Where does the Nuclear Deal go now?

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The Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Nuclear Deal, is an agreement on the nuclear program of Iran. It was reached in Vienna on the 14th of July 2015 between Iran, the United Kingdom, the Russian Federation, France, United States and China, as well as the European Union. It took more than 20 months of negotiations, which started in November 2013. The negotiations also included a joint agenda between Iran and the International Atomic Energy Agency (IAEA).

Iran agreed to eliminate or reduce most of its nuclear-weapons building capabilities for at least 13 years. Limitations include uranium enrichment capabilities for civilian use for the next 15 years. Additionally, Teheran allowed the IAEA to monitor and verify Iran’s compliance with the deal with unlimited and regular access to nuclear facilities. Some sanction against Iran were to be lifted in exchange for the Iranian nuclear program. All these conditions were signed under an agreement that will expire between 2025 and 2030, something neither Israel or the US like.

President Trump opinion against the Iran deal is nothing new. In fact, when Donald Trump was the Republican candidate running for President, he showed strong disagreement with the deal. Trump stated that “Iran is now… on the road to nuclear weapons”[i] or that the deal was “terrible” move by Obama administration which negotiated the deal “from desperation”. Adding that “We’re giving them billions of dollars in this deal” and that “the Iranians are going to cheat […] they are great negotiators and they are going to cheat”. [ii] More recently, Trump qualified the deal as “a great embarrassment to me as a citizen”. Thus, watch the US pulling out of the agreement should not come as a surprise.

President Trump provided clues for this movement for the past months. It already set the stage for this walk off to happen. Firstly, the president replaced Secretary of State Rex Tillerson, one of the most vocal advocates of the JCPOA, with former CIA director Mike Pompeo, one of its toughest critics. Secondly, the new National Security Adviser, John Bolton, who previously drafted a strategy for getting the US out of the deal (article by John Bolton).

Few days before the US announcing its withdrawal from the Iran deal, Israeli Prime Minister Benjamin Netanyahu accused Iran of lying about its intentions and nuclear deal. Netanyahu exposed, in a very fancy presentation, records from a secret warehouse in Teheran, as well as a huge archive of stolen Iranian nuclear plans. Despite the reveal, Mr. Netanyahu did not provide any evidence that Iran violated the agreement since its entry into effect back in 2016. Additionally, Netanyahu was strongly opposed to the deal since its beginning and hoped to pressure Mr. Trump, but its message was questioned by some key members of the agreement:

  • IAEA: Tel Aviv’s accusations were indirectly denied by the IAEA Spokesperson hinting that Israel had not provided any relevant evidence. The IAEA, which published its last report on Iran on the 22nd February 2018, reported Iran was acting with transparency towards the deal and the IAEA. In fact, UN nuclear watchdog confirmed on 9 May 2018 that Iran is implementing its commitments as stipulated by the deal.
  • EU: The response by the High Representative/Vice-President Federica Mogherini, from the European External Action Service (EEAS – the diplomatic service and foreign and defense ministry of the EU, questioned Netanyahu’s presentation. Firstly, by stressing that Netanyahu did not put into question Iran’s compliance with the JCPOAM. Secondly, by reassuring the nuclear agreement is “…not based on assumptions of good faith and trust – it is based on concrete commitments, verification mechanism and a very strict monitoring of facts by the IAEA[iii], Mogherini said. Finally, by suggesting to Tel Aviv that any non-compliance information should be addressed to the proper, legitimate and recognized mechanism: the IAEA and the Joint Commission of the JCPOA.
  • France: President Emmanuel Macron has warned Trump that US withdrawal “Would open the Pandora’s Box.” told Macron to the German Der Spiegel. In fact, despite Macron’s emphasis on staying in the Iran deal “Renouncing it would be a grave error; not respecting it would be irresponsible”, he criticized it suggesting “Is the agreement enough? Not, is not, given the evolution of the regional situation and increasing pressure that Iran is exerting on the region”. Thus, Macron agreed with the US towards current pact being not enough, and that a new deal should address the long-term nuclear activity of Teheran.
  • United Kingdom: UK Foreign Secretary Boris Johnson declared the UK shares Trump’s concerns on Iran actions in the Middle East, but also stated the agreement is the least bad option to keep Iran at bay. The deal “has helped to prevent a nuclear arms race in the region” he said. At the same time, UK’s government officials already hinted they were looking at options in case the US administration choose to withdraw.
  • Germany: Germany joined the chorus calling the US to stay in the 2015 deal, stressing that if the nuclear deal was to collapse, the Middle East could begin to rearm.
  • China and Russia: Both countries made a joint statement[iv] on the JCPOA saying they want the Iran deal to be left intact. The Russian Foreign Ministry spokesperson Maria Zakharova declared Moscow would consider all changes to the deal to be unacceptable since there are no alternatives to it.

