Happy JCPOAnniversary

It’s been one year since the Joint Comprehensive Plan of Action, which limits Iran’s nuclear program in return for international sanctions relief, was signed in Vienna. I have had a much higher than usual slate of paid writing to do this week, some of which is actually very relevant to the JCPOA’s anniversary, but I just haven’t had time to write some kind of retrospective for you fine folks. Lucky for us, literally everybody else seem to have been able to write something like that. So I figured maybe I could get away with just aggregating a few of those for you. Forgive me.

The upshot is that, a year in, the nuclear deal is doing what it was supposed to do: limiting Iran’s nuclear program in exchange for sanctions relief. Here’s Shemuel Meir, a former analyst with the Israeli Defense Forces:

The final report published by the International Atomic Energy Agency (IAEA), which allowed the deal to come into force on January 16, 2016, established that Iran did not divert nuclear material to secret sites. The quarterly IAEA reports published since the deal was signed confirm that Iran has met all the conditions. This is good news that does not make headlines — unlike the critical IAEA reports that made the front pages of Israeli newspapers in years past. The attempt to claim that “this is the same Iran,” which does not cooperate with the international community on the nuclear issue, doesn’t hold water.

But there are problems on pretty much all sides, as Barbara Slavin describes:

In the U.S. Congress, Republicans and some Democrats have sought to impose new sanctions on Iran to deprive Iranians of benefits they were promised in return for accepting stringent curbs on their nuclear program. This includes efforts in the House of Representatives to pass legislation to block a proposed multi-year, multi-billion dollar sale of civilian airliners by Boeing to replace Iran’s dangerous, antiquated planes.

Continuing U.S. sanctions on most other American business interaction with Iran – especially Iran’s exclusion from any contact with the U.S. financial system – have added to foreign reluctance to re-engage the Iranian market even though foreign trade with and investment in Iran is no longer prohibited.

Iran’s own systemic weaknesses are also at fault; David Lipton, a top American working for the International Monetary Fund who recently visited Iran, compared the challenges of reforming the Iranian economy to those faced by Eastern European countries after the end of Soviet control.

Although Iran has pulled out of recession since the Joint Comprehensive Plan of Action (JCPOA) was signed and its GDP is expected to grow by 4 percent this year, unemployment remains in double digits. In a recent poll, a majority of Iranians said they still supported the nuclear agreement but doubted that the United States would fulfill its obligations. Two thirds of Iranians said they believe that the U.S. is trying to discourage foreign companies from investing in Iran, something U.S. officials strenuously deny.

One concern is that there are reports about Iran continuing to illicitly acquire, or attempt to acquire, materials that could be used either in a nuclear weapons program, which as far as everybody knows it doesn’t have, or in its ballistic missile program, which it admittedly does have. But while we don’t exactly want Iran to have a ballistic missile program, or to acquire materials for that program, and in fact there are still sanctions in place against Iran over its missile program, there’s nothing in the nuclear deal specifically that really bars them from doing so. So if we take the most narrow view of the nuclear accord, which is probably the fairest way of evaluating it, the deal is doing what it was supposed to do.

For now, anyway. Iran’s economy is struggling, and whatever benefit Iran has seen from the nuclear deal has been counteracted by factors like low oil prices, regional instability, internal corruption, etc. It’s hard for people to see the economic benefit of a policy if the “benefit” is basically “well, things could have been a lot worse than they are.” And Iran hasn’t seen anywhere near the full benefit of the deal, in part because the United States has, in ways both deliberate and inadvertent, made sure of it:

US sanctions are inhibiting the development of European trade with Iran. Meanwhile the US Congress is making it impossible for Iran to access its overseas oil revenues worth tens of billions of dollars.

Iranian foreign currency deposits total at least $50 billion. Iranians were hoping for the rapid retrieval of these funds to boost a domestic economy that underwent four years of enforced austerity as a result of US and EU nuclear-related sanctions.

They have been disappointed. Most of these deposits are in countries that depend on the dollar as a medium of exchange for their local currency. Their holdings of major foreign currencies other than the dollar, e.g. the euro or yen, are too small for banks in these countries to be able to convert Iranian local currency deposits into those currencies without passing through the dollar.

The Obama administration proposed to solve this problem by an executive decision that would permit conversion of Iranian deposits via the dollar. Iranian money would be in dollar form for a fleeting instant on its way to a euro incarnation, for example.

Word of the administration’s intention leaked to Congress. Opponents of the deal (the Joint Comprehensive Plan of Action agreed in Vienna last July) raised a hue and cry.

