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A staff member removes the Iranian flag from the stage after a group picture with foreign ministers and representatives of the P5+1 and Iran during the Iran nuclear talks in Vienna, Austria, 14 July 2015. REUTERS/Carlos Barria
Report 173 / Middle East & North Africa

Implementing the Iran Nuclear Deal: A Status Report

The one-year-old Iran nuclear deal has succeeded in its goal of blocking nuclear proliferation and opening the door to Iranian economic recovery. But it remains in jeopardy unless both Washington and Tehran defend and extend the spirit as well as the letter of the accord.

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Executive Summary

One year since its “implementation day”, 16 January 2016, the July 2015 nuclear agreement between Iran and the five permanent members of the UN Security Council plus Germany (the P5+1) – the Joint Comprehensive Plan of Action (JCPOA) – is both a success and in jeopardy. It has delivered so far on its narrow objective: effectively and verifiably blocking all potential pathways for Iran to race toward nuclear weapons, while opening the door to the country’s international rehabilitation and economic recovery. But in its transactional nature lies the accord’s vulnerability: it has not begun to transform the enmity between Iran and the U.S., leaving it exposed to an unstable political environment. If Iran still deems the deal in its national interest, it should not only adhere to its letter and spirit, but also move away from regional zero-sum pursuits. The Trump administration will face a starker choice. It could scuttle the deal, deliberately or by neglect; it should seek to make it stronger for all by a better-for-better bargain.

Over the past year, internal polarisation in Tehran and Washington about the accord’s merits often overshadowed what really matters: that it is working and delivering concrete results. It has put Iran’s nuclear program under the most stringent inspection mechanism ever implemented, while lengthening the breakout time to produce weapons-grade uranium from a few weeks to more than a year. Since January 2016, the International Atomic Energy Agency (IAEA) has verified six times that Iran has fulfilled its JCPOA obligations. The relaxation of U.S., European Union (EU) and UN nuclear-related sanctions has allowed Iran to regain oil market share, recover billions in frozen assets and attract foreign direct investment, turning its once shrinking economy into the region’s fastest growing.

Yet, implementation, as with any complex technical agreement, has not been flawless. Iran committed several technical violations, none, alone or together, material. Paradoxically, they proved the accord’s efficacy: the IAEA quickly detected each and Iran remedied it. There have been more serious problems with sanctions relief. Iran still lacks normal international banking ties, as major financial institutions remain circumspect, hampering its reintegration into the global economy and dashing inflated public expectations of rapid economic recovery.

The most consequential political wildcard remains the U.S. Congress, where hostility toward Iran runs deep, and new sanctions are being considered.

This is because of concerns over Iran’s regional resurgence and ballistic-missile tests, but the accord could not have been negotiated successfully if those issues had been on the table. Today they constitute the primary threat to its successful implementation. This, in turn, is because the JCPOA’s transformational potential has not yet materialised in the face of powerful stakeholders who moved to ensure it was a ceiling on, not a foundation for, détente between Iran, its neighbours and the U.S. The conundrum is that without addressing the broader political antagonism that pits Iran against its neighbours and the West, the JCPOA at best will remain fragile and its implementation halting, but without full implementation, resolving the underlying political antagonism may prove impossible. 

The most troubling uncertainty is the new U.S. administration’s approach. During the campaign, Donald Trump condemned the JCPOA as “the worst deal ever negotiated”. As president, he can repudiate it or refrain from the steps necessary to sustain it. But killing the accord or allowing it to die when Iran is in compliance would lead the other signatories – representing a near international consensus – to blame Washington squarely and likely destroy the broad coalition critical for sanctions enforcement that provided leverage for negotiating the accord in the first place.

Alternatively, Trump could rigorously police implementation while pushing back firmly against Iran’s regional policies, which have helped further inflame Middle Eastern conflicts, frightened U.S. allies and angered the U.S. political establishment. But scrupulous enforcement cuts both ways: lacklustre U.S. implementation would adversely affect Iran’s ability to reap the benefits the U.S. has committed to deliver under the deal. The risk of an overly militarised response to Iran’s regional manoeuvres is that the JCPOA could become collateral damage in a destructive tit-for-tat.

Trump could also try renegotiation to strengthen some of the deal’s nuclear provisions or add non-nuclear ones. But this, as viewed by many in his entourage, would require new non-nuclear sanctions to augment coercive pressure and/or a military threat to induce Iran to return to the table. Iran would almost certainly demand more relief for more concessions, not accept less for more.

Iran has options for responding to attempts to undermine the deal. It could play victim, blame Washington and hope to erode sanctions by trying to drive a wedge between the U.S. and its partners. But this would require restraint in the face of U.S. JCPOA violations or provocations. Or it could ramp up its nuclear program and reduce IAEA access or target U.S. assets in theatres across Iraq and Syria, any of which risks a U.S. (or Israeli) military response. Even a softer, calibrated response would reignite the nuclear standoff and complicate future negotiations.

Trump is the first U.S. president in more than two decades who enters office not needing to worry about Iran crossing the threshold to nuclear weaponisation undetected.

All these scenarios are troubling. Yet, there is another way: a good-faith, consensual, mutually beneficial effort to renegotiate aspects of the accord might achieve a better-for-better arrangement and a more stable outcome. A Republican president backed by a Republican-controlled Congress would have more credibility in offering incentives to Iran than President Barack Obama ever did.

Improving the JCPOA while enforcing it would require a quiet dialogue in which both sides recognised one another’s security concerns and core interests and communicated their nuclear and regional red lines. One outcome might be an addendum strengthening some JCPOA nuclear provisions or adding non-nuclear ones in return for rolling back the U.S. primary embargo. If that is not attainable, the U.S. might focus on non-Iran-specific arrangements, including regionalising or even universalising some of the JCPOA’s restrictions or transparency measures.

On a practical level, Washington should keep communication channels with Tehran open and give its treasury department more resources to unwind sanctions. Iran should strictly adhere to the JCPOA and stop using nuclear or regional brinksmanship as leverage. Other P5+1 members should discourage it from overreacting to a possible change in U.S. tone and approach but also clearly tell Washington that if it unjustifiably walks away from the accord, it will do so alone.

Trump is the first U.S. president in more than two decades who enters office not needing to worry about Iran crossing the threshold to nuclear weaponisation undetected. If he tries to adjust the JCPOA unilaterally through coercion, the accord may not survive, reigniting the nuclear crisis and compounding regional instability. But he also has a chance to succeed on all fronts: a functioning and more stable accord, a framework for managing differences with Iran and perhaps even less bloodshed in the Middle East.

