create distance from Rouhani.
The solution to this problem is not obvious. Avoiding the use of sanctions altogether in order to avoid giving bad arguments to future Iranian malcontents is not sage statecraft. However, it is also unwise to plunge forward in a foolhardy effort to apply as much pressure on the Iranian economy as possible when, as mentioned above, such pressure may be ill-suited to its task. Rather, what is probably best for all sides is to ensure a clear and public record exists as to mutual efforts to resolve challenges as they emerge, and for the United States to be in a position to demonstrate both to Iran and to the broader international community the moderate, sensible course taken with respect to its sanctions regime in the JCPOA context. As with potential crisis 2, this is not to say that US actions in this respect might not have negative consequences, but rather to argue in favor of care and prudence being taken to minimize this risk.
Regardless, it is evident that – through the JCPOA – there will be a tension with respect to sanctions. Businesses will need to operate in Iran, but will need to take care to avoid contributing to Iranian support for terrorism or violations of human rights. Sanctions will need to be imposed, but without giving Iran an excuse or a reason to withdraw from the nuclear deal. And, Iran will need to avoid prompting the United States to take sanctions actions that are seen as justified by the international community and which cast a pall over business dealings with the Islamic Republic. Though the chess match of Washington politics may be coming to an end, it is only beginning with respect to the implementation of the JCPOA.
[1] International Monetary Fund, “2014 Article IV Consultation—Staff Report; Press Release; And Statement By The Executive Director For The Islamic Republic Of Iran,” April 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr1493.pdf.
***
Richard Nephew is Director of the Economic Statecraft, Sanctions, and Energy Markets program at Columbia University’s Center on Global Energy Policy, and the former Deputy Coordinator for Sanctions Policy at the State Department. The views expressed are his own.
Relevant
Publications
Climate Action in Fossil Fuel Sector Has ‘Stalled’, Says Report
Also in today’s newsletter, why private capital will not suffice for Africa’s climate needs
Gulf Renewable Power Tracker
The Gulf Renewable Power Tracker is an interactive and visual database of Gulf state-owned and state-related renewable power investments and developments on a global scale.
Datasets
by Karen E. Young • November 07, 2024
Saudi Arabia’s Renewable Energy Initiatives and Their Geopolitical Implications
Saudi Arabia is experiencing a significant economic transformation under its Vision 2030 plan to reduce the country’s dependence on oil revenues by diversifying its economy. The Saudi government’s...
