Pulling Out of the Iran Deal: America’s Defeat, Trump’s Victory

The Unites States’ withdrawal from the so-called “Iran deal” – the Joint Comprehensive Plan of Action (JCPOA) – caused serious concern in the international corporate sector. The concern of businesses is connected to the prospect of the US returning to the policy of sanctions against Iran. Companies worry about the possibility of extraterritorial sanctions for cooperation with Iran. The event caused a comparable resonance in the diplomatic circles. The withdrawal from the deal can lead to destabilization in the Persian Gulf and the Middle East. Let’s try to figure out what sanctions Washington can introduce, how dangerous the new situation is for Iran and its partners, and how efficient the new sanctions policy can be.

We should start from the fact that a number of sanctions introduced by the US and the EU against Iran continue to function independently of the JCPOA. They concern the issues which are not related to the military nuclear program. In the American case, such sanctions are contained in the well-known law PL 115-44 (CAATSA). They are related to several subjects. First, the Iranian program for the development and testing of ballistic missiles. Washington is the most consistent opponent of this program, considering it a serious challenge to its security. Second, there is the conventional military potential of Iran. The US Congress obliges the Administration to monitor it constantly and to prevent arms supplies to Iran. Third, the Americans accuse Tehran of support for terrorist movements (such as Hezbollah). Fourth, the violation of human rights in Iran is a cross-cutting issue for American sanctions. Fifth, there are sanctions in case of detention of American citizens by Iran.

This impressive list was of little concern to both Iran itself and its trade partners. It remains a disturbing background (“background sanctions”), but nothing more. The CAATSA sanctions did not affect the main subject – the oil sector of Iran. Previously it was the blocking of Iranian oil exports that made Tehran sit down at the negotiating table on the nuclear deal in 2013. Moreover, as for the human rights sanctions, the European Union has consistently supported the United States up to the present.

The situation with the military nuclear sanctions is quite different. Even during the JCPOA negotiations, the Obama administration was severely criticized by several Congressmen for being too soft. The administration had to wage war practically on two fronts – domestic and diplomatic. The criticism of the deal by Donald Trump has its own internal political roots and, of course, should not be explained by the caprice or eccentricity of the American president. For Trump, this is a principled position. The concessions will mean his defeat on the domestic political front. Therefore, Trump showed (and will show) determination to destroy the deal contrary to the opinion of the allies and members of the UN Security Council. According to the Iran Nuclear Agreement Review Act (INARA - PL 114-17), adopted by the US Congress in 2015, the president is obliged to confirm every three months that Iran complies with the terms of the deal. By refusing such confirmation, Trump creates an opportunity to return to sanctions, which were taken earlier by the adopted laws (CISADA - PL 111-195 of 2010, IFCA - PL 112-239 of 2012, and also the Iran Sanctions Act - ISA of 1996 with amendments of 2010).

So what specific sanctions can we talk about? First of all, these are extraterritorial sanctions against Iran’s energy sector. It is possible to return to the rules that imply restrictions on investments in the energy sector of Iran and the oil products supplies (being a significant supplier of oil and gas, Iran lacks enough processing capacities). The Americans can again (as in 2012) try to force third countries to restrict or refuse the purchase Iranian oil. The Americans themselves radically lowered their imports as far back as in 1979, and by the beginning of the 1990s refused to buy it in general. Sanctions are possible against transport companies that carry Iranian oil, as well as insurance companies that insure transportation. Trump can also resurrect the spirit and letter of Barack Obama’s executive order 13590, which enshrined sanctions against companies selling to Iran equipment for the energy sector.

Furthermore, we can talk about financial sanctions. They can be painful both in themselves and in combination with sectoral (energy) ones. For example, any “suspicious” Iranian bank, as well as foreign banks interacting with Iran can be sanctioned. All dollar transactions will be “on the radar” of the US Treasury. Americans can again make third countries face a choice: either the Iranian market or the US market. Moreover, Washington can return to sanctions against Iran’s sovereign debt bonds.

Finally, we can also talk about a broader list of sanctions that will directly affect the nuclear sector, missile technology, terrorism, Iran’s support for the government of Syria, human rights, etc. Here, the US administration has room for maneuver in the framework of the CAATSA.

First of all, businesses will suffer from new sanctions. In the short term, the price of risk will grow simply because of the very fact of uncertainty. Sanctions are likely to be pinpoint and selective. But for businesses, this is hardly a consolation, as it is not obvious yet who exactly can fall under the sanctions.

The political perspective of sanctions is much less obvious. None of the JCPOA participants supported Donald Trump’s eagerness to destroy the deal. The US actions were condemned not only by Moscow and Beijing, but also by NATO allies – France, Germany and even the UK, not to mention the EU authorities. All of them stated that they would adhere to the JCPOA. Needless to say, any US draft resolution of the UN Security Council on the JCPOA abolition has zero chances of success.

Such universal rejection of American moves raises the question of the effectiveness of Washington’s future sanctions. Yes, the Department of the Treasury can start listing these or other companies. But every such action will lead to serious political tensions with the countries of businesses’ origin. It is one thing to introduce sanctions, for example, against a French bank in the presence of UN Security Council resolutions and the real concern of the EU about the Iranian nuclear program, as it was before 2013. And quite another – to impose fines against Europeans, Chinese or Russians in conditions of their full support of the JCPOA. If a company falls under the sanctions, the efficiency of its lawyers and GR departments can well protect it from bigger problems – governments will protect their companies. Politically, it is important that the Americans will not be able to create a new sanctions coalition. The coalition actions are the key to the success of sanctions. The US alone is unlikely to achieve results despite all its might. In other words, Iran and its partners will be able to circumvent the sanctions.

Now a lot will depend on Iran itself. If Tehran shows patience, then it has great chances to expose Washington as a violator of international agreements and put the international community on its side. However, any radicalization of the Iranian position (possibly under the influence of domestic factors) will strengthen the position of the Americans and create the basis for a new anti-Iranian coalition. The latest statements of Tehran speak about the implementation of the first scenario.

The emerging situation turns into a diplomatic defeat for America, which is becoming isolated. But it is a victory for Donald Trump personally. He shows his adherence to principles and rigidity. In case of another complication of the Iranian issue (and this cannot be ruled out), he provides for himself a full guarantee of security of his positions. For Trump as a politician it is a win-win investment.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.