Washington/Brussels, 16 January 2017

I. Introduction

The prolonged process that led to the 14 July 2015 Joint Comprehensive Plan of Action (JCPOA) was tortuous. It took more than a decade of diplomatic fits and starts and a perilous sanctions-vs-centrifuges race for Iran and the P5+1/E3+3 (the UN Security Council’s five permanent members plus Germany) to agree to a core compromise that Crisis Group had advocated from the outset and contributed to: acceptance of a limited and tightly monitored uranium enrichment program on Iran’s soil in return for reintegration into the global economy.[fn]See Crisis Group Middle East Reports N°s 18, Dealing with Iran’s Nuclear Program, 27 October 2003; 51, Iran: Is There a Way Out of the Nuclear Impasse?, 23 February 2006; 116, In Heavy Waters: Iran’s Nuclear Program, the Risk of War and Lessons from Turkey, 23 February 2012; 152, Iran and the P5+1: Solving the Nuclear Rubik’s Cube, 9 May 2014; and Briefings N°s 34, The P5+1, Iran and the Perils of Nuclear Brinkmanship, 15 June 2012; 40, Iran and the P5+1: Getting to “Yes”, 27 August 2014; and 43, Iran Nuclear Talks: The Fog Recedes, 10 December 2014.Hide Footnote

More than two years of gruelling multilateral diplomacy culminated in a meticulously parsed 159-page accord that received unanimous Security Council endorsement on 20 July 2015.[fn]UN Security Council Resolution 2231, 20 July 2015.Hide Footnote The agreement then went through a trial by fire in the U.S. Congress and the Iranian parliament. Once it emerged unscathed, it entered into force on 18 October 2015 – designated as Adoption Day per the JCPOA’s calendar. This triggered the start of Iran’s rollback of its nuclear program and cooperation in resolving the International Atomic Energy Agency’s (IAEA) longstanding questions about its past nuclear activities.

Implementation Day occurred on 16 January 2016, after the IAEA certified that Iran had fulfilled its key commitments under the agreement, prompting sanctions relief. The quick progress surprised most observers and dismayed accord critics. Its Iranian detractors were concerned that President Hassan Rouhani’s eagerness for sanctions relief had led him to hasten rolling back the nuclear infrastructure, irreversibly damaging it and depriving Tehran of leverage to ensure that the West delivered its end of the bargain.[fn]The just under three-month time span between Adoption and Implementation Days was significantly less than the P5+1’s six-to-nine month estimates. Crisis Group interviews, U.S. and European officials, New York, September 2015. A letter to Rouhani by parliamentarians charging that the pace of centrifuge deactivation exceeded the supreme leader’s directive (which conditioned implementation on the IAEA settling allegations on Iran’s past nuclear activities) caused the government to temporarily stop the process. “Iran stops dismantling nuclear centrifuges under pressure from hardliners”, Reuters, 10 November 2015. The government justified the rush, implicitly confirming the accusation, by reiterating the $100 million daily cost of sanctions’ continuation for Iran. “ضرر تاخیر اجرای برجام” [“Damage of the JCPOA’s delayed implementation”], ISNA.ir, 21 September 2015. The February 2016 parliamentary election was also part of the calculus. Crisis Group Middle East Report N°166, Iran After the Nuclear Deal, 15 December 2015.Hide Footnote U.S. opponents were deeply dissatisfied with how the IAEA closed the file on allegations of the program’s past military dimensions, saying the JCPOA Joint Commission (the seven negotiating parties, coordinated by the EU) had made exemptions allowing Iran to skirt some obligations.[fn]See “Final Assessment on Past and Present Outstanding Issues regarding Iran’s Nuclear Program”, IAEA, GOV/2015/68, 2 December 2015, and the related Board of Governors resolution, GOV/2015/72, 15 December 2015. Leaks about the Joint Commission’s confidential decisions gave credence to these suspicions. David Albright and Andrea Stricker, “JCPOA Exemptions Revealed”, Institute for Science and International Security, 1 September 2016. The decisions exempted liquid, solid and sludge wastes, particularly those in pipes of Isfahan’s Enriched UO2 Powder Plant (EUPP), and irradiated uranium enriched to below 3.67 per cent, from the 300kg threshold the JCPOA set; near-20 per cent enriched uranium in unrecoverable “lab contaminant”; and nineteen “hot cells” (radiation containment chambers for handling radioactive material) that are larger than the deal permitted. “Decision of the Joint Commission”, EU External Action Service, 6 and 16 January, and 18 December 2016.Hide Footnote

The criticism missed the bigger picture. Speeding implementation accelerated the core trade-off that motivated the deal: unshackling Iran’s economy from sanctions while closing all potential pathways for weaponising its nuclear know-how. The decisions to grant exemptions, known as memorialisations, are standard for implementing a technically complex agreement; none impinged on the constraints that render nuclear weaponisation virtually impossible.[fn]For instance, plutonium produced in hot cells is neither sufficient nor usable for nuclear weapons without a reprocessing facility Iran lacks and is banned from constructing. The same applies to weaponising waste contaminated with low-enriched uranium needing further processing to highly-enriched uranium prohibited under the JCPOA. Julian Borger, “Obama administration denies secret loopholes in Iran nuclear agreement”, The Guardian, 1 September 2016.Hide Footnote Their confidential nature – likewise hardly exceptional in the non-proliferation field – was the result of the procedural requirement that all eight Joint Commission members approve publication of internal documents. Several refused: some out of concern for a political backlash over details of what critics on both sides viewed as additional concessions, and others not wishing to politicise the IAEA’s work.[fn]A senior U.S. official said, “the U.S. and the EU are for more transparency, but our hands are tied as Iran, Russia and China oppose publication of memorialisations”. Crisis Group interview, Washington, 13 September 2016. The documents are at https://eeas.europa.eu/headquarters/headquarters-homepage/2281/iran-and-eu_en. Tim Mak, “Trump team wants you to see the Iran nuke documents Obama’s kept from view”, The Daily Beast, 5 December 2016.Hide Footnote

Events have shown it was naïve to believe the JCPOA was secure and could be sustained routinely from that point. It remained as fragile as forces against it were formidable; implementing its technical requirements was taxing, especially where its language left room for diverging interpretations and disagreement; and restructuring a multi-dimensional sanctions regime that reached deep into global commerce proved a herculean challenge. This report analyses the one-year record of implementation, draws lessons and offers suggestions for improving and sustaining an accord that remains a net positive for non-proliferation.

II. So Far, so Good?

Controversy and concerns over issues outside the nuclear accord, mainly Iran’s growing regional posture and ballistic-missile tests, have often overshadowed that the JCPOA’s two key components – restricting and rigorously monitoring Iran’s nuclear program and sanctions relief – are working and delivering concrete results. The accord could not have been reached if those issues had been on the table, but today they are the primary threat to its successful implementation.

A. Nuclear Commitments

Since January 2016, the IAEA has verified on six separate occasions that Iran is fulfilling its JCPOA obligations.[fn]See “Verification and Monitoring in the Islamic Republic of Iran in light of United Nations Security Council Resolution 2231 (2015)”, GOV/INF/2016/1, 16 January 2016; GOV/2016/8, 26 February 2016; GOV/2016/23, 27 May 2016; GOV/2016/46, 8 September 2016; GOV/2016/55, 9 November 2016; and GOV/2017/1, 16 January 2017.Hide Footnote The agency has had no problem reaching sites to which Iran had previously blocked access; is using live, online enrichment monitoring systems; and is surveilling the nuclear fuel chain in real time. Noting that Iran’s is the most monitored nuclear program in the world, an IAEA inspector said, “one thing is indisputable; post-JCPOA we have more rigorous inspection of a program that has become much smaller”.[fn]According to IAEA officials, every month between six and sixteen UN nuclear inspectors are on the ground in Iran. Crisis Group interviews, Vienna, November 2016. The IAEA’s human resources dedicated to Iran increased by 120 per cent, while days on the ground grew by 100 per cent and surveillance images received per day increased by 90 per cent. IAEA fact sheet available at www.iaea.org/sites/default/files/jcpoa-iaea-and-iran-infographic.pdf.Hide Footnote That said, implementation has not been without imperfections, but these are attributable largely to the predictable difficulties such a technically complex effort faces in a highly charged political environment.

