Can Europe save the JCPOA?

May 10, 2018

On May 8, President Trump “withdrew” the United States from a deal agreed by his predecessor to prevent Iran from obtaining nuclear weapons. US withdrawal was not foreseen when the agreement was drafted, nor was the possibility that the United States might stand in isolation from its closest international partners. Withdrawal also did not mean that the deal ended. Some have argued that the European states might be able to save the JCPOA but that it looks unlikely that they will be able to do so. Ultimately, it is for Iran to decide whether to accept the agreement with more limited benefits or to withdraw—a move that could put the US on the path to war.

The Joint Comprehensive Plan of Action (JCPOA) contained many restrictions that stay in place in perpetuity plus additional restrictions that taper off over time. For example, restrictions on Iranian import and export of arms end after five years, missile imports and export after eight years, and certain nuclear restrictions from eight years on. It was always recognised that for the agreement to be sustainable, Iran’s relationship with the international community would have to improve over time. Indeed, the timescales were predicated, in part, on the basis that they would provide a time in which to improve relations between Iran and the international community

The US decision to withdraw from the JCPOA early does not quite terminate the deal. It does, however, create a situation in which termination seems quite likely, and the American pullout reduces the possibility that the time bought with the JCPOA will be used to improve the relations between Iran and the international community. While withdrawing from the agreement and re-imposing sanctions, the United States stopped short of terminating the agreement by triggering a snapback of UN sanctions. Washington appears to hold this option in reserve. The US also introduced 90- and 180-day wind-down periods before sanctions are re-imposed on various economic sectors, including the Iranian oil and gas industry.

At this point, all paths forward are unattractive to some party. It is not clear which direction events will take, but there appears to be three broad scenarios. The first is that Iran decides to stay in the JCPOA. The second is that Iran withdraws from the JCPOA. The third is that the US triggers UN sanctions snapback.

The US withdrawal was undertaken in a way that leaves open the possibility of the JCPOA continuing. The immediate response of Iranian officials has been to say that the country will remain in the JCPOA if the Europeans—and the other parties—can assure Iran that it will receive the benefits it expected when it concluded the agreement in 2015. The Europeans will work toward this in the weeks months and years ahead, but the reality is that the US withdrawal will result in Iran receiving less benefit than had been expected.

The US continues to be at the head of the global financial system. Almost all commodity transactions are undertaken in US dollars and pass through US banks. There has been talk of setting up an alternative financial system or even a “safe financial channel” with Iran, but for now at least, the reach of US extraterritorial sanctions is long.

This is true even if the European Union uses extreme measures such as its “blocking regulation” to offset the impact of US extraterritorial sanctions on European businesses that might otherwise invest in Iran. While the EU can certainly explore the use of such tools, the reality is that the idea of large amounts of American assets being seized in Europe is not politically sustainable, particularly when the UK is about to leave the EU and will want to conclude a trade agreement with the US. Moreover, even if the European states had the political appetite for such confrontation, the US could simply trigger snapback (as described below), which would immediately see the re-imposition of UN sanctions.

So the bottom line is that Iran could decide to stay in the JCPOA but it would be doing so with a tacit acceptance that it will receive less benefits than it would otherwise. This would be a victory for hardliners in Iran and would undermine Hassan Rouhani’s presidency. It would be an embarrassing climb-down for Iran. But it would mean that war was less likely.

A second foreseeable scenario would have Iran withdraw from the JCPOA and resume its nuclear program. There are a couple of different ways this could happen. Iran could trigger a dispute resolution mechanism in the agreement, but without a realistic expectation. Iran could also simply ignore the JCPOA and resume enriching uranium to 20 percent or stop implementing the IAEA’s additional protocol, which gives increased inspection access. While either scenario might satisfy Iranian hardliners and evoke national pride in the face of US pressure, it is not a sustainable outcome. The US and Israel, fearing the renewed build up of enriched uranium, would doubtless begin to prepare for military contingencies. A diplomatic crisis would ensue.

The third path forward would see the US trigger a snapback of UN sanctions. A plain text reading of UNSCR 2231 seems to imply that the United States has this power, even though President Trump said that the it was withdrawing from the JCPOA. The re-imposition of UN sanctions would put the EU in the impossible situation of having to decide between complying with the UN Charter or complying with a legally non-binding nuclear agreement with Iran. While there is some precedence for European Institutions overruling the UN Security Council, it seems implausible that this path forward would result in anything other than a termination of the JCPOA.

Examination of this path forward does raise a question: Why didn’t the United States trigger UN sanctions snapback on May 8? There are a few possible answers: a concession to the Europeans who visited Washington shortly before US withdrawal; a desire to wind down sanctions, rather than re-impose UN sanctions immediately; a hope that Iran will respond provocatively, which would justify further US action. Ultimately, the likely answer is that the United States wanted to keep some options, should it feel a need to escalate matters further down the line.

A mechanism to resolve disputes was built into the JCPOA when it was negotiated. This dispute resolution mechanism is enshrined in UNSCR 2231, the Security Council resolution that implements the nuclear deal. However, the present scenario was not foreseen when the JCPOA was drafted, and it now seems unlikely that the mechanism will have a role to play. The reason for this is that the mechanism was designed for a scenario in which it was thought that Iran would be the party alleged to be in violation. As the following extract highlights, if Iran were to raise a dispute now over the actions of the United States, Washington would have to vote in favor or abstain in the UN Security Council. Given the thrust of President Trump’s remarks, it would be a high-risk gambit for Iran to use the dispute resolution mechanism under these circumstances.

So what is President Trump’s end game? In his speech this week, he specifically pointed to the possibility of securing a new deal that would encompass missile and regional issues as well as the nuclear issue. Such a deal would, in effect, require Iran to give up its efforts to be a regional power. Such a change in direction for the Islamic Republic is unlikely. As such, many assume that what President Trump really has in mind is regime change.

However, in withdrawing from the JCPOA and seeking to terminate it early, the Trump administration has squandered the time that would have been available for a change in direction in Iran to occur. This leads some to conclude that the United States is building up not only toward a policy of regime change, but a policy of overthrowing the Islamic Republic, possibly through the use of force.

Overall, then, the JCPOA is in a perilous position. While it is not yet terminated, US actions have caused a crisis and could well result the deal coming to an ultimate end. It is important for the European states to bolster the agreement to the extent that they can, even if the tools available to salvage it are limited. Ultimately, it will be for Iran to decide whether to continue with the JCPOA or to terminate the agreement. A decision to terminate, it seems today, would put the United States on a path to war with Iran.