Going nowhere alone: US sanctions on Iran and the afterlife of the JCPOA

Fridtjof Falk
Fridtjof is the Iran Editor for JMEPP and an MA candidate in Middle Eastern Studies at Harvard University. Previously, he worked for the New York City Mayor's Office for International Affairs and the Carter Center's Conflict Resolution Program.

On November 5th, 2018, the Trump administration re-imposed severe sanctions on Iran. These sanctions, which President Obama called the “toughest sanctions ever faced by the Iranian government,” were lifted by the 2015 Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Deal. The JCPOA was signed with a view to blocking Iran’s alleged pursuit of nuclear weapons, allowing international inspectors into Iran in return for sanctions relief. Withdrawing the United States (US) from the deal was a prominent promise of Donald Trump leading up to the presidential elections of 2016. In a May 2018 speech that described the deal as rooted in “fiction,” President Trump made good on his promise to leave the JCPOA and to move to unilaterally re-impose sanctions on Iran.

 

Background: sanctions’ structure and implementation

The reinstituted sanctions target Iran’s shipping, financial and energy sectors, particularly Iran’s vital oil and gas trade. On November 8th, US Treasury Secretary Steven Mnuchin announced that the Iranian Central Bank would be shut out of the Belgium-based SWIFT international banking messaging system. SWIFT, a neutral body that allows for cross-border payments, has been forced to choose between failing to comply with US sanctions, facing potential penalties from Washington D.C., or risking the ire of European leaders who are interested in strengthened trade ties with Iran. SWIFT also declined to process transactions by Iranian banks under the old sanctions regime, a policy that isolated Iran from the international financial system.

While the Trump administration says it aims to halt all Iranian oil exports in the long term, the United States has issued waivers for eight states (China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey) to continue importing Iranian oil. This policy suggests that the US administration prioritizes stability in oil prices over the full implementation of the sanctions regime. Iran has questioned Saudi Crown Prince Mohammed bin Salman’s claim that Riyadh can make up for lost Iranian oil exports. Meanwhile, although they have reduced imports, China and India, the two largest buyers of Iranian oil, are so dependent on crude oil imports that the United States will have a difficult time inducing them to halt all imports of Iranian oil. In particular India enjoys amicable relations with Iran: Tehran fulfils Indian crude oil demands and India sees Iran as a vital geopolitical partner through the building of the Chabahar port. Fully halting imports of Iranian oil could destabilize Indian and Chinese imports, driving up fuel costs and thereby affecting their domestic energy-intensive industries.

 

A changed international landscape

US sanctions on Iran stretch back to 1979. Beginning in 2010, the Obama administration added to these existing sanctions with the active support of the international community, until the signing of the JCPOA. Differences in the international political landscape dramatically alter the consequences of today’s re-imposed sanctions regime. Most importantly, Iran enjoys a great deal more sympathy from the international community than it has under previous rounds of US sanctions since the discovery of Iran’s clandestine nuclear program in 2002. With the exception of a few Arab states and Israel, the United States had few backers in its move to renew sanctions. Tehran is seeking to cultivate an image of Iran as the party adhering to international institutions and multilateralism, and the United States as a destabilizing actor. An International Criminal Court of Justice (ICJ) ruling on October 3rd which ordered the United States to ease sanctions on Iran, seemingly endorsed that view. However, the court rejected Tehran’s additional call for the United States to cancel all reinstated sanctions and to compensate Iran for lost revenue. Even so, the United States responded by withdrawing from an ICJ protocol and pulling out of a friendship treaty with Iran signed in 1955. Moreover, as Iranian diplomats like to point out, the reinstitution of sanctions represents the first time that a member of the United Nations Security Council (UNSC) – the United States – has punished other members of the Security Council for enforcing the body’s own resolution. The JCPOA was unanimously approved by the UNSC in July 2015, and the European Union (EU) has clung to this very resolution when justifying its aim to continue trade with Iran.

In its quest to enforce the sanctions regime, the United States announced it would punish even non-American companies that do business with Iran. Companies may face fines and exclusion from the US-dominated global financial markets. In a remarkable move, the EU aimed to reduce the impact of the unilateral US sanctions by explicitly instructing European companies not to adhere to the US sanctions. Yet, the fear of US retaliation has already led to an exodus of major companies from Iran, including shipping giant Maersk and European and Indian oil companies. India suggested there were other ways to trade crude oil with Iran, likely pointing to the barter system New Delhi used to trade with Tehran prior to the signing of the JCPOA. Iran can also lean on discounts and smuggling to sell its oil, which unilateral American efforts will have a difficult time pinning down. The EU, China and Russia announced that that they are working on setting up a clearinghouse that will sidestep the dollar-dominated financial markets and establish a Special Purpose Vehicle for trade with Iran in Euros. In theory, this would allow for continued Iranian trade within the renewed sanctions framework. The US Treasury Department said it was not worried about this development; financial experts have suggested the United States can simply alter the scope of its sanctions to work around the EU workaround. Moreover, even though the EU said it is accelerating the development of the Special Purpose Vehicle, EU foreign policy chief Federica Mogherini has yet to set a date for the implementation of such a mechanism. Iranian Foreign Minister Javad Zarif claimed the main issue for the Europeans was finding a country willing to host such a mechanism, a move that would constitute a break with the United States for that country.

 

Preliminary outcomes: policy change and economic hardship

Most experts agree that new sanctions will have a major impact on an already ailing Iranian economy. In 2012, the Iranian GDP shrank by 7.4 percent due to the intensified sanctions regime implemented by the international community during Obama’s presidency. On November 28th, President Rouhani announced that the 2019 budget bill aims to provide financial support to Iranians in the lower-income bracket in order to mitigate the impact of the recently re-imposed sanctions. Regardless, sanctions have already affected imports of medicine, agricultural products and food, all of which are supposed to be exempt from sanctions on humanitarian grounds. Even so, polling suggests that support for restarting negotiations is low among the Iranian people – over 67% of respondents to a January 2018 IranPoll survey favored increasing Iranian economic self-sufficiency rather than increasing trade, expressing a lack of confidence that foreign partners would uphold their commitments to Iran.  

The Trump administration has struggled to convey a coherent message regarding the practical aims of the “maximum pressure” campaign on Iran. Secretary of State Mike Pompeo outlined a list of demands that, if implemented, would constitute a radical change in Iran’s regional role and policy as a basis for further talks. Demands include halting Iran’s proliferation of ballistic missiles, withdrawing Iranian troops from Syria and ending support for groups the United States labels as terrorists. While it is difficult to imagine Pompeo’s wish list being fulfilled any time soon, there are signs that the Trump administration has more modest aims in its Iran policy. When the President laid out his Iran strategy in October 2017, he emphasized the general need for the United States’ European allies to get tougher on opposing Iran’s larger Middle East strategy. Europe has not been so eager to fall into line.

 

Bleak prospects for a new deal

It took 13 years of negotiations from the time Iran’s nuclear program was exposed until the signing of the JCPOA in 2015. Iran has signaled that it will remain in the JCPOA as long as the deal serves Tehran’s interest. While the renewed US sanctions regime will certainly have a detrimental impact on the Iranian economy, Iran is winning the public relations battle on the world stage. Iranian efforts to dilute the impact of US sanctions enjoy broad support in the international community. Those limited successes, combined with lackluster support for jumpstarting negotiations in US policy circles and among other JCPOA signatories, limit President Trump’s ability to force Iran back to the negotiating table.

Leave a Reply

Your email address will not be published. Required fields are marked *