There have been numerous objections to the IAEA’s positive reports, but none amounts to proof of a violation of the deal.[fn]A former U.S. nuclear negotiator referred to these objections as “technical quibbles”. Crisis Group interview, New York, 27 September 2016.Hide Footnote One has to do not with what they contain but what they omit: details on Iran’s low-enriched uranium stockpiles and advanced-centrifuge research. The IAEA, however, has no mandate for publicly reporting on these issues. (The P5+1, however, receive a detailed, confidential report that covers these issues.) An agency official explained: “Before the JCPOA, six UN Security Council resolutions required the agency to provide that much detail, but these have been overridden by a new resolution that has no such requirement, and there is no basis for breaching confidentiality”.[fn]Crisis Group interview, IAEA official, Vienna, November 2016. Critics contend that lack of data made it impossible to determine Iran’s compliance independently. David Albright, Serena Kelleher-Vergantini, and Andrea Stricker, “IAEA’s First Post-Implementation Day Report: Key Information Missing”, Institute for Science and International Security, 26 February 2016. Iranians see the generalised format as a stepping stone towards normalising their nuclear program. Crisis Group interview, Iranian official, Vienna, November 2016.Hide Footnote

There were also several technical infringements. Iran’s heavy-water production exceeded the JCPOA’s 130-metric-ton cap twice – by 0.9 and 0.1 tons in February and November 2016 respectively. Iranian officials, trumpeting their country’s change of stature from pariah to nuclear materials supplier, contend that overproduction resulted from improved efficiency and did not violate the JCPOA, since it neither sets a rigid threshold – it estimates Iran’s needs at around 130 tons – nor a timetable for exporting the excess for sale.[fn]An Iranian official boasted of the high quality of Iran’s heavy water and its ability to take over 70 per cent of the international market. Crisis Group interview, Vienna, November 2016. The JCPOA’s language is quite vague; paragraph 14, Annex I, “estimates” Iran’s heavy-water needs to be 130 metric tons and requires all excess material to “be made available for export to the international market … and delivered to the international buyer for 15 years”Hide Footnote U.S. officials, however, say they saw it as a signal by Iran that it could retaliate against what it perceived as U.S. Treasury foot dragging on sanctions relief. Europeans agreed, but blamed Washington for encouraging the behaviour by being first to purchase Iran’s excess heavy water. In Jerusalem, this and other infringements were seen as attempts to test the deal’s boundaries.[fn]A European official said, “the U.S. committed the original sin by buying 32 tons of Iran’s heavy water at the price of $8.6 million, whetting their appetite”. Crisis Group interview, Brussels, November 2016. A senior U.S. official said, “we sought to destigmatise the issue so that others would buy as well”. Crisis Group interview, Washington, 13 September 2016. Iran also sold heavy water to Russia. “Iran sold 70 tons of heavy water to Russia, US”, Tass, 27 September 2016. An Israeli diplomat said, “the Iranians are testing the boundaries and will continue to do so. It’s a decision to defy”. Crisis Group interview, 4 January 2017.Hide Footnote

Paradoxically, these infringements are a testament to the agreement’s efficacy: in each case, excess heavy water was shipped to Oman within days, despite not posing a proliferation threat since Iran no longer has a functional heavy-water reactor. One should expect further episodes of this nature – not necessarily because of nefarious intent in Tehran or spurious accusations from Washington, but because the JCPOA’s language is not always clear. There are also ambiguities, for instance, around the definition of recoverable low-enriched uranium and procurement of material for manufacturing rotors used in advanced centrifuges. In the past year, these caused tension and lengthy negotiations among the parties.[fn]The issue of what should or not be counted toward Iran’s 300-kg low-enriched uranium has been contentious because, as an IAEA official put it, “unlike ‘inventory’ that includes everything, the word ‘stockpile’ used in the JCPOA needs definition of what is and is not counted”. Crisis Group interview, Vienna, November 2016. Iran’s demand to procure a large amount of carbon fibre used to manufacture centrifuges was equally contentious. The P5+1 indicated it preferred Iran do so in smaller instalments. Crisis Group interview, European officials, London, December 2016. “EU demands Iran disclose details of nuclear parts making”, Associated Press, 16 September 2016. Supreme Leader Ayatollah Ali Khamenei forbade Iranian negotiators from yielding on either issue. Khamenei.ir, 15 June 2016.Hide Footnote

Likewise, other aspects of the agreement, for instance foreign cooperation to advance Iran’s nuclear technology, have been more drawn out than Tehran had hoped. Yet here, too, there is no violation. Transformation of the bunkered Fordow enrichment plant into an international physics centre with Russian help, where 358 centrifuges will produce stable medical isotopes, has been slow; so has modernisation of the heavy-water reactor in Arak, a project China and the U.S. co-chair.[fn]Crisis Group interviews, Iranian and European officials, New York, September 2016.Hide Footnote While Iranian scientists have regained access to the IAEA’s nuclear safety and security workshops, nuclear cooperation with other countries has lagged, except for nuclear fusion with France, particle accelerators with Spain and Italy and nuclear safety with the EU.[fn]Nuclear cooperation, as outlined in JCPOA Annex III, is a key component of the accord. Richard Stone, “Iranian Sun”, Science, vol. 353, no. 6304 (2016), pp. 1083-1087. Iran has reached agreements with other countries, but they have yet to bear fruit. “Iran, Switzerland sign agreement on nuclear safety”, Press TV, 28 September 2016; “Iran, Czech Republic sign nuclear cooperation document”, Tehran Times, 14 December 2016.Hide Footnote

The JCPOA’s procurement channel for Iran to access dual-use material and equipment was activated in January 2016. The channel is unprecedented, complementing existing export control arrangements while largely delegating the UN Security Council’s authority to the Joint Commission’s procurement working group. In its first six months, it received only one application, but in the second half of 2016, after Iran established its internal procedural framework for end-use certification, it received and processed nearly a dozen.[fn]Barbara Slavin, “Channel to monitor Iranian procurement awaits real test”, Al-Monitor, 14 July 2016. States seeking to export dual-use items to Iran submit proposals to the Security Council, which forwards them to the Joint Commission’s procurement working group (all seven negotiating parties, coordinated by the EU) for review; the latter provides recommendations to the Security Council within twenty working days (up to 45 in case of disagreements), which has five days to reject the Commission’s verdict or it is deemed approved. An Iranian official noted: “After years of encouraging murkiness to skirt sanctions, it took time to put procedures in place for transparency”. Crisis Group interview, Vienna, November 2016. A German intelligence report on Tehran’s procurement gave ammunition to critics, though the activities occurred in 2015 and pre-dated JCPOA implementation. “Germany says Iran kept trying to get nuclear equipment after deal”, The Wall Street Journal, 8 July 2016. U.S. and European officials said they had no information on continued procurement efforts outside permitted channels in 2016. Crisis Group interviews, Washington, Berlin, London, August-December 2016.Hide Footnote

The biggest threat to smooth implementation and to the procurement channel in particular is the continuation of Iran’s ballistic missile program – a particularly sensitive issue that the JCPOA does not address. Iran deems missile research and development a sovereign right and legitimate form of defence, but the P5+1’s Western members do not. Security Council Resolution 2231, which endorsed the JCPOA, “calls upon” Iran not to undertake until 2023 any activity related to ballistic missiles “designed to be capable of delivering nuclear weapons”. However, the language is non-binding, and lack of an internationally-agreed definition of nuclear-capable missiles invites diverging views on the Iranian program.[fn]See paragraph 3 of Security Council Resolution 2231‘s Annex B. Louis Charbonneau, “U.S. vows to push for U.N. action on Iran despite Russian opposition”, Reuters, 14 March 2016. “Iran statement following UNSC Resolution 2231 endorsing JCPOA”, foreign ministry, 20 July 2015. According to the Missile Technology Control Regime (MTCR), missiles able to carry a 500kg payload at least 300km could carry weapons of mass destruction.Hide Footnote

