I’ve been rather busy of late, so I’m coming a little late on this issue. As we all know, on 13 October, President Trump announced a strategic review on the U.S.’s relations with Iran, whereby he refused to certify the Iran Nuclear Deal (Joint Comprehensive Plan of Action – JCPOA), as required under the Iran Nuclear Agreement Review Act (INARA) 2015.
The big question is whether President Trump’s decision not to re-certify the JCPOA is a fatal decision for the Iran nuclear deal, i.e. a fall that Humpty-Dumpty cannot recover from. If president Trump were to decide to end U.S. participation in the JCPOA, it could revoke waivers, decline to renew waivers, or trigger a provision of the INARA under which the U.S. Congress might act on legislation to reimpose sanctions.
In his quest for “America First,” policy, if he manages to scuttle the JCPOA, this policy might turn into “America Alone,” policy.
Unlike the other JCPOA participating countries (so-called “P5+1” – China, Britain, France, Germany, Russia and the U.S.), the U.S. President has to submit JCPOA compliance reports (every 90 days) and certify Iran’s compliance with the deal (as mandated by the INARA – which in essence is an amendment to Section 135(d)(6) of the Atomic Energy Act of 1954 (42 U.S.C. 2160(e)). Note that the afore-mentioned certification requirements are not part of the JCPOA – they are a requirement under U.S. law. Under the nuclear accord, the International Atomic Energy Agency (IAEA) is the sole authority for verifying Iran’s compliance.
The INARA compliance reports cover four conditions regarding Iran’s JCPOA compliance:
- Iran is verifiably and fully implementing the JCPOA;
- Iran has not committed an uncured material breach;
- Iran has not taken any covert action that could advance a nuclear weapons program; and
- continued suspension of sanctions (including issuance of waivers of applicable sanctions laws) is vital to the national security interests of the United States.
The key issue is where do we now go? Although the refusal to certify the JCPOA is not fatal, clearly, the accord is on life-support. It’s foolish to think that the nuclear accord will survive in its current form. I hope that I’m proved wrong, but in its current form, the JCPOA has had a good run.
It was a fools errand to think that the accord could have survived with President Trump in the White House.
For those compliance professionals struggling to understand the consequences of the JCPOA, President Trump’s refusal to certify the nuclear accord should come as no surprise. This possibility was always lurking in the shadows.
President Trump was always opposed to the deal, and Iran’s wisdom to continue with provocative ballistic missile testing and supplying arms to an array of groups in the Middle East, not to mention it’s support to President Assad, has not helped their cause.
However, as I’ve stated earlier, the JCPOA is not the best deal, although a bad deal is better than no deal. The ramifications of President Trump’s refusal to certify Iranian JCPOA compliance obligations are not yet clear. Its now up to the U.S. Congress to decide on the next move. Congress could decide not to re-impose sanctions, only legislate new sanctions which fall outside the JCPOA or re-impose those uplifted U.S. sanctions that would most certainly prod Iran claiming that the U.S. violated the JCPOA (see paragraphs viii and 29 JCPOA – which commits the U.S. (and EU) to implement the JCPOA in good faith and not to re-introduce policies or sanctions which undermine the implementation of the JCPOA).
However, whether this would doom the JCPOA remains unclear. For instance, instead of re-imposing outright the already waived or suspended U.S. sanctions,the U.S. Congress could place further conditions on the (re-)imposition of U.S. sanctions, e.g. sanctions would be imposed only after re-negotiations with Iran have failed. Possible amendments of the JCPOA could placing specific limitations on the testing of ballistic missiles or extending the sunset clauses in UN Security Council Resolution 2231 (see below JCPOA Timelines).
Back to Basics: What’s the JCPOA again?
On 14 July 2015, the Iran Nuclear Deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), was concluded between Iran and the members of the P5+1 (China, France, Germany, Russia, the United Kingdom, and the United States).
The deal is a complex web of technical arrangements and voluntary measures between the partners, in which they finalized a “plan of action,” placing limitations on the development of Iran’s nuclear program.
Simply put, the JCPOA can be boiled down to one basic transaction:
- Iran agrees to very strict restrictions regarding its controversial nuclear program (promise not to develop a nuclear weapons program), for which in exchange,
- Iran would get extensive sanctions relief (sanctions imposed by a coalition of mainly Western countries for Iran’s non-compliance with its safe-guards obligations under the Non-Proliferation Treaty), as the imposed U.S. and EU sanctions were virtually crippling its economy.
The JCPOA was not signed by any party, nor does it contain any provisions for ratification, withdrawal (although this might be triggered through the JCPOA dispute settlement mechanism) or entry into force, although most of the promised sanctions relief came into force on the so-called “Implementation Day,” (16 January 2016). In this context, previous UN Security Council resolutions targeting Iran’s nuclear program were terminated. Since then, the UN’s nuclear watchdog, the IAEA, has repeatedly certified Iran’s compliance with the JCPOA.
