But will it crack, and when?

On January 15, Iranian nuclear supremo Ali Akbar Salehi took to state-run media to hurl a thinly-veiled threat at the European Union. After suggesting that failure to provide his country with economic aid would lead Iran to reconstitute its banned nuclear program, Salehi warned that he would need only “four days” to enrich uranium up to 20 percent purity—well beyond the limit allowed under the 2015 Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal. 

Since President Donald Trump withdrew the U.S. from the deal in May, the Islamic Republic has felt its economy wither under the sweeping economic sanctions lifted as part of the Obama-era agreement. Its currency, the rial, has plummeted in value as inflation and the cost of living have soared. Iran’s oil exports, its primary source of revenue and foreign currency reserves, have plunged from a post-deal high of around 2.5 million barrels per day (bpd) to roughly one million—a decline made more painful by a coinciding drop in oil prices

Under heavy U.S. pressure, the global financial messaging service SWIFT disconnected most major Iranian banks, crippling the country’s ability to conduct foreign commerce. Iran is now facing deep economic recession, along with resultant spikes in unemployment and poverty, despite its GDP being mere months ago projected to grow by an annual rate of around four percent. Already dealing with simmering social and political unrest, the Iranian regime has had to stave off popular disaffection by stretching a budget less than half the size of last year’s to pay for additional outlays on internal security and the poor.

For their part, the JCPOA’s three European signatories, or E3—Germany, France, and the UK, all vigorously opposed to the U.S. withdrawal—have fought to preserve the accord by providing Iran with legalfinancial, and political backing. But while their efforts may have bought Tehran important symbolic and political support, they have largely failed to stem the tide of multinational firms fleeing the Iranian market. For most sizable banks and companies, the prohibitive risk of losing access to the U.S. market and financial system—coupled with the Trump administration’s demonstrated willingness to take punitive action against allies and enemies alike—far outweighs the value of their business in Iran. What’s more, recent improvements in the technology used to track vessels on the high seas have rendered the evasion of U.S. sanctions an even riskier endeavor.

In response, Iran has ramped up its nuclear activity within the limits allowed by the JCPOA, likely seeking to motivate stronger action from Europe and put itself on a stronger footing for any future exit from the deal. As noted by the U.S. intelligence community in its 2019 Worldwide Threat Assessment, Iranian Supreme Leader Ayatollah Ali Khamenei last year gave the order to resume production of nuclear feedstock, bolster Iran’s capability to manufacture advanced centrifuges, and prepare the necessary infrastructure to expand Iran’s enrichment capacity. Fast forward to last week, and the Atomic Energy Organization of Iran just shipped 30 tons of ‘yellowcake’ uranium to its primary enrichment facility, in Isfahan.

All of this notwithstanding, however, Tehran’s reaction has so far been remarkable mostly for its restraint. Inspectors from the International Atomic Energy Agency, a nuclear watchdog, report that Iran remains in compliance with its obligations under the JCPOA, including key restrictions on centrifuges and uranium enrichment. At least for now, Iranian Supreme Leader Ayatollah Ali Khamenei seems to think his best option is simply to wait Washington out: accept what he hopes will be temporary economic pain while collecting the deal’s remaining benefits, on the bet that after the upcoming U.S. presidential election he will be dealing with a more amenable occupant of the Oval Office. 

Still, November 2020 is a long way off, and although the status quo may seem relatively stable, the possibility of the deal’s collapse cannot be ignored. Indeed, recent events suggest that Tehran’s patience may already be starting to wane.

Over the past few weeks, prominent Iranian officials and clerics have increasingly taken to public forums to express skepticism about the future of the JCPOA. Ranging from warnings that Tehran’s threats of withdrawal are “no bluff” to assertions that Europe has “missed its chance” to save the agreement, some of these messages represent attempts to induce stronger action from Europe or mollify restive domestic audiences. Others are merely cynical ploys by hardliners hoping to capitalize politically or even kill the deal. 

Desperate to find their country an economic lifeline, and facing intense pressure from Iran’s hardline factions, President Hassan Rouhani and other pro-JCPOA Iranian officials have staked much on a long-promised European plan to revive trade with Iran. The crux of this scheme hinges on a so-called “special purpose vehicle”—essentially a clearing house designed to facilitate barter-like exchanges without using the dollar or U.S. financial system, thus theoretically avoiding exposure to U.S. secondary sanctions. However, despite insisting for months that the trade-facilitation mechanism is just around the corner, Brussels’ promises have yet to materialize into tangible relief for Iran. 

With Iranian frustration threatening to boil over, the E3 rushed to announce last week that the trade-facilitation mechanism, officially dubbed the Instrument In Support Of Trade Exchanges, or INSTEX, was finally ready—only to add the caveat that it would take several more months to become operational. Even then, the mechanism’s impact will likely be modest. Few, if any, additional countries seem eager to join in. As Iranian critics have pointed out, it will cover only trade in humanitarian goods, already exempt from U.S. sanctions. And larger firms will be wary of using it for even exempted transactions—particularly given the difficulty of navigating the blacklisted government entities and other legal landmines which pervade even non-sanctioned sectors of the Iranian economy.