B. Sanctions Relief Commitments

A vast array of U.S., EU and UN nuclear-related sanctions on Iran were relaxed on Implementation Day. In the ensuing months, the impact on Iran’s economic performance become increasingly tangible: oil production and exports returned to pre-sanction levels of 3.85 million barrels per day, of which around two million are exported; the country absorbed more than $11 billion of foreign direct investment – the highest annual level in nearly two decades; trade with the EU increased by 42 per cent; Iran regained access to $55 billion of previously frozen assets; inflation dropped from a peak of 45 per cent in 2013 to less than 8 per cent in December 2016; Iranian companies signed contracts worth $150 billion with major European, Asian and even U.S. firms. The International Monetary Fund (IMF) forecasts that the economy will grow 4.5 per cent during the 2016-2017 fiscal period, up from 0.5 per cent the previous year.[fn]Annex II, JCPOA; U.S. Executive Order 13716, 16 January 2016; Council Decision (CFSP) 2015/1863, 18 October 2015; Council Regulation (EU) 2015/1861, 18 October 2015; and UNSC Resolution 2231. “Iran oil exports hit pre-sanctions high on run-up in condensate shipments”, Reuters, 3 October 2016; “میزان سرمایه‌گذاری خارجی اعلام شد” [“Amount of foreign investment was announced”], ISNA.ir, 3 December 2016; “Inflation rate drops to 7.2% in Iran”, Tehran Times, 23 December 2016; Crisis Group interviews, Iranian entrepreneurs, Frankfurt, 16 November 2017. Regional Economic Outlook: Middle East and Central Asia”, IMF, October 2016.

Still, sanctions relief has yet to reach its potential. Perhaps most important, Iran still lacks normal international banking relations. While some second and third-tier international banks have resumed providing financial services, first-tier banks have not.[fn]Crisis Group interview, New York, September 2016. “Iran’s Supreme Leader says U.S. lifted sanctions only on paper”, Reuters, 27 April 2016; “Iran’s President Rouhani slams US ‘lack of compliance’ with nuclear deal”, CNN, 22 September 2016.Hide Footnote This has hampered reintegration into the global economy, which, along with low oil prices, has dashed highly-inflated public expectations of a rapid recovery. Each side has blamed the other. Iranian Foreign Minister Javad Zarif complained:

[The U.S. Treasury] goes out and tells people that “it’s OK to do business with Iran, but”… and then there are five pages of ifs and buts. So at the end of the day, the banks say, “we’ll take the safe road” … As far as the U.S. government is concerned … it took [it] seven months to issue licenses for seventeen out of the 118 planes Airbus plans to sell [to Iran].[fn]“A Conversation with Javad Zarif”, event at Council on Foreign Relations, New York, 23 September 2016. A senior U.S. official explained that preparing the licenses – given the technology’s complexity and legal requirements of ensuring they do not violate lingering UN restrictions on Iran – took a long time, as did Iran’s negotiations with Boeing and Airbus. Crisis Group interview, Washington, September 2016.Hide Footnote

This, as another senior Iranian official put it, is not a material breach of the deal, but “at best procrastination, at worst deliberate harassment” and has deepened mistrust. He added: “The JCPOA is moderately healthy, but Iranian confidence in dealing with the U.S. has been bruised and is ailing and failing”.[fn]“A Conversation with Javad Zarif”, event at Council on Foreign Relations, New York, 23 September 2016. A senior U.S. official explained that preparing the licenses – given the technology’s complexity and legal requirements of ensuring they do not violate lingering UN restrictions on Iran – took a long time, as did Iran’s negotiations with Boeing and Airbus. Crisis Group interview, Washington, September 2016.Hide Footnote

U.S. officials point to the unprecedented complexity of untangling the sanctions and to their extensive efforts, from publishing hundreds of pages of guidelines, to dozens of multi-agency trips to explain sanctions relief to Iran’s trading partners, to U.S. Secretary of State John Kerry’s efforts, including personally encouraging European banks to engage Iran.[fn]Crisis Group interviews, U.S. officials, Washington, September-December 2016. “Kerry: Businesses using US sanctions as excuse to avoid Iran”, Associated Press, 10 May 2016. For a critical take on Kerry’s initiative, see Stuart Levy, “Kerry’s peculiar message about Iran for European banks”, The Wall Street Journal, 12 May 2016. A senior Iranian official said, “the reality is that a junior officer at the U.S. Treasury Department could erect more obstacles for legitimate business with Iran than Kerry can remove”. Crisis Group interview, New York, 24 September 2016.Hide Footnote A senior U.S. official said:

Never before has the U.S. had to repeal its sanctions and demonstrate results in a short period of time. And, of course, unanticipated complexities abounded. Who would have thought converting billions of Iran’s unfrozen oil revenue from an uncommon currency like the Omani rial to euros would be so complicated without disrupting their economy and access to the U.S. dollar?[fn]Crisis Group interview, Washington, September 2016.Hide Footnote

The Europeans blame both sides. An EU official said:

U.S. Treasury officials are often as uncompromising as Iranians are unrealistic. The JCPOA isn’t a trade and investment agreement. Our commitment was to repeal sanctions and provide clarity, not to make commercial decisions for private-sector actors.[fn]Crisis Group interview, EU officials, Brussels, 15 November 2016.Hide Footnote

Finger-pointing notwithstanding, both sides have tried to resolve the remaining obstacles by frequent communication and consultation.[fn]Crisis Group interviews, Iranian, European, U.S. officials, New York, September 2016. The Joint Commission has met once at the ministerial level and six times at the deputy level.Hide Footnote Yet, reality is more nuanced than either likes to admit; the causes of sluggish relief are manifold.

The primary U.S. embargo, which since the 1980s has broadly prohibited U.S. persons from engaging in transactions with Iran, is still in force with a few exceptions, such as for civilian aviation, food and humanitarian goods, Iranian caviar, pistachios and carpets; so are secondary U.S. sanctions related to Iran’s regional policies, ballistic missiles program and human rights record.[fn]For more background, see Crisis Group Middle East Report N°138, Spider Web: The Making and Unmaking of Iran Sanctions, 25 February 2013. One of the most arduous elements of U.S. primary sanctions has proven to be their requirement that multinational companies wall off their U.S. staff and board members from business with Iran. Crisis Group interviews, European entrepreneurs, Zürich, Frankfurt, London, September-November 2016. “BP ring-fences CEO Dudley from Iran decision-making”, Reuters, 21 November 2016.Hide Footnote Moreover, 32 U.S. states and the District of Columbia maintain their own sanctions against Iran that target contracting, public trust and insurance divestment and banking.[fn]These have not been affected by the JCPOA, since as an executive agreement – unlike a ratified treaty – it is not binding for U.S states. Eli Lake, “Obama administration urges states to lift sanctions on Iran”, Bloomberg, 18 April 2016.Hide Footnote There are also sanctions of individuals and entities: of the 600 sanctioned pre-JCPOA, more than 200, including ones with links to the economically omnipresent Islamic Revolutionary Guard Corps, remain blacklisted by the treasury department’s Office of Foreign Assets Control (OFAC).

