US Collision Course With Iran

The US policy of “maximum pressure” against Iran and its nuclear program has entered its second year, bolstered by Washington’s recent decision to terminate sanctions waivers on Iranian nuclear activity and oil sales. These sanctions waivers had been extended to keep the Iranian nuclear deal alive despite the decision by US President Donald Trump to withdraw from that agreement in May 2018. By ending the waivers, the US has put itself on a collision course with Iran about its nuclear program. The two countries now lack any viable diplomatic off-ramp that can prevent their differences from erupting into armed conflict, and the other signatories of the nuclear agreement seem unable or unwilling to intercede. Meanwhile, the US is expanding its naval presence in the region and tankers have been attacked near the strategically important Strait of Hormuz. Risks of war are rising.

Late last month, on the eve of the first anniversary of the US withdrawal from the Iranian nuclear deal (officially known as the Joint Comprehensive Plan of Action, or JCPOA), the US State Department announced that it would renew only five of the seven sanctions waivers that allow civilian nuclear cooperation with Iran by Russia and Europe. The decision not to renew two waivers on nuclear cooperation fundamentally undermines the entire JCPOA. Under the terms of the 2015 nuclear deal, Russia and several European nations were permitted to help Iran maintain several nuclear facilities, including the Bushehr nuclear power plant, the Fordow enrichment facility, the Arak nuclear complex and the Tehran Research Reactor, and assist in converting the equipment used at these locations for exclusively civilian use. However, the two waivers that were not renewed are critical to Iran’s ability to operate in compliance with the JCPOA. The loss of these two waivers means that Iran’s ability to store excess heavy water produced through the uranium enrichment process in Oman and a provision that allowed Iran to swap enriched uranium for unprocessed yellowcake with Russia are no longer viable.

By singling out the storage of heavy water and the enriched uranium-yellowcake swap, the US underscored its position that Iran must stop what it termed “proliferation-sensitive activities,” inclusive of all uranium enrichment. Under the JCPOA, Iran is permitted to produce heavy water and enrich uranium. However, the JCPOA set caps on the amount of heavy water and enriched uranium that Iran was permitted to store on its soil at any given time. Iran had previously been able to ship excess heavy water to Oman until a buyer could be found, and the uranium swap program with Russia likewise ensured that Iran did not accumulate enriched uranium in excess of what was permitted under the terms of the JCPOA. By eliminating the outlets used by Iran to be in compliance with the JCPOA restrictions, the US has created conditions under which Iran cannot remain in compliance if it continues to enrich uranium, as it would accumulate materials above and beyond that permitted by the JCPOA.

The failure to extend the two critical nuclear sanctions waivers coincided with the decision by the Trump administration not to extend oil sanctions waivers for eight countries that continued to import oil from Iran. The dual-track approach regarding the denial of sanctions waivers for both nuclear activity and oil sales reflects the seriousness of the US when it comes to implementing its “maximum pressure” campaign against Iran. The US goal is to compel the Iranian government to enter into negotiations that would curtail what the US terms “malign activities” — which include nuclear enrichment, ballistic missile production and regional power projection — in exchange for the normalization of economic trade, including oil exports. The White House has provided the government of Switzerland, which acts as a diplomatic intermediary between Iran and the US, with a telephone number that the Iranian government can call when it is ready to discuss an off-ramp to the current crisis.

Iran’s Response

Iran has made it clear it will not be picking up the phone any time soon. Instead, Iran continues to take a legalistic approach toward ensuring that its rights under the JCPOA are respected, if not by the US, then at least by the other signatory nations, especially Germany, France, the UK and the EU. There is no debating that the US, through its precipitous withdrawal from the JCPOA, is in violation of that agreement. Iran, however, is insistent that Europe and the EU adhere to their commitments under Article 26 of the JCPOA not to reintroduce or reimpose sanctions or restrictive measures. Iran has invoked the dispute resolution processes under Article 36 of the JCPOA, which provides a 60-day window for a series of formal processes designed to craft a solution. If that process fails, Iran, as the complaining party, could use the unresolved issues as grounds for ceasing to perform its commitments under the JCPOA in whole or in part, and report such to the UN Security Council.