Instead, the JCPOA was endorsed by United Nations Security Council Resolution 2231. Subsequently, on “Implementation Day,” the U.S. and the EU lifted most of their respective sanctions imposed in connection with Iran’s nuclear program, on the condition that the IAEA verified Iran’s compliance with the JCPOA.
The UN sanctions which have remained in place relate to Iran’s development of nuclear-capable ballistic missiles and its importation or exportation of arms. One should wonder the added value of the sanctions which have remained in place. Note that prior to Resolution 2231, UN Security Resolutions were unable to curb Iran’s ability to develop its nuclear and missile programs and supply arms to pro-Iranian regional groups and governments.
Why has President Trump refused to certify the JCPOA?
Well some cynics argue that President Trump has refused to certify the JCPOA because it’s a deal that his predecessor concluded. Well possibly, but it probably has more to do with the overall objectives of U.S. related Iran sanctions.
President Trump has made his dislike of the JCPOA no secret. As a Presidential candidate, Mr. Trump threatened to withdraw the U.S. from the nuclear deal or attempt to renegotiate it. As U.S. President, his Administration claims that the JCPOA does not address key U.S. concerns regarding Iran’s continuing “malign activities,” in the region and it ballistic missile program, and might not be serving U.S. interests. Subsequently, he has claimed that the JCPOA was the “worst deal ever,” although as President he certified, several times, Iran’s compliance with the JCPOA.
During his speech at the UN, after condemning North Korea, President Trump, he called the Iran nuclear deal “an embarrassment” that is “one of the worst and most one-sided transactions the United States has ever entered into.” Until the Trump Administration announced the contours of its strategic review, it had not articulated an aspiration to translate the JCPOA into a broader improvement in U.S.-Iran relations, asserting instead that it will assertively counter Iranian actions such as continued ballistic missile testing and “malign” regional activities.
Sanctions regimes have dominated the U.S.’ relationship with Iran for several decades. Since the 1980s, the U.S. has attempted, through the imposition of domestic, multilateral and international sanctions, to compel Iran to stop supporting acts of terrorism and to limit Iran’s strategic power in the Middle East.
Only since 2005, U.S. sanctions have focused on Iran’s controversial nuclear program, which arguably, since 2010, have been supported by the UN and close U.S. allies. Therefore, President Trump’s opposition to the JCPOA should be seen in this context, given that U.S. Iran related sanctions have multiple objectives and address multiple perceived threats from Iran simultaneously.
U.S. Implementation of JCPOA
From a U.S. perspective, as cited earlier, the U.S. did not lift all of its sanctions regimes against Iran. Remaining in place are the so-called “Secondary Sanctions,” i.e. sanctions on non-U.S. companies.
These sanctions have been imposed in view of of Iran’s support for terrorism, its human rights abuses, its interference in specified countries in the region, and its missile and advanced conventional weapons programs, as well as sanctions on the Islamic Revolutionary Guard Corps (IRGC) and its affiliates.
Given the sour relations between Iran and the U.S., former President Obama concluded the JCPOA in the face of stiff Congressional opposition. He stated that he did not need Congressional approval to conclude the JCPOA or for that matter for the U.S. to honor its obligations. In this context, former President Obama described the JCPOA as a non-binding political arrangement (which is also asserted by President Trump). This point of view is supported by both academic commentators and the then Legal Advisor to the U.S. Department of State (see page 123).
To implement his vision, former President Obama used an array of Presidential powers which gives the U.S. President discretionary authority to apply U.S. Iran related sanctions, i.e. to either waive sanctions or rescind Executive Orders. Note that, the flip-side of this argument, is that President Trump does not require Congressional approval to renew the waivers applied by former President Obama or reinstate sanctions through Executive Orders.
Schizophrenic U.S. Attitude towards the JCPOA
Since the implementation of the JCPOA, the U.S. has adopted a two-track policy vis-à-vis Iran. It has simultaneously honored its JCPOA obligations, including renewing waivers of domestic sanctions laws suspended in accordance with the JCPOA; and gone on to impose additional sanctions on Iran entities – e.g. under the Countering America’s Adversaries through Sanctions Act, which also targets Russia and North Korea.
A general ban on U.S. trade with and investment in Iran, including regulations barring transactions between U.S. and Iranian banks, remains in place. The Trump Administration asserts that these additional sanctions do not conflict with U.S. JCPOA commitments.
The U.S. dual-track attitude towards the JCPOA can be largely explained by the earlier cited overall objectives of U.S. Iran policy. Right or wrong, the JCPOA specifically only focuses on nuclear-related Iran sanctions. That was the deal. Although segments of the accord mention the aspiration to address broader security issues, this was not formally negotiated.