Navigating this complex web of residual sanctions within Iran’s opaque economy is difficult. Due diligence is costly and cumbersome, and its standard is ill-defined, adversely affecting businesses’ risk-reward calculus of trying to comply while operating within the Iranian economy’s opaque ownership structure. The costs are not theoretical: since 2004, the U.S. has levied more than $15 billion in fines for violations.[fn]Businesses often find OFAC guidelines legalistic and vague. In October 2016, it issued one noting that business dealing with an entity not blacklisted but “minority owned, or controlled in whole or in part” by a blacklisted Iranian “is not necessarily sanctionable for a non-U.S. person”. See M.10 in “Frequently asked questions relating to the lifting of certain U.S. sanctions under the JCPOA”, U.S. treasury department, 12 October 2016. John Smith, OFAC’s acting director, said, “we will not be playing ‘gotcha’ for companies that conducted the appropriate due diligence, collected the documentation, but unwittingly found themselves dealing with a Revolutionary Guards front company”. Atlantic Council, Washington, 16 June 2016.Hide Footnote  

One of the most challenging sanctions bans access to the U.S. financial system. There have been various work-around attempts: OFAC clarifications (as abstruse as the restriction is severe); Iran’s efforts to circumvent by denominating its trade in other currencies; symbolically significant deals like Boeing’s sale of 80 civilian aircrafts – the largest Iran-U.S. contract in 37 years that both sides hoped would have a snowball effect. None did much to resolve the problem.[fn]A senior U.S. official said, “no one wants to be the first to take a leap of faith, but many are keen to be the second or third big bank to return to Iran”. Crisis Group interview, Washington, September 2016. Both Boeing and Airbus agreements, however, are financed by a consortium of large financial institutions and denominated in euros. Crisis Group interviews, European officials, Berlin, London, November 2016. “Boeing-Iran deal for $16.6 Billion of jets is first since 1979”, Bloomberg, 11 December 2016. “Total to finance Iran project with euros to avoid U.S. sanctions”, The Wall Street Journal, 8 November 2016. Republican opposition prevented the Obama administration from easing this restriction during and after the negotiations. “Rubio, Kirk introduce bill to block Iran’s access to US money”, The Hill, 6 April 2016. In October, OFAC explained that non-U.S. financial institutions may process dollar transactions provided they “do not involve, directly or indirectly, the U.S. financial system”. This implies banks can only use dollars at hand, ruling out financing for large development and infrastructure projects.Hide Footnote

No less chilling for investment – particularly since Donald Trump won the U.S. presidential election — is the threat of reimposition of sanctions suspended under the JCPOA. Unilateral U.S. sanctions can be resumed by executive order; a snapback mechanism embedded in the accord can reinstate UN sanctions if one party contends that Iran has reneged on its commitments. These would not be reapplied retroactively, but the eventuality increases the risk and potential reputational costs of doing business with Iran.[fn]Per JCPOA paragraphs 36-37, any agreement participant can complain to the Joint Commission, which has fifteen days to resolve the issue; an unresolved issue is referred to the foreign ministers, who have another fifteen days. The Joint Commission then has another five days to resolve the issue. If, after this 35-day process, the complaining party is still unsatisfied, it can refer the issue as significant non-performance to the Security Council, which within 30 days must vote on a resolution to continue suspension of sanctions – a resolution the complaining party can veto (except Germany, not a permanent Council member), thus snapping back the sanctions. European officials complained OFAC remains inflexible on extending the standard 180-day grace period for foreign firms to wind down business in Iran in case of snapback. A U.S. official said, “whoever needs more time has to explain it to OFAC, and it will consider it”. Crisis Group interviews, Berlin, Washington, November-December 2016.Hide Footnote

The Iranian government, for its part, failed to pave the institutional ground adequately for the economic opening, while raising unrealistic expectations about the deal’s potential payoff in order to build support for it. With rampant corruption, lack of transparency, poor infrastructure and a cumbersome legal and regulatory environment, Iran remains a difficult place to do business.[fn]Iran is 130th of 168 countries in Transparency International‘s corruption perceptions index, 120th of 190 in the World Bank‘s 2016 ease of doing business index, and 76th of 138 in the World Economic Forum‘s Global Competitiveness Report 2016–17. In its first quarterly report to parliament on JCPOA implementation, Iran’s foreign ministry admitted to these problems impeding trade. “گزارش وزارت امور خارجه به مجلس درباره اجرای برجام” [“Foreign Ministry’s report to the Parliament”], MFA.ir, Fars News, 17 April 2016. A European oil executive said, “many developing countries are plagued with similar problems, but in the case of Iran perception is worse than reality”. Crisis Group interview, London, August 2016.Hide Footnote The banking sector, saddled with many non-performing loans, is considered high-risk by the international Financial Action Task Force (FATF), which sets anti-money laundering and counter-terrorist financing standards for financial institutions worldwide.[fn]FATF has suspended countermeasures against Iran until June 2017 to allow time to update financial regulations, comply with modern banking standards and address strategic deficiencies. FATF Public Statement, 24 June 2016. An Iranian Central Bank official complained that “the West isolated Iranian banks for a decade and now asks why we aren’t up to date. If they can’t take our hand, they should at least unchain our feet”. Crisis Group interview, Washington, October 2016. Cooperation with FATF became highly politicised inside Iran, as JCPOA opponents saw it as yet another concession to the West. Saheb Sadeghi, “Financial watchdog worries Iranian hard-liners”, Al-Monitor, 28 September 2016.Hide Footnote

Volatile politics in Washington and Tehran add to business unease. The election of Trump, a vocal JCPOA critic, and doubts, given the sluggish economic recovery and death of his mentor, former President Akbar Hashemi Rafsanjani, about Rouhani’s ability to obtain a second mandate in Iran’s May 2017 presidential poll deepen uncertainties. Infighting in Tehran over economic priorities and vested interests has complicated and slowed economic reform.[fn]The quarrel over a new contract for oil-sector investments, the Iran Petroleum Contract (IPC), is a case in point. It was delayed more than two years, until the first was awarded to state-affiliated entrenched interests. Yeganeh Torbati, “Iran signs key oil contract with Khamenei-linked firm”, Reuters, 4 October 2016; “Shell signs provisional oil and gas deal with Iran”, Financial Times, 7 December 2016.Hide Footnote The most consequential political wildcard remains the U.S. Congress, which continues to try to impose new sanctions.[fn]In 2016, Congress considered more than two dozen bills that could potentially undermine the accord. Among the first bills introduced in the 115th Congress, sworn in on 3 January 2017, were two on Iran: to authorise the president to use military force against it; and to levy sanctions against its missile program. Per JCPOA paragraph 26, “the U.S. Administration, acting consistent with the respective roles of the President and the Congress, will refrain from re-introducing or re-imposing the sanctions specified in Annex II that it has ceased applying under this JCPOA, without prejudice to the dispute resolution process provided for under this JCPOA … and will refrain from imposing new nuclear-related sanctions”.Hide Footnote Tehran’s response has been what a senior Iranian official called a “zero-tolerance policy” toward any new measures.

