Geopolitics on the rocks

What Trump can do with the Iran Nuclear Deal

North America, Middle East and North Africa

Much to the pleasure of the hardliners, Trump could unilaterally withdraw from the nuclear deal. However, such a move would probably cause a significant split between the U.S. and the rest of the West (plus Russia) and prompt Iran to resume its nuclear activities.

President Donald Trump and officials in his administration have made very clear their distaste for the Joint Comprehensive Plan of Action (JCPOA), or Iran nuclear deal.  After more than a decade of standoff, discussions and negotiations, the agreement between Iran and the E3/EU+3 (China, France, Germany, the Russian Federation, the United Kingdom and the United States) entered into force in October 2015 and was implemented on 16 January 2016. 

Under the deal, Iran is subject to the most invasive nuclear inspection regime ever, and in return it gets some sanctions relief to improve its economy.  The JCPOA stipulates that the EU and the U.S. will “refrain from any policy specifically intended to directly and adversely affect the normalisation of trade and economic relations with Iran”, and the E3/EU+3 “agree on steps to ensure Iran’s access in areas of trade, technology, finance and energy”. 

As a presidential candidate, Trump derided the JCPOA as “horrible” and hyperbolically claimed it would “lead to nuclear holocaust.”  And his running mate, Mike Pence, went further by promising to “rip up the Iran deal!”  In April 2017, Secretary of State Rex Tillerson, in a letter to the U.S. Congress certifying Iran’s compliance with the JCPOA, wrote that Trump directed an interagency review of the deal.

Trump has four main options for dealing with the JCPOA:  1. Support the JCPOA in letter and spirit; 2. “Support” but not maintain; 3. Withdraw support (“rip it up”); and 4. Renegotiate.  The first two options are consistent with Trump’s realization during the presidential campaign that he’s likely stuck with the JCPOA he so hates (“It's very hard to say, ‘We're ripping it up.’” and “We have a horrible contract, but we do have a contract.”).  The last three options would gain the support of anti-JCPOA hardliners in the U.S., might result in splitting the U.S. from the E3/EU+3, and might even lead to Iran resuming its previous nuclear activities. 

Support the JCPOA in letter and spirit

Trump can continue to adhere in letter and spirit to the JCPOA, an acknowledgement that the deal is working.  His blustery but largely meaningless proclamation that he “would police that [JCPOA] contract so tough that they don't have a chance. As bad as the contract is, I will be so tough on that contract” would fall under this option (there is the U.S. Intelligence Community and its allies -- the former of which Trump has shown he does not trust -- but the International Atomic Energy Agency is responsible for “policing” the JCPOA).  In essence, this option would maintain the status quo. 

But the more important meaning of “maintain” is the continued waiving of Iran-related sanctions, assuming no Iranian violations of the JCPOA.  Hence, the Trump administration’s aforementioned April certification (reiterated in May) of Iran’s compliance with the JCPOA, required by U.S. law every 90 days.  The U.S. can still punish Iranian entities not directly related to the nuclear deal, such as the six Iranians and the Chinese network related to Iran's ballistic missile program the U.S. Treasury Department sanctioned in May 2017. 

The Trump administration abiding by the spirit of the JCPOA would also be important.  Statements by U.S. officials questioning or slamming the agreement causes continued risk aversion of companies desiring to do business with or in Iran.  Additionally, U.S. government foot dragging -- whether intentional or as a result of bureaucracy -- on approving licenses could deter U.S. and non-U.S. companies from pursuing business in and with Iran.

 “Support” But Not Maintain the JCPOA

The Trump administration’s second option is to support the nuclear deal, but not maintain it.  In other words, the U.S. government would not issue sanctions waivers, even if there are no nuclear-related violations by the Iranians.  For justification, Trump can do what the JCPOA purposely does not -- link non-nuclear issues, such as Iran’s support for terrorism, to the nuclear issue.  This would be a thinly-disguised effort to slowly kill the deal while claiming to support it.

But this option would very quickly become a slippery slope.  Iranian leaders, especially hardliners, are already perturbed at the limited economic benefits that have resulted from the JCPOA; U.S. and non-U.S. companies have been largely hesitant to re-engage in Iran.  And Iranian President Hassan Rouhani, a moderate who won a second term in May, has expended considerable political capital for the nuclear deal. 