Former President Obama Administration and other JCPOA participating countries assert that the nuclear accord is the most effective means to ensure that Iran does not acquire a nuclear weapon. According to these, Tehran can’t obtain a nuclear weapon and that all U.S. options to prevent Iran from developing a nuclear weapon remain available. The nuclear deal contains provisions for UN sanctions to be reimposed if Iran violates its JCPOA commitments (the so-called built-in “snap-back” mechanisms). Further, the U.S. can also re-impose restrictive measures even after the key nuclear restrictions of the JCPOA expire. Finally, supporters of the JCPOA also argue the positive security spin-offs for the region; at least it has reduced any near term threat of a nuclear armed Iran.
Opponents of the JCPOA, especially in the U.S., argue that the nuclear deal does not address the full range of potential Iranian threats to the U.S. They cite Iran’s controversial involvement in regional conflicts, poor human rights record, and support for terrorist organizations. These arguments, although compelling, are to some extent spilled milk. As cited earlier, these issues are formally not part of the JCPOA.
Straight-off the bat, critics of the JCPOA expressed concerns that sanctions relief provided under the accord gives Iran additional resources to extend its influence in the region and that that the accord does not contain any restrictions on Iran’s development of nuclear-capable ballistic missiles.
Despite UNSC Resolution 2231 prohibitions on arms transfers to or from Iran and on the development of ballistic missiles, opponents of the accord argue that the sunset clauses of these restrictions, respectively 5 and 8 years, sets the stage for Iran to emerge as a key regional actor. Furthermore, to add injure to insult, the prohibition on the development of ballistic missiles are only a voluntary restriction.
These criticisms have ultimately led to the earlier cited Iran strategic policy review and the refusal to certify the nuclear accord under the INARA. In this context, the Trump Administration has announced its desire to either amend the JCPOA or seek a separate agreement that addresses U.S. concerns.
Specifically, President Trump has called the U.S. Congress and U.S. allies to work together to address what he calls “weaknesses of the JCPOA.” This lastly, might entail extending the JCPOA’s sunset clauses on Tehran’s nuclear restrictions, development on ballistic missiles, and address what U.S. officials call Iran’s malign activities in the Middle East.
The question is, given President Trump’s threat to withdraw from the JCPOA, whether Iranian leaders are open to discuss new limits on Iran’s nuclear and/or ballistic missile programs.
The Reactions of other JCPOA Participating Countries
The refusal to certify the JCPOA by President Trump, which is not supported by all senior members of the Trump Administration, has triggered some reactions. Iran has rejected any renegotiation of the JCPOA’s terms. However, given that Tehran stands to lose a lot if the JCPOA collapses, I wouldn’t be surprised if it did agree to some amendments.
Both the IAEA and European JCPOA participating partners, agree that Iran is complying with the nuclear deal. Further, the EU also considers that the JCPOA is contributing to international peace and security – in particular the international non-proliferation architecture.
Further, the EU also believes, following its 1990’s policy of critical dialogue with Iran, that the nuclear accord is a means to strengthen co-operation and allows for continuous dialogue with Iran.
On 13 October 2017, the EU High Representative/Vice-President Federica Mogherini stated that:
The EU also stresses that the IAEA has verified 8 times that Iran is implementing all its nuclear-related commitments following a comprehensive and strict monitoring system. The EU’s support for the nuclear accord is also based, on no small measure, to the increased trade with Iran since the adoption of the JCPOA.
On 16 October 2017, the EU reiterated its commitment to the JCPOA and urged President Trump not to withdraw from the JCPOA. They view the refusal to certify Iran’s compliance with the JCPOA as an U.S. internal matter. For that matter, the EU also has its concerns regarding Iran’s ballistic missiles and it’s role in the increasing tensions in the region. However, the Union prefers to address it’s concerns outside the context of the JCPOA.
On the other hand, the Trump Administration counters that Tehran is not living up to the spirit of the accord, which they see as de facto non-compliance.
Secretary of State Rex Tillerson and others have said that Iran has not positively contributed to regional and international peace and security, an “expectation” embedded in the deal’s preamble.
They noted that Iran still supports militant groups such as Hezbollah and Hamas and backs militias in Syria and Yemen. Iran has also continued to test ballistic missiles, although not part of the JCPOA – thus not constituting a material breach of the JCPOA, something that annoys the U.S.
Further, the U.S. also cites Iran’s refusal to allow IAEA inspectors to review military sites, although not offering any evidence, as part of Tehran’s perfidy, i.e. non-compliance with the JCPOA.
According to IAEA officials and signatories to the deal, under the JCPOA, the UN nuclear watchdog, has the authority to request access to any facilities in Iran, including military ones. This authority is based on credible indications that banned nuclear activities are taking place. “We’re not going to visit a military site like Parchin just to send a political signal,” an IAEA official said, mentioning a military site often cited by opponents of the deal including Israel and many U.S. Republicans.