Tensions reached their height with the ten-year renewal of the Iran Sanctions Act (ISA), the bedrock of U.S. sanctions architecture, in November. Iran deemed it a “gross violation” of the JCPOA; the Obama administration viewed it as unnecessary, since re-imposing sanctions in case of violations does not require the ISA to be in force, but Congress acted with an overwhelming majority. President Obama allowed the legislation to take effect without his signature on 15 December, though his rare procedural protest did not win him points in Tehran.[fn]The administration blocked efforts to add poison pills. The renewal passed 99-0 in the Senate and 419-1 in the House of Representatives. This was the first time in 27 years that a bill was enacted without the president’s signature. Carole Morello, “Iran sanctions extended, but without Obama’s signature”, The Washington Post, 15 December 2015. As during the 2014-2015 negotiations, when the parties could not agree on the ISA extension, they agreed to mitigate the issue once it arose. Crisis Group interviews, Iranian and U.S. officials, Vienna, June 2015.Hide Footnote Rouhani in response ordered planning for design and construction of a nuclear propeller for marine transportation. That was carefully calibrated to satisfy domestic politics and signal discontent to Washington, while remaining within the bounds of the accord, which permits such research if it remains on the drawing board.[fn]“Blasting U.S. nuke-deal ‘violations’, Iran vows new nuclear project”, Associated Press, 13 December 2016. An official from Iran’s atomic energy organisation said that developing nuclear propellers would take years and is uneconomic. Quoted in “برگزاری کمیسون برجام 21 دی” [“Joint Commission will meet on 10 January”], ISNA.ir, 20 December 2016.Hide Footnote

Posturing aside, the ISA extension leaves the status quo unaltered as long as the president continues to waive the provisions the JCPOA suspended. Still, a series of tit-for-tats could lead to mutual escalation that spirals out of control.[fn]Addressing Zarif’s complaint about the ISA’s extension, the Joint Commission concluded that it does not affect Iran’s ability to benefit from sanctions relief as long as the suspension of relevant provisions continues. “Press release on behalf of the Joint Commission of the JCPOA”, EU External Action Service, 10 January 2017.Hide Footnote

C. Transactional, not Transformational

JCPOA ambiguities and technical implementation hitches in both the nuclear and sanctions realms become outsized political storms because the deal has done little to alleviate Iran-U.S. animosity. To ensure success, the parties negotiated it as a narrow arms-control accord not to usher in broader détente or collaboration in areas of shared concern, though some had hoped (or feared) that it would.

In both Tehran and Washington, powerful stakeholders moved to ensure the nuclear deal was a ceiling on, not a foundation for, rapprochement. Iranian provocations have included ballistic-missile tests, harassment of U.S. Navy ships in the Persian Gulf, alleged arms shipments to Huthi rebels in Yemen, arrest of dual Iranian-American nationals and hostile rhetoric toward the U.S. and its allies.[fn]A conservative Iranian parliamentarian explained: “If you were in the shoes of Ayatollah Khamenei and listened to U.S. officials boasting about how sanctions brought Iran to the table, would you move to make more compromises? No. You first demonstrate that you did not compromise from a position of weakness”. Crisis Group interview, Tehran, May 2016. “Reports: Iran fires missile marked with ‘Israel should be wiped’”, USA Today, 8 March 2016; “Iran’s Khamenei says U.S., ‘evil’ Britain can’t be trusted”, Reuters, 3 June 2016; “Americans sentenced to 10 years in Iranian prison”, CNN, 18 October 2016; “U.S. Navy says it seized weapons from Iran likely bound for Houthis in Yemen”, Reuters, 4 April 2016. Paragraph 5, Annex B, Security Council Resolution 2231, extended the conventional-arms embargo on Iran until 2020. The U.S. Navy contends it had 35 dangerous encounters with Iranian Revolutionary Guards patrol boats in 2016, compared to 23 in 2015. Whether the naval tangles in the Gulf were in Iranian or international waters is disputed. Dan Lamothe, “Navy destroyer opens fire after ‘harassing’ behaviour by Iranian patrol boats”, The Washington Post, 9 January 2017.Hide Footnote

Congress has evinced its own hostility and seems determined to derail any détente, as well as the JCPOA itself, through its own provocations. It lifted the U.S. visa exemption for citizens of 38 countries who had visited Iran (or Syria, Iraq and Sudan) since 2011, a move Iran deemed contrary to the JCPOA’s spirit, as it affected its tourism and business ties with Europe. Congress also manoeuvred the administration into sanctioning eleven Iranians and entities involved in ballistic-missile launches just a day after Implementation Day.[fn]“Iran warns Obama over visa waiver restrictions”, The Hill, 21 December 2015. The provision was attached to the $1.1 trillion federal spending bill at the last minute, making veto impossible. Crisis Group interview, U.S. official, Washington December 2015. “Treasury sanctions those involved in ballistic missile procurement for Iran”, Treasury Department, 17 January 2016.Hide Footnote A Supreme Court decision to compensate U.S. victims of overseas attacks with $2 billion of the Iranian central bank’s impounded assets further enraged the Iranian leadership.[fn]Rick Gladstone, “Iran threatens lawsuit in Hague court Over U.S. ruling on $2 billion”, The New York Times, 25 April 2106.Hide Footnote

This highlights a significant conundrum: not addressing broader disagreements makes the JCPOA fragile and implementation problematic, but without full implementation, resolving underlying antagonism is impossible. The dilemma is nowhere felt as strongly as in the linkage between nuclear and non-nuclear issues, which already complicates sanctions relief; the accord’s U.S. opponents are bound to play on this distinction, penalising Iran’s regional and domestic policies, which the JCPOA does not bar, to undermine the JCPOA itself.[fn]Indira Lakshmanan, “Inside the plan to undo the Iran nuclear deal”, Politico, 15 July 2016.Hide Footnote

Without improvements in Iran’s relations with the U.S. and its neighbours, the accord could eventually collapse even if it endures in the short term. A danger point could come when in 2023-2024, per the JCPOA calendar, Iran starts expanding its nuclear capacity in parallel to the U.S. permanently winding down its nuclear-related sanctions.[fn]In October 2023, per paragraphs 21.1-21.3 of JCPOA Annex V, the U.S. administration will seek appropriate legislative action to terminate statutory nuclear-related sanctions (eg, ISA). Six months later, per paragraph 63, Annex I, and Iran’s research and development plan, Iran will be permitted to test up to 30 IR-6s and 30 IR-8s (five to fifteen times more powerful than its existing IR-1 centrifuges) and produce up to 200 machines per year of each type for the next six and a half years. George Jahn, “Iran nuclear constraints to ease in about a decade, secret document reveals”, Associated Press, 18 July 2016. While caps on the uranium stockpile and enrichment level will continue until 2030, the ramping up of nuclear capability is bound to unsettle sceptics.Hide Footnote The immediate challenge, however, is the Trump presidency.