The administration’s resolve failed. Treasury Secretary Jacob Lew declared on 11 April that the US would keep its part of the bargain of providing sanctions relief to Iran in return for curbs on its nuclear program – but that the Obama administration would not allow even limited access to the US financial system.

This failure, together with a failure to devise some form of immunity from fines for European banks, threatens the deal.

That’s not to say that there aren’t other, very serious and very non-US related reasons why Iran is struggling. But Washington isn’t helping. And, of course, anti-Iran forces in DC are agitating to do still more to put the screws to the Iranians (they’re working on it right now, in fact), and they are hoping to get some help from the next president, no matter if it’s Donald Trump or Hillary Clinton. If Iran really starts to believe that it accrues no benefit from abiding by the deal, or that America has already broken its end of the bargain, the whole thing could come apart.

Also, while I haven’t seen much chatter about this lately, I think there’s a good chance that deal opponents in Congress might still try to pull a fast one by blocking the funding that the International Atomic Energy Agency needs to properly monitor Iran’s compliance. They can create a self-fulfilling reason to oppose the deal.

Robert Einhorn talks about the technical challenges that are still to come:

So, from the standpoint of Iran implementing and complying with its nuclear commitments, the JCPOA has operated well for its first year. But challenges to the smooth operation and even the longevity of the deal are already apparent.

A real threat to the JCPOA is that Iran will blame the slow recovery of its economy on U.S. failure to conscientiously fulfill its sanctions relief commitments and, using that as a pretext, will curtail or even end its own implementation of the deal. Iranians are understandably frustrated that the benefits of sanctions relief have not materialized as quickly as expected. But international banks and businesses have been reluctant to engage Iran not because they have been discouraged by the United States but because they have their own business-related reasons to be cautious, including the inadequate regulatory standards of Iran’s financial system, low oil prices in an oil-dependent economy, and fear of running afoul of remaining U.S. sanctions. In an effort to ensure that Iran will reap the economic rewards it deserves, the Obama administration has bent over backwards to inform foreign governments, banks, and businesses of what sanctions relief measures entitle them to do, but Iranian officials continue to complain that it is not doing enough.

As you know, Iranians are already blaming their sluggish economy on US perfidy (and while hardliners are cynically exaggerating the extent to which the U.S. is responsible for Iran’s economic woes, they do have a few legitimate complaints), and that’s caused Iranian President and deal architect Hassan Rouhani to start taking a much harder line in his public statements about the deal. Iranian officials are talking about American actions like blocking the Boeing sale as potential violations of the deal.

The optimism that attended the signing of the JCPOA a year ago is largely gone today. There’s no more talk of making a wider diplomatic opening with Iran–even the attempt would probably hurt Clinton’s campaign here and Rouhani’s reelection campaign there. But as Suzanne Maloney writes, the deal can’t really succeed unless it becomes a stepping stone to a better US-Iran relationship, and on that front pretty much everybody is failing:

But in the United States, in Iran, and across the Middle East, the agreement has always been viewed through a much broader lens—as a waystation toward Iranian-American rapprochement, as an instrument for addressing the vicious cycle of sectarian violence that threatens to consume the region, as a boost to the greater cause of moderation and democratization in Iran.

And so the failure of the deal to catalyze greater cooperation from Iran on a range of other priorities—Syria, Yemen, Iraq, to name a few—or to jumpstart improvements in Iran’s domestic dynamics cannot be disregarded simply because it was not its original intent. The “new normal” of regularized diplomatic contact between Washington and Tehran is a net positive, but it has not paid any obvious dividends yet. If it is to do so, the United States will need a serious strategy toward Tehran that transcends the JCPOA, building on the efficacy of the hard-won multilateral collaboration on the nuclear issue. The Obama administration invested considerable political capital in setting the deal in motion and implementing its terms; its successor will have to approach Iran in a more comprehensive fashion.

Iranians, too, must begin to pivot the focus of their efforts away from endless litigation of the nuclear deal and toward a more constructive approach to addressing the deep challenges facing their country today. The persistence of crisis has always provided a convenient rationalization for the Islamic Republic’s failures and inadequacies, but the urgency has now abated. In the wake of the nuclear deal, Iran’s leaders have continued to divert responsibility away from their own disastrous policies and back toward Washington, with some citing inadequate sanctions relief as an excuse for slow economic growth and the absence of political reforms or social liberalization. This is plainly spurious, as I explained in a recent blog post, and Iranians should channel their frustrations with the sluggish pace of their peace dividend into the kind of meaningful reforms that are long overdue.


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