All things considered, the US president announced on May 8, 2018, the withdrawal from the “rotten structure of the current agreement” while calling for a renewed deal with a more robust structure to add more constraints to Iranian regional ambitions (full transcribed speech). This statement came 4 days earlier than the 12th May deadline and opened the door for Congress-voted sanction on Iran Banks and oil experts, as well as companies doing business in Iran. The aforementioned sanctions are due to be reactivated 90 or 180 days after the withdrawal.[v]

 

Trump Iran Deal
Trump showing the presidential memorandum after announcing his intention to withdraw from the deal by Jonathan Ernst – Reuters

 

If sanctions are to be implemented again, then world companies, especially the US European allies, will be forced to stop their current investment in Iran or face the consequences of not complying with US sanctions. Companies around the world now face a dilemma between Washington’s threats and losing their investment.

The initial strategy was to pressure European countries to force them to implement the changes both US and Israel want to implement in the new deal. These changes are three main aspects: removing sunset provisions that limit Iran’s stockpile of low-enriched uranium, the number of advanced centrifuges they can assemble, and addressing Iranian testing of ballistic missiles. The limit to the first two conditions expires, as previously mentioned, between 2026 and 2031.

But even if the US tries to impose new sanctions it will be technically and diplomatically costly. One of the objectives of sanctions is to curb or change someone’s behavior (in this case Iran). Problems appear when the world powers that could implement a significant embargo against Iran are not willing to do so (like France, Germany, the UK, or even the EU as a whole). It will be even harder for the US to impose effective embargo since it is entangled in a trade war with China, and the increasing division between the EU and USA in different areas.

In fact, the President of the EU Commission Jean-Claude Juncker already announced that the Union plans to start a 1996 law that would prohibit European companies from complying with US sanctions on Iran[vi] – the first breakthrough on the fresh US strategy. Juncker declared that “As long as the Iranians respect their commitments, the EU will, of course, stick to the agreement of which it was an architect”.

On the diplomatic side, all signatories announced they will continue with their commitment to the deal and encouraged Iran to remain in as well. But keeping economic benefits out of the deal is an objective Iran needs to keep -since it is giving up its nuclear program in exchange for something. Then, it is expected that the economic logic will determine what both companies and states do in this situation. Probably, most companies will pull out of Iran regardless of the economic help their respective governments give them.

Some European companies already responded with skepticism. Companies such as the German Allianz and the Danish Maersk already announced they plan to close operations in Iran to avoid getting hit by US sanctions. Total, the French oil company, is the largest foreign investor in the Iranian energy sector and has already declared that it would be forced to stop working with the Asian country unless the US granted a specific waiver for its projects there.

The EU must acknowledge that, even though its economy is larger than the US one (when comparing GDP), it has a very limited leverage power regarding economic pressure -the EU has a surplus of $146.8 billion in 2016; while a deficit in services trade of $54.8 billion in the same year.[vii] If EU leverage power is weak, and it can do little to stop firms from running away from Iran, the best the European block could do is to push for reforming the current deal in order to get the US back in the deal.

But not everything is on the side of the US. Even if they got back to the negotiations after reforming the points considered of basic US-Israel security, Washington would face a reputation problem. Trump already isolated the US from the global stage. First was the long-announced withdrawal from the Trans-Pacific Partnership in January 2017. Then, came the withdrawal from Paris Agreements in June the same year. Then the recent trade wars with China, the threat to impose tariffs on European steel and aluminum -as well as to its NAFTA partners. And now the US jumps off the Iran Deal, further showing its isolationist tendencies.

So… what may happen in the upcoming days/weeks/months?

Well, the EU is already showing some early signs of division between those willing to remain inside the deal, and the ones willing to get out from economic pressures. But at the same time, the future possible ruling coalition between the Five Star Movement (M5S) and the right-wing ally Lega Norte are suggesting dropping the Russian sanctions. In an improbable future, the EU may reduce sanctions on Russia as a sign of protest against the US withdrawing from the Iran deal.