III. If it Ain’t Broke, Don’t Fix it

The most troubling uncertainty about the JCPOA’s future is the new U.S. administration’s approach. During the campaign, Trump condemned the accord as fundamentally flawed, calling it “horrible”. But it is not clear how he will act. His appointees have voiced conflicting views. Though they share antipathy toward Iran and the JCPOA, his national security adviser designate, Lt. General (ret.) Michael Flynn, has said he believes “regime change in Tehran is the best way to stop the Iranian nuclear weapons program”; his CIA director designate, Mike Pompeo, looks forward to “rolling back this disastrous deal”; while his candidate for secretary of state, Rex Tillerson, has promised a “full review”, and his defence secretary designate, former four-star General James Mattis, said that “there is no going back” on the accord.[fn]“Michael Flynn’s Testimony on Iran”, Joint House Foreign Affairs and Arms Services Subcommittees, U.S. Congress, 10 June 2015; “Mike Pompeo’s Iran file”, The Wall Street Journal, 21 November 2016; Rex Tillerson confirmation hearing, Senate Foreign Relations Committee, 11 January 2017; Ilan Goldenberg, “How James Mattis could stop Trump from ripping up the Iran Nuclear Deal”, Fortune, 17 December 2016.Hide Footnote

Washington’s P5+1 partners, who are highly satisfied with the agreement’s implementation so far, have weighed in forcefully in its support. EU foreign policy chief Federica Mogherini suggested a unilateral U.S. effort to scuttle the deal could put it on the opposite side of the EU, as well as Russia, which has warned that the accord’s demise would be “unforgivable”. China has said the deal should not be affected by “changes in the domestic situations” of countries involved.[fn]Mogherini said, “case by case, you will find issues where I wouldn’t be surprised to see the Europeans and the Russians on the same side — Iran deal, Middle East peace process, possibly the role of the U.N”, quoted in Laurence Norman and Julian E. Barnes, “Top EU diplomat, says bloc is Ppepared for Trump”, The Wall Street Journal, 14 December 2016; “Council conclusions on Iran”, European Council, 14 November 2016; “Russia says loss of Iran nuclear deal would be unforgivable”, Interfax, 15 December 2016. “China warns Trump: Iran nuclear deal must stand”, Agence France-Presse, 5 December 2016.Hide Footnote

Even some regional critics appear loath to see it scrapped. Saudi Prince Turki al-Faisal, a former senior official, warned that doing so “willy-nilly, as it were, will have ramifications”.[fn]“Senior Saudi prince says Trump shouldn’t scrap Iran deal”, Reuters, 11 November 2016. The Saudis sent a delegation to advise the Trump team shortly after his election to keep and strictly enforce the JCPOA. Crisis Group interview, European diplomat, Abu Dhabi, December 2016.Hide Footnote Prime Minister Benjamin Netanyahu of Israel, perhaps the deal’s most vocal opponent, still appears keen on scuttling it, but Israel’s military and security establishment favour its preservation. An Israeli intelligence official said that even in the Trump era, “various parts of the Israeli government deem the JCPOA as a done deal and want to focus on its rigorous implementation”.[fn]Crisis Group interview, Jerusalem, November 2016. “Netanyahu aims to discuss ‘various ways’ to undo Iran deal with Trump”, The Guardian, 12 December 2016; Graham Allison, “Is Iran still Israel’s top threat?”, Atlantic, 8 March 2016; “Israel’s Policies After the Iran Deal”, The Iran Primer, U.S. Institute of Peace, 19 September 2016. An Israeli diplomat in Europe said its official position is the deal should be kept but rigorously enforced. Crisis Group interview, 5 January 2017.Hide Footnote

While it is too soon to judge the next U.S. administration, its opposition to the JCPOA appears to stem less from the implementation record than its narrow focus: it is a non-proliferation deal that temporarily restricts an adversary’s nuclear program but has legitimised it and empowered the country to pursue what many view as a push for regional domination. Trump has several options:

  • Repudiate the deal or refrain from taking the affirmative steps necessary to sustain it, eg, renewing the waivers every 120 or 180 days that suspend nuclear-related U.S. sanctions.[fn]The Obama administration aimed to issue final waivers on or slightly before inauguration day (20 January 2017), so the incoming Trump administration would have at least around four months for a considered decision. Crisis Group interview, U.S. official, Washington, 9 December 2016. This also postpones the matter until after Iran’s 19 May presidential election.Hide Footnote He could snap back the unilateral U.S. sanctions with a stroke of the pen or even unilaterally reimpose UN sanctions, notwithstanding the JCPOA’s dispute resolution mechanism, likely opposition in the P5+1 and absence of a legitimate basis for redesignating Iran a threat to international peace after closure of the dossier on its nuclear program’s past military dimensions.

But abrogating the accord when Iran complies with it, even some Republican critics have warned, would lead the international community to squarely blame the U.S., thus eroding, if not completely unravelling, the broad coalition critical for enforcing sanctions that provided leverage for negotiating the accord in the first place.[fn]Republican Senator Bob Corker, chairman of the Senate Foreign Relations Committee and a prominent critic of the deal, said, “we gave up ... all of our leverage on the front end when we gave away the moneys that were stashed in various countries around the world, and so now the leverage is with them. I think the beginning point is for us to cause them to strictly adhere [to the deal] … we have to keep the Europeans and others with us in this process”. Quoted in Nahal Toosi, “Iran deal critics to Trump: Please don’t rip it up”, Politico, 16 November 2016.Hide Footnote This would likely put the U.S. in a weaker position to renegotiate the deal or reshape Iran’s regional and domestic policies. Brazen unilateralism also could weaken both the centrality of the U.S. financial system to the global economy, if other states organise to work around it, and the effectiveness of sanctions as a tool of its statecraft, if U.S. adversaries conclude Washington habitually shifts the goalposts for their lifting.

  • Rigorously police the deal and in parallel push back firmly against Iran’s regional policies. This could take two forms. Trump could seek to maintain the deal so long as Iranian compliance remains scrupulous in letter and spirit. If he pursues this path, he would need in parallel to ensure U.S. compliance; the deal’s upkeep requires Washington’s constant good-faith, pro-active management: granting licenses in a timely fashion to allow legitimate business with Iran, issuing guidelines to clarify sanctions relief ambiguities, providing assistance in modernising Iran’s Arak heavy-water reactor and shielding the accord from external pressures, particularly attempts by Congress to obstruct implementation.[fn]Congress tried repeatedly, for example, to block the sale of civilian aircraft to Iran contrary to Paragraph 5.1.1 of the JCPOA’s Annex II. “U.S. House votes to stop sales of Boeing jetliners to Iran”, Bloomberg, 17 November 2016.Hide Footnote Alternatively, the administration could carefully police Iran’s compliance while neglecting its own commitments, eg, by giving Congress a free hand to impose more sanctions or delay granting OFAC licenses, in the hope of provoking Iran to abrogate the deal, thereby avoiding some global blame and loss of leverage.

Regardless of whether the U.S. implements the pact in good faith or not, the risk of an overly militarised, unilateral approach toward Iran’s regional manoeuvres and/or provocations is that the JCPOA could become collateral damage in a tit-for-tat spiral. If the new administration hopes to kill the deal by a thousand cuts, it would need to be sustained long enough for those cuts to be inflicted. However, tactical decisions – such as interdicting illegal arms shipments or targeting Revolutionary Guards commanders and Iranian proxies in Iraq or Syria – could invite Iranian retaliation with rapid consequences. A U.S. official fretted: “Do you think the deal could survive a confrontation between Iranian and U.S. navies or the detention of U.S. sailors in the Persian Gulf? I’m not so sure”.[fn]Crisis Group interview, Washington, 14 December 2016.Hide Footnote