Thus, given his opposition to the JCPOA, it would appear that President Trump, through his threat to withdraw from the accord, is trying to garner support to renegotiate the parameters of the nuclear deal.
The vague definition of what falls under the “spirit of the JCPOA,” is unclear and makes it difficult to ignore the U.S. Administration’s arguments – given that the identified concerns of the U.S. are compelling.
For instance, one can question Tehran’s wisdom to continue with its ballistic missile testing, whereby both Obama and Trump Administration officials (not to mention other JCPOA participants) have termed the tests as “defiant of,” and “inconsistent with,” UN Security Council Resolution 2231 – although stop short of classifying them outright breaches (excluding the 27-07-2017 space launch – which was termed as a violation).
Furthermore, Iran continues to openly supply governments and warring factions in the Middle East region with arms, appearing to violate Resolution 2231. Also see Third report of the Secretary-General on the implementation of Security Council resolution 2231 (2015) which summarizes Iran’s factual (non-)implementation of the JCPOA. Until now the UN Security Council has not been able to reach consensus whether Iran is in violation of Resolution 2231.
These developments are in no small measure unwelcoming; it only shreds more uncertainty on an already highly charged issue. In this context, Tehran is certainly pushing its luck, as not only the U.S. can take issue with Iran’s attitude. In the face of these breaches, its no wonder, as reported earlier, why the U.S. has sanctioned the Iranian Islamic Revolutionary Guard Corps (IRGC).
The IRGC has been repeatedly sanctioned, also by the Trump Administration – most recently on 13 October 2017. The U.S. Department of the Treasury’s sanctions watchdog – Office of Foreign Assets Control (OFAC) designated, i.e. blacklisted, the IRGC under Executive Order (EO) 13224 (the terrorism sanctions executive order) for its support of the IRGC-Quds Force, which supports a number of terrorist groups, including Hezbollah, Hamas, and the Taliban.
The practical implications of this blacklisting, is little, given that the IRGC is already blacklisted as a Specially Designated National (SDN), Executive Orders 13382 (relating to WMD proliferation), 13553 (Iranian human rights abuses), and 13606 (Iranian and Syrian human rights abuses via information technology).
As a SDN, all IRGC assets subject to the jurisdiction of the U.S. are blocked, U.S. persons are generally forbidden from dealing with the IRGC (and blacklisted affiliates, agents, and any entity owned 50% or more by the IRGC); and non-US persons can be subject to secondary sanctions restrictions if and when they engage in transactions with the IRGC. OFAC has recently stated that even humanitarian donations can fall foul of U.S. sanctions.
However, President Trump did not go as far as to blacklist the IRGC as a Foreign Terrorist Organization (FTO). See overview of FTO’s. As I’ve reported earlier, the FTO statute claims worldwide criminal jurisdiction under U.S. law against anyone who provides “material support” to FTO’s.
Further, if the refusal to re-certify the JCPOA could also have implications at the UN. Its unclear to what extent UN Security Council Resolution 2231 imposes legal obligations on the U.S.
Note that European diplomats and the Security Council itself view the JCPOA as a binding commitment under the UN Charter, e.g. article 25 and measures which are explicitly adopted under article 41. Thus, it’s questionable whether the U.S.’s point of view that the JCPOA only imposes political obligations, holds water.
For instance, the termination of prior UN Security Council resolutions and the JCPOA dispute resolution mechanisms and the possible imposition of “snap-back,” sanctions were both adopted under article 41. From a legal perspective, it would seem that no JCPOA participating country can unilaterally deviate from these decisions, at least not without the approval of the Security Council. This is separate of the political fall-out which would ensue following an unilateral U.S. withdrawal from the JCPOA.
Now What? Options for the U.S. to stop implementing the JCPOA
On the basis of the JCPOA, there are two options that the U.S. could adopt to either amend or stop implementing it’s JCPOA commitments.
The first option is to apply existing JCPOA provisions – paragraphs 36 & 37 Dispute Mechanism.
The dispute mechanism is a set of complex procedures (see below) that could ultimately lead to one of the parties ceasing its JCPOA obligations if “it deems an unresolved issue to constitute significant non-performance.” Note that Iran has stated that it might cease implementing it’s JCPOA commitments if any sanctions were reimposed. If this avenue was to be pursued, any Permanent UN Security Council Member, i.e. the U.S., could veto any Council decision to continue uplifting sanctions. This could trigger the earlier cited snap-back sanctions. In this event, the JCPOA states that sanctions would not be applied retroactively to contracts, consistent with the JCPOA, concluded with Iran.
This option would be particularly difficult for the U.S.
- the burden of proof would lie on the U.S. to justify stopping it’s JCPOA commitments. As cited earlier, the IAEA and other JCPOA participating countries have confirmed Iran’s compliance with the JCPOA.