At the same time, Germany may be approaching Russia, a direct consequence of the rising trans-Atlantic tensions between the US and the EU. In fact, the Germany Chancellor Angela Merkel headed to Sochi, Russia, on the 18th May 2018 to meet President Putin and hold talks on the Iran deal, Ukraine civil war and the Nord Stream 2 -a key gas pipeline directly linking Germany and Russia which is politically problematic from almost all aspects. Tensions between the US and EU are expected to rise since division is increasing, too. Drop the Nord Stream 2 project is one of the conditions of the US-EU deal that would not include tariffs on steel and aluminum. At the same time, this pipeline would decrease the dependency on gas coming from the pipelines across Ukraine, Poland, and Eastern European states, which would see (and suffer) an increase in Russian influence. Merkel tried to calm Poles and Ukrainians’ fears by stating that “Germany believes Ukraine’s role as a transit country should continue after the construction of Nord Stream 2” and Putin commented that it will continue going through Ukraine “if it’s economically viable”.[viii] An energetic competition may be a possible outcome with Russia getting benefited.

Another front that may be open to the EU is the US demands on increasing defense budget up to 2% GDP (currently 20 NATO members are failing to reach that number). Additionally, president Trump directly complained about Germany needing to show “leadership in the alliance by addressing its long-standing shortfall in defense contribution” to later add that “it’s a very big beneficiary, far bigger than the United States[ix]. Another scenario is that where all the US-EU problems accumulate to a point were relations face an even deeper crisis that expands to NATO.

The President of the European Council, Donald Tusk, commented and criticized Trump last acts with the polemic “With friends like that, who needs enemies?”. Tusk asked the European leaders to reconfirm that the EU sticks to the deal as long as Teheran does. By emphasizing the potential, the EU has, Tusk also attempts to show that the Union must use this potential once it has political union and determination to face the challenge. This crisis can be the trigger the Union needs to start exploiting this potential – it is a challenge to make 28 countries to decide by unanimity certain controversial acts.

Future looks uncertain, and tensions are expected to rise. Washington’s decision to abandon the deal portrayed the US as an international outlier, diminishes trust on international order and on the US. If it will be difficult to convince the Europeans to get in a new deal, imagine bringing Russians, Chinese and Iranians back in the new draft. Additionally, with such retreat from the Iran Deal peace talks over the Korean peninsula will also be threatened since Pyongyang has no reason to trust an agreement with Washington.

Maybe the Iran Deal was bad, but right now it’s the lesser evil scenario. Trump administration should have had a Plan B before withdrawing.


 

[i] Trump targets Clinton on tenure at State Dept – 22 June 2016 http://jewishjournal.com/news/nation/186652/

[ii] Donald Trump Weighs in on Iran Deal – 14 July 2015 https://www.nbcnews.com/politics/2016-election/donald-trump-weighs-iran-deal-n391926

[iii] Response by HR/VP Mogherini regarding Israeli Prime Minister Netanyahu’s presentation on Iran – 30 April 2018 https://eeas.europa.eu/headquarters/headquarters-homepage/43768/response-hrvp-mogherini-regarding-israeli-prime-minister-netanyahu%E2%80%99s-presentation-iran_en

[iv] Joint Statement of the Russian Federation and the People’s Republic of China  – 05 May 2018 http://www.mid.ru/foreign_policy/news/-/asset_publisher/cKNonkJE02Bw/content/id/3209161 (Original in Russian).

[v]EU launches package to counter US sanctions on Iran – 18 May 2018  https://www.ft.com/content/1740471c-5a92-11e8-bdb7-f6677d2e1ce8

[vi] EU to reactivate ‘blocking statute’ against US sanctions on Iran for European firms – 17 May 2018  http://www.dw.com/en/eu-to-reactivate-blocking-statute-against-us-sanctions-on-iran-for-european-firms/a-43826992

[vii]European Union – 2017 https://ustr.gov/countries-regions/europe-middle-east/europe/european-union

[viii] Trump Forbids Russian Pipeline. Europe Pushes Back – 18 May 2018  https://www.bloomberg.com/view/articles/2018-05-18/nord-stream-2-pipeline-is-new-front-in-u-s-clash-with-europe

[ix]Donald Trump warns Nato members will be ‘dealt with’ if they refuse to pay more for military alliance – 17 May 2018  https://www.independent.co.uk/news/world/donald-trump-nato-warning-germany-jens-stoltenberg-payments-a8356906.html

 

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