Washington's Weakening Hand In Iran

Pulling out of the nuclear deal will carry great costs and little gain for the U.S.

By October 15, president Trump must re-certify Iran’s compliance with the terms of the nuclear deal (JCPOA) to Congress. This certification is mandated by the Congress and is to be repeated every 90 days. President Trump’s administration has grudgingly certified Iran’s compliance twice before during its term. This time however, based on comments from the president and others in his administration, it is likely that they will refuse to certify Iran’s compliance. What follows is subject to speculations, but it is evident that the U.S. is playing a weak hand. The consequences of U.S. reneging on the nuclear deal will only result in additional tension in the region, damage American credibility, create a rift between the U.S. and its allies, all without any meaningful pressure on Iran to alter its regional policies.

During his campaign, candidate Trump railed against the 2015 JCPOA. As president, Trump has continued his attacks, threatening repeatedly to walk away from the deal, or at the very least to refuse to re-certify Iranian compliance. Since the implementation of the nuclear deal, the International Atomic Energy Agency (IAEA), a body of the United Nations in charge of monitoring Iran’s related activities has regularly verified Iran’s compliance with the terms of JCPOA. Consequently, the Trump administration has found it impossible to argue with IAEA findings. Instead, to justify its refusal to certify, the administration has accused Iran of violating the “spirit” of the nuclear agreement. They point out Iran’s development of ballistic missiles, the country’s involvement in regional conflicts and state sponsorship of terrorism as evidence of its default. 

The administration has three possible choices: walk away from the JCPOA, refuse to certify the deal, or remain within the deal while pushing for a second track of negotiations. It is far more likely that if will simply refuse to certify, sending the ball to Congress’s court. The latter will then have 60 days to decide if the U.S. will opt out of the nuclear deal. Alternatively, the Congress may decide to stick with JCPOA and instead turn up the heat on Iran by imposing aggressive non-nuclear or so-called secondary sanctions.

The main problem that the Trump administration is facing is that the U.S. is playing a weak hand, particularly on the economic front, because sanctions have reached the point of diminishing returns. Paradoxically, this has been the result of decades of sanctions on Iran, which has over time reoriented its economic relations away from the United States and towards Europe and Asia, whether it be in trade in goods and services, technology and finance. As a result, the U.S. economic influence on Iran has waned. Since the 1980s, economic relations between the U.S. and Iran have been minimal. Total trade between the countries totaled $3 billion in the 2006-2016 decade. Furthermore, the July 2015 nuclear agreement between the so-called P5+1 (United States, Russia, China, France and the UK, plus Germany) and Iran, did not live up to its promise to re-establish U.S.-Iran economic relations. Quite the contrary: U.S.-Iran trade in the first seven months of 2017 totaled $87.3 million, compared to $260 million in 2016 and a peak of $389 million in 2015, the year of the JCPOA agreement. On an annualized basis, the 2017 numbers show a 66 percent decline from an already small base. The only deal of any significance was the $22 billion agreement for the sale of Boeing aircraft to Iranian airlines. In contrast, Iran’s trade with the European Union is surging, up 94 percent in the first six months of 2017. The EU is now Iran’s main trading partner. The next four are China, the UAE, South Korea and Turkey. In addition, European and Asian companies have entered major deals to invest in the automotive, tourism and energy sectors in Iran and are finding creative ways to bypass dollar dominated banking transactions. China is using the opportunity to strengthen its economic influence on Iran through ambitious projects (the Silk Road Economic Belt), the granting of credits and/or tying Iran to the Shanghai Cooperation Organization. 

The other parties to the JCPOA have rightly rejected calls from the Trump administration to walk away from the deal. The result of such a step would be to allow Iran’s nuclear program to resume, with the potential for the development of a nuclear weapon by the Islamic Republic with a few months. On the other hand, a broadening of negotiations with Iran on its regional policies, human rights and an extension of the JCPOA timetable are reasonable and have the support of the U.S. allies. Nevertheless, for the United States, the waning of its economic influence weakens its negotiating position with Iran, especially if it is offering only sticks (sanctions and/or military confrontation), but no carrots.

The shrinking U.S. economic presence in Iran has not only kept the United States away from one of the most promising markets in the Middle East, but has also allowed the other economic powers to use the opportunity to consolidate their long-term hold on the Iranian economy. Despite rhetoric by the Trump administration that their quarrel is with the Iranian regime and not its people, the actual policies have produced the opposite results. These policies have undermined the private sector and pro-western elements in Iran. At the same time, they have strengthened the hands of Iran’s hardliners and have benefited parastatal agencies, many of them under the control of IRGC, state foundations and individuals with close ties to the regime.