- the JCPOA dispute mechanism only focuses on JCPOA related disputes, and therefore, does not allow JCPOA participants to raise any other grievances. Thus, the U.S. would find it extremely difficult to use the JCPOA dispute mechanism to accuse Iran of violating non-nuclear related aspects of the JCPOA.
- Finally, it would be interesting to see how snap-back sanctions would be implemented. As stated above, snap-back sanctions cannot be retroactively applied to contracts concluded with Iranian entities before these entered into force. In its JCPOA FAQ’s, OFAC has stated that retroactive sanctions would not be imposed for JCPOA authorized contracts and that a wind-period would most probably be introduced to allow companies to disengage from Iran.
The second option is that the U.S. apply INARA provisions to stop it’s JCPOA commitments or attempt to revise the nuclear accord.
Option 1: Re-imposition of U.S. sanctions on the basis of a JCPOA Material Breach
Under the INARA, President Trump could assert that a so-called “material breach,” has taken place and Iran has been unable to cure this, i.e. resolve the breach.
The Administration would then have to provide the U.S. Congress with credible information that Tehran has incurred a material breach and that it has not been able to cure this. This in turn might trigger a set of fast-track Congressional procedures that could result in the re-imposition of suspended sanctions waived under the U.S.’ implementation of the JCPOA and the prevention of further waivers.
This option would be difficult to operationalize given that the U.S. has until now certified Iran’s compliance with the JCPOA and has not been provided by the IAEA with any such evidence. For that matter, it has not provided the UN watchdog or other JCPOA participating countries with any such evidence.
Option 2: Options under the refusal to Certify Compliance Report
As cited earlier, see above INARA Compliance Certification Requirement & Definition of a Material Breach, under the INARA, every 90 days, President Trump has to certify that Iran is complying with the following:
- Iran is verifiably and fully implementing the JCPOA;
- Iran has not committed an uncured material breach;
- Iran has not taken any action that could advance a nuclear weapons program; and
- continued suspension of sanctions (including issuance of waivers of applicable sanctions laws) is
- appropriate and proportionate to the specific and verifiable measures taken by Iran with respect to terminating its illicit nuclear program and
- vital to the national security interests of the United States.
Under the listed provisions, there are a couple of scenario’s possible.
Firstly, the most obvious, is that the certification is renewed and the waived U.S. Iran related sanctions under the JCPOA are renewed. The last time the waivers were renewed was 17 July 2017. They are up for renewal in January 2018.
A second possibility, is that the U.S. re-imposes some or all suspended or waived sanctions. In his speech, President Trump is not so clear which sanctions will be re-imposed.
In his scathing critique on both the JCPOA and Iran, President Trump signals that he cannot certify “that the suspension of sanctions under the deal is “appropriate and proportionate,” to measure — and other measures taken by Iran to terminate its illicit nuclear program.” He believes that a continued certification will lead to a “path whose predictable conclusion is more violence, more terror, and the very real threat of Iran’s nuclear breakout.”
On this basis, as cited above, President Trump has directed his government to work closely the U.S. Congress and U.S. allies to address the JCPOA’s many serious flaws so that the “Iranian regime can never threaten the world with nuclear weapons.”
Further, President Trump, states that he will support legislation to amend the INARA that would amend the Act to strengthen enforcement, prevent Iran from developing an intercontinental ballistic missile, and make all restrictions on Iran’s nuclear activity permanent under U.S. law. Finally, President Trump also cites that, given Iran’s continued policies to destabilize the security of the Middle East, the JCPOA has not brought about the desired effect to increase regional security, whereby, Iran has not lived up to the spirit of the nuclear accord. As a consequence, President Trump is clear that “in the event [U.S. is] not able to reach a solution working with Congress and our allies, then the agreement will be terminated.”
Under Paragraph 26 of the JCPOA, Iran has claimed that it could stop performing it’s JCPOA commitments if and when U.S. nuclear related sanctions would be re-imposed. Iran’s ultimate reaction will probably depend on which U.S. sanctions are re-imposed, how other JCPOA participating countries react to this, and the effect of re-imposition of U.S. sanctions to the investment climate in Iran and the effects on the Iranian economy.
A third possibility, is that the U.S. re-blacklists, i.e. re-designates, Iranian entities under the OFAC Specially Designated National List (SDN) that under the JCPOA have been waived or revoked. The Iranian parties un-blacklisted are mainly civilian parties linked to Iran’s economy, e.g. companies in the financial/ insurance sectors, manufacturers, and energy-related entities.
As a consequence, the re-blacklisting could trigger the re-imposition of certain U.S. secondary sanctions to those entities, e.g. the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (which shuts the door to the U.S. financial sector to those parties that conduct transactions with Iran-related SDN’s). Iran’s reaction, and that of U.S. allies, would depend on which Iranian parties are re-blacklisted and their importance to the Iranian economy.
