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Iran | Assessing the Future of the JCPOA under President Trump

Iran | Assessing the Future of the JCPOA under President Trump

President-elect Donald Trump’s November victory over Hillary Clinton raises the question of whether we should take seriously his threats to ‘rip up’ the Joint Comprehensive Plan of Action (JCPOA).

It is unclear at this stage whether Mr Trump’s threats will lead to a complete abandonment of the terms outlined by the JCPOA – something that the more conservative factions within the Republican party have been calling for since the agreement was signed in July 2015 – or whether he might seek to compromise by scaling back the aggressive stance that he took during his presidential campaign. Given the constraints of actually being in office as well as the need to maintain good working relationships with the country’s closest partners, our view is that Mr Trump will likely lean toward the latter option in order to avoid antagonising the JCPOA’s other signatories.

The anti-JCPOA rhetoric is, however, not confined to Mr Trump and his supporters. For all that there is a loud and hostile faction on the US side, there is an equally hostile caucus within the Iranian government that would like to sabotage the deal. So far, however, the influential figures that oppose the rapprochement have been counterbalanced by President Hassan Rouhani, Foreign Minister Javad Zarif and other members of the Iranian parliament’s moderate coalition. This group has consistently advocated a more measured response to the US government, particularly during the negotiations that led to the signing of the JCPOA.

This more conciliatory approach is a clear indicator that economic and political realities are likely to prove more decisive than impassioned rhetoric. The nuclear negotiations took place in the context of a far-reaching and strictly monitored sanctions regime that effectively crippled the Iranian economy. Jacob Lew, the US Treasury Secretary, estimated in April 2015 that international sanctions had caused Iran’s economy to be 15 to 20 percent smaller than it would have been had it not been deprived of $160 billion in oil revenue. The uncertain economic position clearly impacted Iran’s negotiating team, as they were unable to maintain consistent opposition to the US and its partners while the Iranian economy was suffering these headwinds.

It is true that Mr Trump will have both the legal authority and - probably - the political backing to put in place new unilateral sanctions against Iran. What is less clear, however, is whether his cabinet will be able, or indeed willing, to persuade him that the foreign policy ramifications of doing so would be something the US might prefer to avoid. Choosing to pursue new unilateral sanctions against Iran would likely not only damage the US’s foreign relations and international credibility, but would also materially increase the risk that Iran itself unilaterally voids the deal.

The JCPOA is, after all, a multilateral agreement.  Continued support for the deal among the other nations of the P5+1 (China, France, Russia, the United Kingdom and Germany) ensures that even were Mr Trump to exercise his executive authority to reimpose sanctions, the other nations would be very unlikely to follow suit. Domestically, Trump could present opposition to the JCPOA as a means of rallying his support base and showing that he was committed to delivering on campaign promises. It is unclear, however, whether the serious political and economic implications for US allies will lead Trump to shy away from implementing secondary sanctions.

Given the various forces at work, it seems probable that the US will continue to comply with the terms of the JCPOA, at least for the next three to twelve months. Not only would an abrogation of the deal have consequences for the US’s relations with its allies, but Mr Trump's advisors have indicated that US-Iran policy will not be the incoming administration’s immediate priority. In addition, European support for the deal has remained strong, with the result that the present more benign conditions for European businesses seeking to enter the Iranian market are likely to continue. But even if the immediate prospect remains of a stable JCPOA being maintained for the immediate future, one of the major risks to its continued implementation (and, therefore, access to the Iranian market) comes from Tehran rather than from Washington.

One potential scenario is that Iran could step away from its commitment to the nuclear deal as a pre-emptive response to a perceived risk of future violation by the US side. Mr Trump’s remarks regarding the future of the nuclear deal have added to the existing discontent in Iran regarding its implementation. Iranians are particularly frustrated by the slow pace of economic recovery since the implementation of sanctions relief in January 2016. The ambiguous guidance issued by the US on Iran’s access to dollar transactions has deterred international financial institutions from conducting transactions with Iran, resulting in the perception in Iran that the US is actively preventing the country from participating fully in the international financial system.

The recent US Senate approval of a ten-year renewal of the Iran Sanctions Act (ISA), which President Obama’s office has indicated it will sign, has exacerbated the view in some quarters in Iran that the US is already violating the terms of the JCPOA. Hardline newspapers such as Javan have suggested that if such violations are already happening under President Obama, then it would be foolish not to expect more and more serious abuses under President Trump. In a worrying sign, this criticism has not been restricted to hardline media or politicians. President Rouhani has publicly stated, for example, that the renewal of the ISA is a violation of the nuclear deal, while Ali Larijani, the speaker of the Iranian parliament, has called for a claim to be filed at the JCPOA’s dispute resolution body in response.

It is therefore plausible that over the next year anti-JCPOA rhetoric will become increasingly frequent and hostile. While this will contribute to greater uncertainty surrounding the future of the nuclear deal, neither the US nor Iran is likely to act on it. It is more likely that the JCPOA will begin to unravel in a gradual and cumulative process over the next twelve to eighteen months, instigated by small, tit-for-tat transgressions on both sides.

This article is published in Europe Business Review.

Image: Iranian President Hassan Rouhani/ December 4, 2016/ AP Photo/ Vahid Salemi/ Press Association

Published: 14th December 2016
Categories: Company News