For Iran, the value of the JCPOA has always been centered on its ability to deliver economic benefits, mainly the termination of crippling economic sanctions imposed over the course of a 13-year standoff regarding its nuclear enrichment program. While the US never fully lived up to its commitments under the JCPOA, Iran was hopeful that Europe would. These closer ties could then contribute to an economic revival that would assuage the doubts of those elements in the Iranian body politic that were distrustful of any diplomatic engagement with the West. Both the US withdrawal from the JCPOA in 2018 and Europe’s inability to live up to its obligations regarding trade with Iran, inclusive of the purchase of oil, in the face of renewed US sanctions, have soured Iran on the JCPOA.

The promise of unrestricted economic trade between Iran and the rest of the world has been an illusory objective for Iran, made even more so by the glacial European response to the reimposition of US sanctions following Trump’s decision to withdraw from the JCPOA in May 2018. Europe’s rhetoric about the importance of keeping the JCPOA alive has not, to date, been matched by action. The centerpiece of Europe’s efforts in this regard, a so-called “special-purpose vehicle” ostensibly designed to facilitate trade between Iran and Europe outside the framework of US sanctions, has been a disappointment to Iran.

This special-purpose vehicle, known as the Instrument in Support of Trade Exchanges, or Instex, is an EU-backed system designed to facilitate trade with Iran in order to help European businesses circumvent unilateral US sanctions on Iran. Created by the three EU nations that signed the JCPOA — the UK, France and Germany — Instex acts as a euro-denominated clearinghouse for Iran to conduct trade with European companies. It operates outside of the US-dominated Society for Worldwide Interbank Financial Telecommunications, or Swift, banking exchange system. Instex was intended to — at least initially — focus on non-sanctionable essential goods such as humanitarian, medical and agricultural products. It was not designed to address oil-related transactions, which represent Iran’s primary source of foreign currency and primary trade concern. This focus on non-sanctionable products, as opposed to oil, means that Instex is virtually useless when it comes to rectifying the economic impact of the US sanctions.

The questionable viability of Instex is at the core of Iran’s current frustration with Europe. While Iran’s use of the JCPOA dispute resolution mechanism ostensibly provides a 60-day window for Europe to fix the inherent problems associated with Instex, the reality is that such an outcome exceeds the operational parameters of Instex and the political will of the European countries to come up with a solution that meets Iran’s demands. Europe has not demonstrated that it is either willing or able to stand up in a meaningful fashion to the US campaign of “maximum pressure” on Iran.

Part of the problem is Europe’s seeming unwillingness to believe that Iran would walk away from the JCPOA. The EU’s announcement that it would not bow to pressure from Iran following the establishment of a 60-day time limit by Iran for dispute resolution is reflective of a trend on the part of the EU to treat lightly its obligations when it comes to formal agreements between it and Iran that run afoul of US policy. This pattern goes back to the EU’s backtracking on the 2004 Tehran Agreement, which acknowledged Iran’s right to enrich uranium under Article 4 of the nonproliferation treaty.

Iran is fed up with European indecisiveness. The domestic political environment inside Iran is now pushing it to withdraw from the JCPOA. Iranian conservatives have leveraged the US withdrawal from the JCPOA and Europe’s impotence in response to the US position into strong influence over foreign policy. Without some significant movement on the part of Europe regarding its JCPOA obligations on trade, the Iranian government will most likely begin withdrawing from the JCPOA in 60-days’ time. Void of any discernable mutually accessible diplomatic off-ramp for the US and Iran, any Iranian decision to withdraw from the JCPOA will raise tensions between the two nations to the breaking point. This confrontation would be dangerous at any time, but the stakes are even higher during a US presidential election cycle because toughness on Iran may play well with the US electorate.

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