Report: Nuclear Deal at Two

January 17, 2018

“The 2015 Iran nuclear accord is as successful as it remains fragile,” according to a new report by the International Crisis Group. President Trump has pledged to withdraw the United States from the deal if Congress and European partners do not alter its terms. “Meanwhile, friction between Iran, the U.S. and their regional rivals is growing and could undermine the deal’s implementation,” the report warned. The following is an excerpt from the executive summary and key results of the Crisis Group Survey on business sector attitudes towards Iran.

 

The Iran Nuclear Deal at Two: A Status Report

Executive Summary

It could have been worse. President Trump’s 12 January decision to waive sanctions while threatening to withdraw from the Joint Comprehensive Plan of Action (JCPOA) – the July 2015 nuclear agreement between Iran and the five permanent members of the UN Security Council plus Germany (the P5+1) – unless Congress and Europe agree to unilaterally alter its terms, leaves the deal in the state of limbo it acquired shortly after his election. Still, given his unpredictability, manifest hostility to the deal, abhorrence at the thought of validating anything that bears his predecessor’s mark and the unrest that has shaken Iran, speculation had been rampant that he would announce the agreement’s demise. But celebration is premature. The White House decision constitutes little more than a reprieve: taken at face value, the standard Trump insisted be met by May in order for the U.S. to remain in the deal is inconsistent with the JCPOA. The accord’s other signatories should use this period to encourage the U.S. not to withdraw while considering ways to sustain the accord regardless of U.S. actions. Its collapse would reignite a crisis that could deepen tensions in a tumultuous region and strike a hard-to-reverse blow to multilateral diplomacy and the non-proliferation regime.

As it enters its third implementation year, the JCPOA continues to serve its essential purpose: last year, Tehran scrupulously adhered to its nuclear obligations, according to the International Atomic Energy Agency (IAEA), rendering an undetected dash toward nuclear weapons impossible. This apparently is only of marginal interest to the Trump administration, which continues to denounce the accord as flawed because some of its nuclear restraints expire between 2026 and 2031 and because it fails to address Iran’s broader policies, including its ballistic missiles program and support for non-state actors in the region.

Trump took a first major step toward undermining the JCPOA in October, when he refused to certify the accord on the grounds that the sanctions it suspended were not proportionate to Iran’s nuclear steps. Pressed by most of his cabinet members, who argued that withdrawal from the deal would be diplomatically costly, he has continued to waive the sanctions. But the administration has both imposed other economic penalties and discouraged international business with Iran, thereby putting Tehran in the uncomfortable position of having to comply with the deal’s nuclear restrictions while only partially benefiting from its economic rewards. Trump also tasked Congress with passing legislation that would unilaterally alter the terms of the JCPOA. As some of his backers put it, his message was plain: either fix the deal, or I will nix it.

By the time Trump once again had to decide whether to waive the sanctions, his approach had not borne fruit. This in no small part is because unilateral alteration of the JCPOA would constitute a violation and thus would isolate the U.S., something even many Republican members are loath to do. Congress to date has been unable to find a compromise that simultaneously placates the White House, complies with the deal and is acceptable to the Europeans. So this time he upped the ante: he made clear he would pull the plug on the JCPOA if over the next 120 days Congress and Europe failed to meet his demands.

For its part, and for the time being, Tehran has complied with the deal, focused on winning the international blame game and ensuring continued European economic dealings. But patience could be wearing thin. Iran’s favourable diplomatic posture hasn’t helped inside Iran, where the accord’s dividends have been slow to materialise, dashing popular expectations and contributing (alongside deeply rooted dissatisfaction at mismanagement, endemic corruption, and political and socio-economic deprivation) to unrest and protests in several cities. Should those dividends further erode as a result of U.S. actions – more uncertainty, more sanctions, or pulling out of the deal – Iran could respond in damaging fashion.

Europe, with which Iran’s trade has nearly doubled in the past year, arguably holds the key to the deal’s survival: it needs both to persuade the U.S. not to renege on its commitments and to preserve sufficient incentives for Tehran to remain in the deal even if Washington does so or if its actions continue to eat away at Iran’s economic benefits. But here too there is uncertainty over how effective Europe can be. The Trump administration would like to act in unison with its European partners, but not at all costs; it could decide to go its own way notwithstanding European opposition. And the imposition of U.S. secondary sanctions on European companies doing business in Iran would confront them with the choice of either scaling back their (still relatively modest) Iranian trade and investment or risk jeopardising access to the far larger and more lucrative U.S. market.

https://d2071andvip0wj.cloudfront.net/bg_colored_1x1.pngFear that the president might keep his word and walk away from the deal likely will motivate European actors and members of the U.S. Congress to seek ways to mollify Trump without endangering the JCPOA. Several Republicans and Democrats in the U.S. Congress already have been floating draft legislation that would meet the White House half-way. For their part, France, Germany, the UK and the European Union (EU) have been debating how to signal greater concern about Iran’s ballistic-missile program and regional activities, considering what to do once some of the nuclear restrictions expire and weighing their reaction to passage of the above-mentioned U.S. legislation. How Trump’s bombastic 12 January ultimatum will affect their calculus – and whether his tough rhetoric still leaves room for compromise – remains uncertain.

 

Crisis Group survey on business sector attitudes towards Iran

Key Findings

Business leaders are crucial stakeholders in realising the JCPOA’s economic dividends and thus in determining its fate. As a result, Crisis Group has commissioned a first-of-its-kind survey of more than 60 senior managers with direct responsibility over Iran business at leading international companies. The results, further developed in an appendix to this report, show that:

  • 79 per cent of surveyed businesses delayed plans to enter the Iranian market in the past two years.
  • 57 per cent cited as the primary reason for their delay fear of existing U.S. sanctions or snapback of the nuclear ones.
  • 11 per cent point to difficulties of doing business in Iran as the reason for their slower than anticipated market rollout.
  • 50 per cent say Trump’s failure to recertify the Iran deal in October negatively affected their decision to engage the Iranian market.
  • 63 per cent believe that the JCPOA can potentially survive if the U.S. unilaterally withdraws from it.
  • 54 per cent say an EU move to reinstate the “blocking regulations” to shield European companies against unilateral U.S. sanctions, while Iran remains committed to the deal, would positively affect their decision to invest in Iran.

Click here for the full report.