Third Option: Continue refusal to certify Iran’s compliance with JCPOA, but impose no new sanctions
Another option would be that the U.S. continues it’s refusal to certify Iran’s compliance with the nuclear deal, but not re-impose any sanctions. In this scenario, the U.S. Congress could decide not to re-impose sanctions under the INARA. Note that the INARA does not require President Trump to re-impose sanctions in the face of no certification of the JCPOA.
Thus, President Trump might decide not re-impose sanctions and continue the already issued waivers – even if U.S. Congress would legislate new restrictions under the INARA. This would keep the U.S. in the JCPOA and probably guarantee Iran’s continued commitment to the deal. However, this option seems unlikely given Iran’s statement that it is not prepared to re-negotiate the JCPOA and President Trump’s earlier cited speech in which he desires to amend key weaknesses in the current JCPOA.
Thus, if Iran and for that matter other JCPOA participating countries, do not accommodate President Trump and the desire of the U.S. Congress to amend the nuclear accord, chances are high that the U.S. will re-impose some or all suspended or waived sanctions, not to mention abandon the JCPOA.
The wise, but impossible option: rationalizing U.S. Iran sanctions
As cited earlier, a weakness of the JCPOA, is that the U.S. sanctions relief of only suspending U.S. nuclear related secondary sanctions, doesn’t work. Without a clear framework to resolve the underlying issues which provoked the international community, i.e. the U.S., to impose sanctions in the first place, there is in my opinion, no fertile ground to move forward.
The art of politics is making the impossible possible, and sometimes the impossible necessary. Policy-makers have focused too much on the anti-proliferation issues, while ignoring the fact that international firms, without clearly untangling all the Iran-related sanctions regimes, would not enter and/or invest in the Iranian market. Furthermore, the JCPOA contains no real measures to assist Iran to transform its economy so that it can meaningfully rejoin the modern global economy. Although Iran obviously needs sanctions relief to stop the hemorrhaging of its economy created by international sanctions, in the long run, it needs to modernize its economy in order to attract sustained international investors. For one thing, it will need to address corruption, nepotism and stop allowing its financial institutions to finance terrorists. For another thing, as a signature of the Paris Climate Agreement, it will also have to start thinking how modernize its energy market.
From a global trade perspective, by only lifting secondary sanctions, and emphasizing that these can be re-imposed through a snap-back mechanisms, the U.S. on purpose makes it impossible for a meaningful distinction between U.S. non-nuclear and nuclear sanctions.
For one thing, Iranian blacklisted entities are subject to both U.S. nuclear related sanctions covered by the JCPOA and by non-JCPOA sanction regimes, e.g. human rights violations and the sponsoring of terrorism (e.g. the Iranian Islamic Revolutionary Guard Corps (IRGC)). This is caused by the fact that U.S. Iran sanctions regimes pursue multiple objectives that traverse both nuclear and non-nuclear sanctions whereby the distinction between these types of U.S. sanctions becomes unworkable. Without untangling the web of sanctions, trading with Iran for international firms will remain a risky activity.
For another thing, the structure and opaqueness of the Iranian economy does not contribute to the lifting of sanctions. This is because key segments of the Iranian economy are either state-owned or under the control of blacklisted Iranian state organs. This lastly makes the distinction between U.S. nuclear and non-nuclear sanctions in practice even more meaningless. As a consequence, international firms wishing to enter the Iranian market with (significant) ties to the U.S. market or financial system are extremely apprehensive to do so – at least if they wish to steer clear of U.S. enforcement actions. This in itself is probably the biggest weakness of the nuclear accord. Even the supporters of the JCPOA can’t deny this weakness. The fact that this weakness even exists speaks volumes. It illustrates the distrust between Iran and her JCPOA negotiating partners.
Possible Ramifications following President Trump’s Refusal to Certify the JCPOA
In most probability, the ramifications of President Trump’s refusal to re-certify the JCPOA will be played out along fault-lines already established by supporters and opponents of the JCPOA. Those wishing to continue with the implementation of the JCPOA; and those wishing to either amend or outright abandon the nuclear accord.
No Plan B:….
The main problem here is that both camps have no Plan B, i.e. have not published viable alternatives to the accord. Under such circumstances, I would argue to keep the JCPOA alive. A bad deal is better than no deal, as in the latter case, the collapse of the JCPOA would certainly increase the security risks to the U.S. and it’s allies.
The biggest challenge for policy-makers will be attempting to amend or renegotiate the JCPOA. As cited earlier, the U.S. wishes to specifically amend the established sunset clauses regarding Iran’s nuclear restrictions, it’s ballistic missile program, and Tehran’s support for regional armed groups.
Note that only the first issue is directly addressed in the JCPOA. The other two only indirectly, given that these activities are subject to UN Security Resolution 2231.
