Iran: A Treacherous “JCPOA-Plus” Plan

Published on April 26, 2018
US President Donald Trump has made no secret of his disdain for the 2015 nuclear accord negotiated by the Obama Administration between the “P5+1” – comprised of the UN Security Council permanent five members, US, UK, France, Russia, China, plus Germany — and Iran, referred to as the Joint Comprehensive Plan of Action or JCPOA, (or alternatively, “the worst deal ever”).
*** A narrower “EU-3” of British, French, and German negotiators, in close consultations with Brian Hook, the US State Department director of policy planning, have in recent weeks been negotiating a new framework to address the US concerns with JCPOA, incorporating and adding to its existing terms that we believe may eventually be accepted by the White House. ***
*** The broad outlines of that proposal were presented to President Trump this week by France’s President Emmanuel Macron, with a follow-up tomorrow by German Chancellor Angela Merkel. It calls for a series of separate new agreements, in effect a “JCPOA Plus,” although the White House may prefer to present it as an entirely new, more comprehensive “Framework Agreement.” Bringing the President on board will still require a heavy lift, and a May 12 decision on US sanction waivers still looms ominously ahead. ***
*** Indeed, overnight Macron suggested that Trump may choose to exit the JCPOA anyway. That would not be an immediate May 12 binary choice. Even if Trump refuses to extend the specific waivers on Iran sanctions up for review on that date, sanctions may not be immediately reinstated and enforced. And the US could, in theory, as Secretary of State designee Mike Pompeo suggested in testimony before the Senate, even continue to renegotiate the existing JCPOA. But we would strongly caution against such complacency. ***
*** An announcement of the re-imposition of the 2012 National Defense Authorization Act (NDAA) would pull Iranian-oil importing countries Japan, South Korea, India, and China back into the US sanctions cross fire, even if not immediately. That would almost immediately put a chill on Iran’s ability to export oil. More ominously, it would, we believe, almost guarantee a significant, and sharp, response from Iran that would spike geopolitical, and oil market, risks. ***
Iran’s response could initially be nothing. But that could quickly escalate step by step to limiting inspections, a resumption of enrichment activity, and the reopening of shuttered facilities in Fordow and Arak. It could, we believe, also result in a dangerous step up of covert and Iranian Revolutionary Guard Corps (IRGC) military activity, potentially in Lebanon, but almost certainly in Syria and Yemen – directed particularly at the hawkish anti-Iranian leaderships in Israel and in Saudi Arabia.
The path ahead is now treacherous, either way. Even if the Trump Administration were to accept some form of a more restrictive “JCPOA Plus” as structured by Hook and the EU3, there will be a sharp response from the already economically embattled regime in Tehran. That may not be quite as extreme as under the alternative, but there is no option left anymore for a return to the status quo ex ante.
May 12 Sanctions and Oil Market Risks
The Trump Administration faces a decision by May 12 whether to extend existing waivers or re-impose a series of sanctions that were lifted under the JCPOA.  Should Trump choose not to extend the waivers, it would not formally end the nuclear accord, and the US could, in theory, continue to renegotiate the existing JCPOA. It is far from that simple, or benign.
Under the 2012 National Defense Authorization Act, an announcement to end the waivers would re-start the process of requiring countries to “significantly reduce” oil imports from Iran, and requiring any countries that do import from Iran to seek exemptions to avoid secondary financial sanctions from the US on their own state-owned financial institutions and central banks.
Even with those exemptions, they will still be required to “significantly reduce” their oil imports from Iran. In the past, the most directly affected countries have been China, Japan, South Korea, and India.
Sanctions may not be immediately enforced, and they will require the US Treasury Office of Foreign Assets Control (OFAC) to re-designate and tag affected entities. The US State, Justice, and Treasury Departments will also need to take actions that reflect how vigorously the White House chooses to enforce sanctions.
But even the announcement of a re-imposition of the 2012 NDAA will, we believe, elicit a sharp response from Iran. Iranian leaders, across the political spectrum, have consistently threatened to pull out from the nuclear pact if the US, which they believe has never in reality lived up to its promises to open trade with Iran, should decide to throw a further chill over the already battered Iranian economy.
With his Republican Party facing daunting mid-term elections in November, and with Iran and global partners still resistant to any major changes to the JCPOA, Trump may opt for a unilateral, and effectively, a “partial” withdrawal from the JCPOA that some White House advisors argue could prove an effective pressure tactic on Iran and worth the risk.
And it is of some concern to European allies that there are advisers in Washington — their view shared by government officials in Tel Aviv and Riyadh — who may be quite willing to take those risks in order to engineer what they hope can be a fundamental roll back of Iran’s growing power and influence in the region.
They caution that strategy may need to be more deeply thought through.
Macron and Merkel’s Plan
The EU-3, in close consultations with US State Department envoy Brian Hook, have meanwhile been working furtively on a plan that would address the substantive concerns that are shared with the Trump Administration over the limitations of the existing JCPOA.
The proposal aims to address three substantive issues underlying Trump’s threats to tear up the accord, while keeping the 2015 accord intact. Those issues are: the sunsetting of the JCPOA nuclear accord with Iran after 2025; Iran’s ballistic missiles program, and; the Islamic Republic’s expansionary activities and influence in the Middle East.
The broad, conceptual contours of the EU3 plan were essentially presented to the world on Tuesday by France’s President Emmanuel Macron, albeit re-packaged into a “four-pillar” proposal for a new accord to address Iran’s short term nuclear program (up to 2025), long term nuclear plans (post 2025), ballistic missile program, and regional military activities.
