Report: Assessing Implementation of the Nuclear Deal

August 1, 2016

Sanctions relief remains a contentious issue more than six months after the implementation of the nuclear deal. Both the United States and Iran, however, can take additional steps to ensure that Iran gets the intended benefits of sanctions relief, according to a new report by Richard Nephew, program director for Economic Statecraft, Sanctions, and Energy Markets at the Center on Global Energy Policy at Columbia University. From 2013 to 2015, he served principal deputy coordinator for sanctions policy at the State Department and was the lead sanctions expert for the U.S. team negotiating with Iran. Nephew considers the Joint Comprehensive Plan of Action (JCPOA) a “valuable contribution to international security” that merits preservation, but not at all costs. He argues that the deal is the “most economical tool in the U.S. arsenal” for restraining Iran’s nuclear program. The following is the report’s executive summary with a link to the full text.

EXECUTIVE SUMMARY

The Iran nuclear deal remains controversial, primarily because of lingering questions around whether it is delivering the benefits promised to all sides and, secondarily, because of residual complaints about how it was negotiated and advertised in Washington and in Tehran. Despite this, it has already achieved much, having lengthened the timetable that would be required for Iran to turn its nuclear program toward the production of material for nuclear weapons; established the mechanisms through which the world would have greater transparency into the nuclear program for the next twenty to twenty-five years; and relieved sanctions on most of Iran’s economic activity. Though nuclear implementation has gone largely according to plan, the same cannot be said of sanctions relief. Though legally everything the P5+1 and UNSC are required to do under the deal has taken place, practical fulfillment of the sanctions relief has been halting. There are various reasons for this, but they lie in three general areas: low oil prices; Iran’s own internal regulatory and bureaucratic problems; and residual effects from the remaining US financial sanctions against Iran and its banks. Not all of these issues are tied directly to the implementation of the JCPOA, but inadequate attention to these issues will undermine the deal just as surely as if they were a core provision of the agreement.

With respect to low oil prices, there is little that the United States or its partners can do that would address Iran’s difficulties. However, with respect to Iran’s internal problems and the residual effects of sanctions, more can be done in Iran and in the United States.

For Iran, these steps include

1. domestic reform to sustain banking operations that conform to international standards for anti–money laundering, tax compliance, financial disclosure, capital adequacy, and, critically, stopping the financing of terrorism;

2.reform of the bureaucratic process that makes it difficult for foreign companies and domestic entrepreneurs to operate in the country; and

3. pursuit of more constructive foreign and domestic policies that reduce tensions in the Middle East and give rise to concerns that the sanctions situation will once again get worse. For the United States, there are limits as to how far the Obama administration (and its successors) should go, given the continued problems that exist both in how the Iranian economy operates and what the Iranian government does with the proceeds, particularly in the financing of terrorism. Some steps that have been suggested—such as the elimination of most residual sanctions or the establishment of clear US-focused banking channels—would either meet impossible political headwinds or exacerbate the problems they seek to solve.

That said, reasonable additional steps that can be taken, largely by the Treasury Department, such as

1. promulgation of additional guidance and information on the standards the United States intends to use in judging foreign due diligence to prevent Iranian bad actors from receiving direct benefits from business and how best to undertake the recusal of US persons from foreign business decisions involving Iran;

2.further licensing to ease the compliance burden imposed on foreign companies to permit the limited use of standard US business software and other services that do not enhance the ability of companies to do business with Iran, but make it logistically and financially possible; and

3. other similar nonmaterial, and—ultimately—modest steps to aid in the implementation of remaining US sanctions in this different, JCPOA-informed environment, such as permitting technical compliance support by US lawyers and experts to foreign companies engaged in Iran trade.

Ultimately, and as unsatisfying as it may be, time may be the most important element of Iran’s return to a more normal relationship with the international economy. Time will permit Iran’s compliance with its nuclear obligations to continue to be established and international companies and banks to regain their confidence in doing business in the country. Time will also enable Iran to make the kind of regulatory and bureaucratic reforms necessary for the Iranians to have the kind of economy that they appear to desire, at least at the level of government technocrats, and to develop the political will to make the necessary changes at home. And time will permit the international community to form a complete picture of the future of US policy toward Iran and the JCPOA after the upcoming presidential election. Unfortunately, time may also not be on the side of these Iranian leaders, facing as they do claims that they were suckered in their negotiations with the United States and the rest of the P5+1. The trick, therefore, will be to ensure that Iran is able to make more progress, even if halting, in its reintegration into the global economy and the rigorous monitoring of its progress.

Click here for the full text.