- The trade in ballistic missile related items and technologies are subject to Security Council approvals until 2023. Note that paragraph 3 of Annex B of Resolution 2231 only calls, but does not require, upon Iran not to undertake any activity related to ballistic missiles designed to be capable of delivering nuclear weapons, including launches using such ballistic missile technology. These restrictions could end, earlier than the maximum sunset date, upon an IAEA “Broader Conclusion,” that all nuclear material in Iran remains in peaceful activities.
- Paragraphs 5 and Paragraph 6 (b) of Annex B of Resolution 2231 require that until 2020 any Iranian importation of specified weapons systems (those falling under the United Nations Register of Conventional Arms) requires explicit approval of the Security Council; and exportation of any arms from Iran is banned. Note that in December 2007, Russia agreed to sell five batteries of the highly capable S-300 air defense system at an estimated cost of $800 million. Sale of the system did not technically violate U.N. Resolution 1929, because the system is not covered in the U.N. Registry on Conventional Arms, but Russia refused to deliver the system as long as that sanctions regime remained in place. After the April 2, 2015, framework nuclear accord, Russian officials indicated they would proceed with the S-300 delivery, and delivery proceeded in 2016. Iran reportedly also seeks to buy the S-400 anti-aircraft system from Russia.
However, given the cited concerns raised by the Trump Administration regarding Iran’s ballistic missile testing and supply of arms to countries and non-state groups, the fact of the matter is that Iran, also prior to the JCPOA, is not fully complying with UN Security Council resolutions. Therefore, the question is whether amending the JCPOA and Resolution 2231 would have any effect on Tehran.
If the Security Council is unable to address the raised U.S. concerns, it might provoke President Trump from going it alone. To prevent this, the Security Council, including the U.S., and Iran must be prepared to compromise. Given the bombastic approach of the Trump Administration to international diplomacy, the question is whether President Trump is up to the task.
Moreover, it’s questionable whether Iran and other JCPOA participating states would be open to amending the nuclear accord. One possibility would be that Iran accepts possible restrictions on the range of it’s ballistic missiles.
Furthermore, its questionable whether it would be wise to link Iran’s foreign and defense policies to the possible amendment of the JCPOA, given the complexities of the issues involved. It’s also unclear, as critics of the JCPOA argue, whether the influx of monies following the relaxation of sanctions has caused Iran’s regional influence to expand – instead of exploiting the opportunities provided by the ensuing regional conflicts. As a consequence, the EU has wisely stated that security concerns arising from Iran’s ballistic missile program and it’s weapons supplies should be addressed separately. In this context, a wise course for the U.S. would be to re-introduce legislation that would sanction Iran (and possible facilitators of sanctionable activities) after the above-mentioned sunset deadlines under Resolution 2231 have lapsed. This path could be a compromise and keep the JCPOA alive.
If U.S. reimposes sanctions
In regard to the re-introduction of U.S. sanctions, especially secondary sanctions, the possible ramifications would depend on which sanctions are re-introduced.
This would determine how Iran and other JCPOA participating countries would react. Key to keep Iran complying with the JCPOA, is that sanctions do not revert back to pre-JCPOA era, i.e. sanctions disproportionally hit the Iranian economy. Further, although China, the EU and Russia have stated that they would continue to implement the JCPOA in the event of the U.S. either reintroducing sanctions or withdrawing from the nuclear accord. It’s unclear whether the JCPOA can survive without the U.S.
- If only non-essential economic parties were re-blacklisted, i.e. re-designated, under U.S. sanctions, the JCPOA could be further implemented without the U.S. if and when Iran would accept this. However, re-blacklisting Iranian parties crucial to the Iranian economy, e.g. Central Bank of Iran, the Islamic Republic of Iran Shipping Lines (IRISL), Iran Air, or the National Iranian Oil Company (NIOC), could lead to Iran claiming that the U.S. has breached the JCPOA.
- Note that for the JCPOA to work without the U.S., Iran would take an enormous risk to restart its uranium enrichment program in violation of the nuclear deal parameters. In such a scenario, it might violate its NPT Safety Agreement with the IAEA (which it must implement on the basis of it’s NPT obligations separate from the JCPOA) which would make it very difficult for the other JCPOA participating countries to honor their commitments to the nuclear accord.
- If the U.S. re-introduced secondary sanctions that (potentially) targeted international firms/multinationals, this might precipitate these leaving the Iranian economy or trigger their divestments from Iran – especially if these firms are active in the U.S. When threatened with U.S. penalties or being shut out of the U.S. market, this might cause a run on Iran’s economy to resume its pre-JCPOA deterioration. In this scenario, Iranian leaders might argue that Iran is no longer benefiting from complying with the JCPOA, and then resume those nuclear activities that are restricted under the accord.
More importantly, the re-introduction of secondary sanctions on international firms might also impact the policy objectives of the U.S. Iran sanctions regime. This might isolate the U.S. and make it even harder to find solutions for U.S. (and EU) security concerns. In particular, it might threaten the EU and U.S. common approach towards Iran and their synchronized sanctions regimes.