Where Macron went a bit “over his skis” with his EU partners, especially those in Berlin, appears to have been in suggesting the entire thing could be negotiated from scratch, implying a “pillar one” proposal to address Iran’s near term nuclear activities could also be reopened for discussion.
In fact, Iran’s nuclear program up to 2025 is already covered by the existing JCPOA, and will not be re-opened under the EU3 plan.
Addressing Trump’s Concerns
But the EU3, from what we understand, has indicated in negotiations with Hook that it is open to considering new sanctions on Iran should Tehran violate certain thresholds on its regional military activities and on its ballistic missile program.
Some missile activities are covered already, separately from the JCPOA, under UN Security Council Resolution 2231. These restrictions are only limited to devices capable of carrying a nuclear warhead, and have been interpreted by Iran strictly as such.
Presumably, and in light of a lack of consensus this time around with China and Russia, the specifics of an additional potential sanctions protocol might not include oil sanctions, at least not immediately. They could be more directly targeted to the activities involved. It will raise the ire of Tehran either way, and is a delicate road still to maneuver.
Appending the JCPOA “sunset clause” that allows Iran to resume some uranium enrichment after 2025 is also tricky for the EU3, and in a different way. That is because it essentially entails a renegotiation of the original JCPOA deal, no matter how it is formally presented.
The EU3, from what we understand, is thus treading a bit more lightly on this, and has indicated in negotiations it is willing to make a statement outlining what it “expects” Iran’s nuclear activities in the future – post 2025 – to be. But the mere outlining of post-sunset expectations may prove to be thin grounds for a deal with the US.
Notably, however, the sunset issue, between the three, may require the least immediate action. An agreement on curtailment of Iran’s activity some seven years down the road, although a fundamental one, need not be matched at this point with any specific threats or actions.
Deadlines and Sanction Reviews Ahead
An agreement in principle between the EU-3 and US should ideally come before the deadline on May 12 for the president to renew the waiver on a set of sanctions on Iran as agreed to by the Obama Administration after the 2015 JCPOA deal. But that is just one in a series of rolling waivers.
US sanctions on Iran came in four major pieces of legislation, each with its own mandated review period. The May 12 review will be for sanctions imposed under the 2012 NDAA (National Defense Authorization Act).
The other three sets of US sanctions are on a 180-day review period, and will come up for waivers in July. Those are for sanctions imposed under the ISA (Iran Sanctions Act), adopted in 1996 as the Iran and Libya Sanctions Act, the 2012 TRA (Iran Threat Reduction and Syria Human Rights Act), and the 2012 IFCA (Iran Freedom and Counterproliferation Act). These acts broadly impose restrictions on investments in Iranian oil production, terrorism financing, revolutionary guard activities, shipping, and insurance.
When push comes to shove, it is entirely within the US rights legally to unilaterally re-impose any, or all, of those sanctions. The White House could in theory even decide to find a reason to declare Iran in non-compliance under Sections 36 and 37 of the JCPOA and set the clock ticking on a multistage international review process towards the “snap back,” or re-imposition, of a different series of UNSC sanctions.
Whether or not an agreement comes in time for President Trump’s May 12 deadline for the extension of a set of US sanctions, if the trans-Atlantic partners are close, the May 12 deadline can be glossed over by the White House until the next series of sanction waivers comes due in July.
Heightened Risks Either Way
Even with a new deal, however, the path forward is fraught with substantial risk.
First, an EU3 proposal must not only pass muster with the White House, but will need approval of the member states of the EU as well. It is already broadly assumed that UN Security Council member Russia will not agree to additional new measures, nor will fellow P5 member China.
But the biggest wild card may now lie in Iran, namely in how Tehran responds to what looks increasingly certain – at a minimum – will be an additional series of “measures” imposed on the regime – whether threatened against future potential actions, or enforced right off the bat.
Tehran believes a clash with the Trump Administration looms either way. Pointedly, Iran’s economy and domestic markets, especially the currency, the Iranian Rial, have already come under substantial pressure in anticipation of a tightening squeeze from the US.
President Hassan Rouhani, and to some extent Supreme Leader Ayatollah Ali Khamenei, until recently may have banked on EU support in maintaining the status quo on the JCPOA and sanctions regime – even if the US has already been casting a chill on potential investments in Iran. But that is all now fading.
An agreement to limit Iran’s development of ballistic missiles and to curtail its activities in the region, with the threat to resume, or impose new, sanctions on Iran, would be a take it or leave it proposition for Iran, not a negotiated deal that Iran would be expected to agree to.
And although sanctions are likely to still remain conditional on future activity, and could be defined narrowly, and in steps, it will elicit a series of counter measures from Iran that could range from limiting inspections and withdrawal from the nuclear non-proliferation agreement, to breaking, on its part, individual provisions stage by stage of the JCPOA.
Those could include enrichment of uranium from the JCPOA agreed 3.67% of the fissile isotope U-235 to just below the 20% threshold set by the International Atomic Energy Agency as “highly enriched,” a reactivation of the Fordow centrifuge facility buried under mountains back to nuclear enrichment purposes, and a reactivation of the heavy-water reactor at Arak, which produces as a by-product plutonium.
In addition, or alternatively, an increasingly embattled regime in Tehran may well choose to assert itself more covertly, but perhaps with an even more destabilizing impact, across the region, from Syria to Hezbollah in Lebanon, in Iraq, and potentially most dangerous to oil markets and Riyadh, in Yemen.
Needless to say, it would all also cast a pall over negotiations the US is about to enter into with North Korea.
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