May 14, 2018
Concern and Uncertainty After Iran Deal Exit
By Owen Daniels
On May 9, the Middle East Security Initiative (MSI) in the Atlantic Council’s Scowcroft Center for Strategy and Security convened a panel of experts for a conference call conversation assessing the implications of President Trump’s decision. Rachel Brandenburg, MSI Director, moderated the discussion, which featured senior fellows Amir Handjani and David Mortlock, board director Dov Zakheim, Future of Iran Initiative Director Barbara Slavin, and Suzanne Maloney, Deputy Director for Foreign Policy and Senior Fellow in the Center for Middle East Policy at the Brookings Institution.
The participants expressed a range of views on the policy implications of the United States’ JCPOA withdrawal. They agreed, however, that withdrawing from the JCPOA without an alternative strategy was counterproductive to US interests and leadership. Panelists discussed potential next steps for many stakeholders, including the United States, Iran, European allies, and regional partners.
“We will be instituting the highest level of economic sanctions”
In President Trump’s statement announcing US withdrawal from the agreement, he said that the United States would be re-instating the “highest level of economic sanctions” against Iran. The Departments of Treasury and State quickly issued clarifying guidance on the president’s sweeping announcement, detailing ninety- and 180-day wind down periods for Iran deal sanctions relief. The ninety-day wind down covers sanctions primarily related to Iran’s financial, aircraft, automotive, and non-petroleum natural resource sectors, while the 180-day period primarily addresses shipping, energy, and petroleum products. By November 4, 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC) expects “all the US nuclear-related sanctions that had been lifted under the JCPOA will be re-imposed and in full effect.”
Secretary of State Michael Pompeo noted shortly after President Trump’s announcement that the United States would work with allies to find “a real, comprehensive, and lasting solution to the Iranian threat,” though State Department officials admitted in a press background briefing the next day that they had not discussed a “Plan B” to the JCPOA with European counterparts.
The immediate geostrategic implications of the decision remain unclear. Maloney noted that President Trump’s “deliberately provocative breach” of the JCPOA might “unleash a number of what are ultimately unpredictable escalatory pressures in an already volatile Middle East.” The only thing clear about the administration’s strategy is that it is “prepared to disrupt the status quo.”
Zakheim agreed that “disruptive” appropriately described President Trump’s decision, but he does not yet foresee such dire consequences. Zakheim expects the European Union (EU) and its member states will work with Iran to preserve the deal, in a similar fashion to the approach parties to the Trans-Pacific Partnership are taking absent the United States. Handjani cited comments by Iran’s Supreme Leader Ayatollah Ali Khamenei that Iran could continue in the JCPOA if it receives guarantees from Europe – though Khamenei did note, “I don’t even trust these countries.” (Iranian President Hassan Rouhani stated almost immediately after Trump’s speech that Iran would remain in the deal, though it is poised to resume its nuclear program.)
Will Europe pick up the pieces?
The onus to preserve the deal is now on Europe, although the road ahead appears rocky. Europe’s trade relations with Iran have traditionally been greater than those of the United States; firms in France, Germany, and the United Kingdom, among others, are the most likely to be impacted by US secondary sanctions.
Slavin worried that Trump’s decision could have troubling consequences for transatlantic relations. “Macron came here; Merkel came here; [UK Foreign Minister] Boris Johnson came here – they were all humiliated, frankly. Donald Trump sat back and enjoyed as they entreated him to stay within this deal…I don’t see how the United States will be able to count on Europe politically to ‘contain’ Iran.” Zakheim said he could “see a real crisis in NATO.”
This is not the first time that the United States and its European partners have differed over US sanctions against Iran. Mortlock pointed out that in 1996 the EU passed blocking legislation in response to the Cuban Liberty and Democratic Solidarity Act (“Helms-Burton”) and the Iran and Libya Sanctions Act. The latter statute used secondary sanctions to deter foreign investments in Iran or Libya that could be used for terrorism funding or the development of petroleum resources.
Both the EU and its member states filed complaints with international trade organizations and considered retaliatory measures against the United States. The blocking resolution adopted by the EU prohibited EU persons and companies from complying with the US sanctions. However, the resolution was largely a loosely defined political statement, and therefore difficult for EU member states to enforce. Mortlock said Europe is currently in a “very different place” than it was in 1996 in terms of its willingness to implement a blocking statute against the United States. If the EU or member states took similar action now, it “would create a great deal of confusion among European companies” about the legal complexities and obligations involved.
As “the doorstep of the Middle East and West Asia,” Iran and the JCPOA matter a great deal to Europe from “a political and security perspective,” said Handjani. But, at the same time, European banks and multinationals have been unwilling to adopt the heavy risk of doing business with Iran given their “huge exposure to the US market,” particularly since United Nations nuclear sanctions were imposed in 2006. Maloney added, “Europeans have more to lose politically but less to lose economically…The bigger questions are our allies in Asia, and of course China, which is the largest importer of Iranian crude and which has far greater room for maneuver in terms of insulating itself from American sanctions if it chooses to go that way.”
Zakheim hypothesized that Europe might take a similar approach in responding to the JCPOA decision as it did to the Trump administration’s announcement of steel tariffs against the EU. With the latter, the US granted the EU a month-long extension to continue deliberations on a new agreement to avoid steel and aluminum tariffs. Zakheim expects we could encounter a similar scenario with nuclear sanctions waivers “to [allow] the Europeans much more flexibility” and let Trump “feel that he hasn’t lost any face.”
Despite what likely amounts to little economic damage, Europeans will “be very bitter and resentful about the way that they’ve been treated,” said Slavin.
Iran’s waiting game and the view from the region
The broad consensus among the speakers was that Iran is in no rush to procure a nuclear weapon.
As Europe and Iran explore potential mechanisms by which to continue trade relations, “Iran wants to win the blame game not just with the Europeans, but with the world,” said Handjani. Iran is not a monolith, he added, and its ultimate response to the US decision will reflect a consensus among its various domestic power centers. But, in the short-term, Iran is unlikely to kickstart nuclear weapons development. Iran has the opportunity to drive the narrative, given that it was not the party to abrogate the agreement.
Handjani also pointed out that “Iran has strategic leverage in the region it didn’t have fifteen, sixteen years ago.” Its relations with Hezbollah in Lebanon remain strong; President Bashar al-Assad’s Iran-backed regime appears likely to survive Syria’s civil war; Shia militias with Iranian ties are targeting electoral gains in Iraq; and Yemen’s Houthis have provided a relatively low-cost method for Tehran to needle its regional rival in Riyadh. “None of that changes with the US pulling out of the deal,” he added.
Ongoing skirmishes between Israel, Iran, and Shia militias in Syria and along the Israeli border provide yet another potential flashpoint. Israel and Iran traded air and missile strikes in the twenty-four hours after Trump’s announcement, and both rhetoric and tensions remain high.
“You’ve got a fairly combustible situation and anything can happen, and I will be very happily proven wrong if in fact this sorts itself out very neatly without any further escalation,” Maloney concluded. “But I think that the overwhelming likelihood is that this does become messier before it finds its way to some kind of resolution.”
Owen Daniels is an associate director with the Middle East Security Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security. Follow him on Twitter: @OJDaniels.