The unilateral re-imposition of U.S. (secondary) sanctions might lead to a Siberian Pipeline type-clash, which in turn might also harm the interests of U.S. industry (a series of WTO complaints). A possible consequence of the political fall-out could be that if the U.S. would re-introduce secondary sanctions and penalize non-U.S. companies, then the EU and other countries could adopt blocking laws to protect the interests of their companies.
It’s questionable what the effects of blocking laws would be, given that the Iranian market remains an ultra high-risk for many international firms and financial institutions.
Further, what triggered the WTO case following the 1982 Siberian Pipeline case, is whether the Trump Administration would and could introduce retroactive restrictive measures. Section 6 (p) of the Export Administration Act 1979 (as updated) prohibits President Trump from introducing retroactive export controls, unless he certifies to the U.S. Congress that retroactive controls are required, to override existing contracts and authorized licenses. This could be justified if President Trump informs Congress that there is a breach of the peace, whereby such controls are required to protect vital U.S. interests. This would be a hard sell, especially to the other JCPOA participating countries (the EU), not to mention Iran, given that there is consensus that the JCPOA is delivering.
Brave new sanctions world: rationalize the architecture of U.S. Iran Sanctions
Another ramification, could be that policy makers use this situation as an opportunity to rethink the sanctions architecture against Iran.
The JCPOA is an opportunity to defuse a situation which was clearly spiraling out of control. In my opinion, killing the deal would not only be a step backwards, given the increased adrenaline levels in the region, but would undoubtedly increase the security risks, if Iran would choose to restart it’s controversial nuclear program. For one thing, it be interesting to see how Israel and Saudi Arabia will react in such a scenario. Furthermore, the ramifications of President Trump’s decision might have broader implications for the U.S.’s standing in the world – e.g. brokering a deal with North Korea.
A major flaw in the nuclear deal is the tapestry of the promised sanctions relief under the JCPOA, especially from an U.S. perspective, which from the start should be considered a ticking-bomb, no pun intended.
The sanctions-relief under the JCPOA is not well suited to the structure of U.S. Iran sanctions. As cited earlier, the distinction between nuclear and non-nuclear sanctions is only one dimension of U.S. Iran sanctions. Only uplifting the nuclear sanctions is insufficient given that the panoply of U.S. sanctions aims to stop Iran supporting terrorism and its influence in the region. In this context, U.S. sanctions haven’t entirely worked; for that matter comprehensive sanctions against Cuba and North Korea haven’t worked either. A more effective approach would be to adopt sectoral sanctions, such as the EU and U.S. sanctions against Russia.
Given the entrenched positions between Iran and U.S., it’s unlikely that a solution will be found here. Furthermore, killing the deal and reimposing sanctions is also not a solution. Unclear is if this would advance U.S. policy objectives and whether U.S. allies would follow another round of sanctions. Furthermore, this path would not give the desired economic relief which Iran is seeking.
A more creative approach is to redesign the JCPOA so that U.S. concerns are met, while giving Iran sufficient economic incentives to comply with the JCPOA.
For instance, demand that Iran open its economy and financial system; make it more transparent. Reduce the role of the state in Iran’s economy – whereby the role of Iranian state, and in particular those segments which are currently blacklisted by the U.S., is diminished.
Further, the U.S. with its allies could demand that Iran start to clean up its financial system, e.g. introduce measures that reduce the risk of corruption, money-laundering, and terrorist-financing. This could be done through the Financial Action Task Force (FATF)), which already advises financial institutions to apply enhanced due diligence in connection to Iran. This approach would probably be more acceptable to U.S. allies than the re-imposition of sanctions. It’s also a proportional approach for the U.S. to achieve its policy objectives vis-à-vis Iran.
However, it’s questionable whether Iran would accept this. It would mean relinquishing its ability to give financial support to groups in the Middle East which are blacklisted by the U.S. and its allies. It could also mean, if and when Iran would implement such measures in good faith, that it could finally start to seriously shake-off its pariah status. In the long run, Tehran’s aim should be that it is no longer deemed to be a state sponsor of terrorism. This in itself triggers a multitude of international sanctions, in particular in the U.S. which are also rigorously enforced through U.S. secondary sanctions. Ultimately, Tehran should also understand that if it continues to defy UN Security Council resolutions and provoke the U.S., it wouldn’t get a better deal than it has now. If pre-JCPOA sanctions are re-imposed, in the long-term this might even risk the survival of the Iran regime.
For the U.S., it must not abandon the JCPOA so quickly. The possible ripple effects of killing the nuclear deal could be felt beyond the JCPOA increasing the security risks – e.g. the stand-offs between the U.S. and Russia regarding Ukraine and North Korea. Why would these countries be willing to enter into agreements with the U.S. if these can be rescinded further down the line?