In fact, recent evidence suggests EU preconditions on Iran may prevent the mechanism from even getting off the ground. A senior European diplomat said the E3 had a “strong expectation” that Iran would pass several Financial Action Task Force regulations that would theoretically limit Iran’s ability to support its Shiite proxies such as Hezbollah. Likewise, according to Iranian Chief Justice of Iran Sadegh Larijani, the E3 has pushed Tehran to agree to negotiations on its missile arsenal. While the former proposition faces limited Iranian support, the latter has been widely rejected by Iranian officials and clerics across the political spectrum. Larijani has flatly rejected each, declaring that “Iran will never accept their strange and humiliating conditions of joining the FATF and negotiations on its missile program.”

This issue points to a broader trend: Iran is not the only one feeling frustrated. Though the EU has thus far carefully compartmentalized its policies toward Tehran’s nuclear and non-nuclear activity, growing friction between Europe and Iran could make that diplomatic balancing act difficult to sustain.

Longstanding friction over Tehran’s destabilizing role in the Middle East, unlawful imprisonment of European citizens, and missile tests came to a head at the end of last year, following recent revelations that Iran’s Ministry of Intelligence had attempted to assassinate several Iranian dissidents on European soil. Tensions escalated further in early January, when French, British, German, Danish, Dutch, and Belgian diplomats descended on Tehran to demand an end to Iran’s provocations. Outraged, their Iranian counterparts stormed out of the meeting. The next day, the EU imposed its first sanctions on Iran since signing the JCPOA—a palpable, if largely symbolic, shift in Europe’s political posture toward Tehran.

In mid-January, an Iranian test of a satellite-launch vehicle—an ostensibly civilian technology which U.S. and European officials have argued Iran could use to develop an intercontinental ballistic missile—drew strong French condemnation and threats of addition sanctions. The ensuing bout of public sparring between Tehran and Paris led an Iranian spokesman to warn that his country would “reconsider relations with Europe” and abrogate the nuclear deal if sanctioned. After calling French concerns “non-negotiable,” Iran just this week announced the testing of another SLV and a new cruise missile, again sparking European condemnation. Meanwhile, Germany announced it had taken Washington’s lead in banning Iran’s Mahan Air, citing “security concerns” and the airliner’s involvement in shuttling of fighters and materiel into Syria.

The EU will not soon discard its dual-pronged approach. But these mounting tensions could inflame Iranian resentment of Europe’s lackluster response to U.S. sanctions, leading Tehran to employ more refractory diplomacy and push the boundaries on its nuclear program. This behavior could in turn cause the EU’s more hawkish capitals to take tougher approaches toward the Islamic Republic, creating a vicious cycle that ultimately undermines Europe’s efforts to keep Iran in the JCPOA.

Enter: the Trump administration. Seeking to attract European support for its “maximum pressure” strategy, it has organized an upcoming summit in Warsaw, Poland, to be jointly hosted by the U.S. and attended by over 70 countries. American officials maintain that the meeting will focus on a range of Middle East security issues. But Iran, conspicuously not invited, promises to be the primary focus. 

Since the event’s announcement, EU foreign policy chief Federica Mogherini and U.S. Secretary of State Mike Pompeo have been locked in parallel diplomatic battles—the former seeking to keep Europe’s fraying political consensus from unravelling, the latter trying to pull on the threads. As of right now, Mogherini stands to come out on top. But public opinion can change quickly, and if Iran continues “shooting itself in the foot,” as one prominent German diplomat put it, then Pompeo may find more of his European counterparts willing to get tough on Tehran.

Finally, and most probably, Tehran’s attitudes toward Europe and the JCPOA may change along with its economic fortunes, which look set to worsen in the coming months. Panama will reportedly soon remove from its shipping registry some 60 Iran-linked vessels, further restricting Iran’s oil exports. Iran’s probable failure to meet the aforementioned FATF standards could trigger international countermeasures that limit or even ban transactions with Iran. What’s more, the Trump administration still has plenty of room to make its sanctions tougher, for example by cancelling surprisingly generous sanctions waivers it granted in November to eight of Iran’s biggest oil customers.

These waivers expire in May, and the administration has promised to be stingy in handing out any extensions. If Saudi Arabia and other oil producers can compensate for the loss of Iranian supply—which they should be to, given their collective spare capacity and the current slack in the oil market—then the U.S. will likely tighten the noose even further. A desire to keep the diplomatic high ground and avoid inviting European sanctions has so far kept Iran in the deal. But, depending on how much the Iranian economic situation deteriorates, warns Ellie Geranmayeh, a senior policy fellow at the European Council on Foreign Relations, “this may not be the position Iran is in six months from now.” Doubly so if Trump’s electoral prospects markedly improve.

Regardless of whether it’s Tehran or Trump that drives the final nail in the JCPOA’s coffin, the fact remains that the deal may soon be dead. In that context, Salehi’s nuclear threat represents more than just a shot across Europe’s bow. It should also serve as a sobering reminder of just what lies on the other side of “maximum pressure”: the specter of a nuclear-capable Tehran. Likewise, it should remind Washington that a responsible strategy vis-a-vis Iran must properly balance the effort spent hacking at the ice beneath the JCPOA with that spent preparing for the day the deal finally crashes through.

Leave a Reply