Arguably, Supreme Leader Ayatollah Ali Khamenei also expended political capital on the deal, as he has the final word -- especially on matters of foreign relations, national security, and nuclear affairs.  Best case result of this option:  The remainder of the E3/EU-3 continue abide by the deal, causing a significant split with the U.S.  Worst case:  Iran withdraws from the agreement and resumes all its pre-JCPOA nuclear activities. The IAEA will no longer have its watchful eyes on Iranian nuclear activities, and the U.S. would be blamed for killing the deal -- the same end result as the remaining two options. 

Withdraw Support from the JCPOA (“Rip It Up”)

Trump can also withdraw from the nuclear deal, much to the pleasure of many hardliners in the U.S.  Hardliners in Iran would respond with righteous indignation, further weakening the already weakened moderates (despite Rouhani’s re-election, moderates never fully recovered from the regime’s 2009 post-election crackdown).  Triggers for this U.S. action could be Iranian JCPOA violations, regardless of their severity, the IAEA catching such transgressions, and Iranian corrections.  And the same non-nuclear excuses that the U.S. can use to subtly slice away at the deal’s maintenance can also be used to bludgeon it.  In fact, Tillerson has said he thinks “one of the mistakes in how that agreement was put together, is that it completely ignored all of the other serious threats that Iran poses.”

This option would be politically costlier to the Trump administration than supporting but not maintaining the JCPOA, despite the same potential end state; withdrawal is not subtle and cannot be blamed on the U.S. government bureaucracy.  Additionally, even friends and partners of the U.S. in the Middle East who were once against the deal would prefer to not see it fail.  The possible best and worst case of the “support but not maintain” option applies in this scenario.  But arguably, Iranian resumption of its pre-JCPOA nuclear activities would be more likely (albeit less likely than Iran staying in the agreement with the “E2/EU-2”), and more immediate.  This in turn could eventually prompt Israeli or American serious deliberations on a military strike against Iranian nuclear facilities.  One factor in that decision calculus will be if the ensuing regional turmoil -- largely unleashed and stoked by Iran in retaliation -- would be worth setting back the Iranian nuclear program only two to three years.

Renegotiate the JCPOA

The Trump administration has expressed interest in renegotiating the nuclear deal, which is much easier said than done.  In fact, it is highly unlikely to be successful. Iranian JCPOA supporters have spent most of their political capital on the deal.  Additionally, the JCPOA is not a bilateral agreement; the other five countries of the E3/EU+3 would need to participate in any renegotiations.  All indicators are that neither they nor Iran are willing to do so.  In addition to the all parties agreeing to re-enter what took two years of negotiations, Trump would have to offer sufficient additional benefits to Iran.  And of course, the Iranians might perceive U.S. attempts to renegotiate as an effort to stonewall or abrogate the JCPOA.

Trump’s national security staff would be wise to think several steps ahead with all options that do not involve supporting and maintaining the JCPOA, as Iran might retaliate by resuming its pre-JCPOA nuclear activities.  At that point, the U.S. would have extremely limited -- and probably no desirable -- options to deal with the Iranian nuclear program.

Sanctions-Related Risks and Opportunities for Businesses

Companies face several sanctions-related risks (and numerous other risks) related to conducting business with and in Iran.  There is the possibility of sanctions “snapback” if Iran violates the nuclear deal, or if the U.S. unilaterally re-imposes sanctions.  There is also a risk of future sanctions not directly related to the nuclear deal.  For example, the U.S. could conceivably re-sanction Iran Air for terrorism-related or human rights reasons; the airline is suspected of flying Iranian arms to Syria.  In fact, both Iran Air and Mahan Air were sanctioned in 2011, and Mahan Air remains penalized.  Additionally, Iranian business partners or banks currently not sanctioned could conceivably be found to “touch” currently sanctioned entities, such as the Iranian Revolutionary Guard Corps - Qods Force (IRGC-QF).  This risk will be significantly increased if the U.S. sanctions the IRGC-QF’s pervasive parent organization, the IRGC.

Under the JCPOA, the U.S. removed so-called secondary sanctions (restrictions against non-US entities).  The U.S. also lifted primary sanctions (restrictions against U.S. entities) for commercial passenger aircraft, U.S.-owned or -controlled foreign entities, and importation into the United States of Iranian-origin carpets and foodstuffs.  In short, opportunities for non-U.S. businesses abound, depending on their risk appetite.  Opportunities for U.S. businesses with and in Iran are still extremely limited even if Trump supports and maintains the JCPOA.  Boeing’s impending $16.6 billion sale of 80 aircraft to Iran Air is a rare example.  But not if Iran Air is sanctioned.