  • Renegotiate the deal to strengthen some of the nuclear-related provisions or add non-nuclear ones. Most sceptics seem to prefer this option, which in their view requires new non-nuclear sanctions to incrementally augment coercive pressure and/or a credible military threat to induce Iran to return to the negotiating table.[fn]Trump wrote: “A Trump presidency will force the Iranians back to the bargaining table to make a much better deal”. Donald Trump, “Amateur hour with the Iran nuclear deal”, USA Today, 8 September 2015. Joseph Lieberman and Mark D. Wallace, “How Trump should renegotiate the Iran deal”, The Washington Post, 6 December 2016; Dennis Ross and David Petraeus, “How to put some teeth into the nuclear deal with Iran”, The Washington Post, 25 August 2015; Michael Makovsky, “Five ways for Trump to put Tehran on notice”, The Wall Street Journal, 3 January 2017.Hide Footnote The challenge of devising new sanctions that are consistent with U.S. commitments under the JCPOA notwithstanding, this approach could harm Iran’s economy, as a prominent sanctions advocate put it, if simply “by increasing uncertainty in the marketplace”, prompting Tehran to take retaliatory measures of its own.[fn]“Trump team looks at new non-nuclear sanctions on Iran”, Financial Times, 2 December 2016. Identifying non-nuclear sanctions will not be easy, as nuclear-related sanctions targeted all the economy’s key sectors, and reimposition under a new guise would violate the JCPOA. The U.S. should, per JCPOA paragraph 29, “refrain from any policy specifically intended to directly and adversely affect the normalisation of trade and economic relations with Iran”, and according to Paragraph 33, “agree on steps to ensure Iran’s access in areas of trade, technology, finance and energy”. In his directive approving the JCPOA, Ayatollah Khamenei wrote: “Throughout the [accord’s] eight-year term, imposition of any sanctions at any level, under any pretext will be violation of the JCPOA”. Khamenei.ir, 21 October 2015.Hide Footnote

A senior Iranian official said Ayatollah Khamenei may have opened the door to this by criticising his negotiators for overlooking important details related to sanctions relief by negotiating in haste.[fn]Crisis Group interview, Berlin, November 2016. “دیدار فرماندهان نیروی دریایی ارتش با رهبر انقلاب” [“Supreme Leader meeting army, navy commanders”], Khamenei.ir, 27 November 2016.Hide Footnote But this criticism does not augur well for securing additional Iranian concessions: even if Iran were to agree to renegotiate, it would almost certainly demand more relief in exchange for more concessions, not accept less for more, especially given its discontent with sanctions relief under the JCPOA. The prospect of an Iranian leader acceding, even under duress, to terms significantly more favourable to the U.S. strains credulity and ignores the lessons of the decade-long nuclear standoff and the realities of Iranian politics.

Iran, whose leaders appear highly invested in the JCPOA for now, has several options to respond to an attempt to undermine the agreement:

  • Play the victim and shift blame to Washington in the hope of driving a wedge between the U.S. and its partners and eroding, if not neutralising, sanctions.[fn]Hamid Aboutalebi, Rouhani’s chief foreign policy adviser, tweeted: “If the JCPOA is a multilateral commitment, its breach by one party cannot be retaliated by another party’s breach. Any violation is an act against all signatories … who should move in unison to isolate the violator”. Tweet by Hamid Aboutalebi, @DrAboutalebi, chief foreign policy adviser, 7:11am, 2 December 2016.Hide Footnote A U.S. official pointed out: “The Iranians are good at this. They even played victim when the highly controversial [Mahmoud] Ahmadinejad was president, and Iran was a nuclear pariah”.[fn]Crisis Group interview, Washington, 14 December 2016. The same is true regarding Iranian reactions to ramped-up regional pressure: if Tehran reacts aggressively to U.S. provocations and precipitates the deal’s collapse, it likely will sacrifice the victim card.Hide Footnote Isolating Washington would require restraint in reacting to real or perceived U.S. violations of the JCPOA.[fn]An EU official said, “If Iran revives its nuclear activities or even tinkers around the JCPOA’s edges, we will be between a rock and a hard place”. Crisis Group interview, Brussels, 14 November 2016.Hide Footnote If abiding by the deal and playing victim seem to reinforce Iran’s position globally, those who advocate doing so might be strengthened internally.
     
  • Resuscitate the nuclear program. The Iranian parliament has mandated the government to ratchet up uranium enrichment and reduce cooperation with UN inspectors should the U.S. renege on the accord.[fn]The law instructs the government to halt voluntary cooperation with the IAEA and rapidly expand the nuclear program so that “within two years the country’s uranium enrichment capacity increases to 190,000 SWU [Separation Work Units, amounting to ten times Iran’s pre-JCPOA capacity]”. “Law on the Proportional and Reciprocal Measures of … Iran in Implementing the JCPOA”, Library of Congress, 15 October 2015. Decisions on Iran’s appropriate response, however, are in practice taken not by parliament but by the Committee for Supervision of the JCPOA’s implementation, headed by Rouhani and including Foreign Minister Zarif, Ali Larijani, speaker of the parliament and former nuclear negotiator, Hossein Dehghan, defence minister, Ali Shamkhani, secretary of the supreme national security council, Ali Akbar Salehi, head of Iran’s atomic energy organisation, Saeed Jalili, former nuclear negotiator, and Ali Akbar Velayati, the supreme leader’s chief foreign policy adviser.Hide Footnote The leadership has also put itself in a rhetorical corner by pledging to revive the nuclear program should the other side renege.[fn]Ayatollah Khamenei said, “the Islamic Republic won’t be the first to violate the nuclear deal … But if the threat from the American presidential candidates to tear up the deal becomes operational, then the Islamic Republic will set it on fire”, Khamenei.ir, 14 June 2016.Hide Footnote If it does so with more advanced centrifuges, it could restore its uranium enrichment capacity rapidly, which might prompt a nuclear-arms race in the region and/or in the extreme provide the rationale some regime-change advocates have been looking for to justify a U.S. or Israeli military strike.[fn]An IAEA official said that Iran could reach a “highly problematic” enrichment capacity within six months. Crisis Group interview, Vienna, November 2016.Hide Footnote To prevent this, Tehran might escalate gradually, creeping past some limits. This would conform to its previous strategy; but even a softer, calibrated response would reignite the nuclear standoff and complicate future talks.
     
  • Retaliate regionally. Proximity of U.S. to Iranian forces in several theatres across Iraq and Syria could provide another option for retaliation: increasing force protection costs for the U.S.[fn]Crisis Group interviews, U.S. officials, Washington, December 2016.Hide Footnote Rising tensions could also push Iran to double down on means of deterrence it considers essential to its national security: its ballistic missile program and what it calls its “forward defence policy” of empowering regional partners in Baghdad, Damascus and Beirut. This would undoubtedly provide ammunition for those in Washington who seek to bring more pressure to bear against Tehran, triggering escalation.

The above scenarios – individually or in combination – are troubling, especially as the JCPOA is delivering results. Any attempt by the Trump administration to undercut the deal in the hope of “fixing” it is likely to backfire. A senior Obama official said, “the paradox is that if he tries to strengthen the deal to 120 per cent of what it is, he might end up eroding it to 60 per cent”.[fn]Crisis Group interview, Washington, 14 December 2016.Hide Footnote Moreover, by destabilising the JCPOA, the new administration could usher in what it says it seeks to prevent: greater Iranian assertiveness, more regional instability and lower odds of resolving the conflicts in Syria, Iraq and Yemen – places where Iran is part of the problem and thus ought to be part of the solution.

IV. Sustaining and Improving the JCPOA

Like any negotiated outcome, the JCPOA is imperfect. Its implementation, too, has not been immaculate. Yet, the biggest threat to it is not procedural but political: the first major transfer of power in one of the countries that negotiated it has introduced a destabilising level of uncertainty. If the Trump administration decides to preserve the JCPOA while strictly enforcing and rigorously monitoring its implementation, it should do all that is necessary for its upkeep: from abiding by the letter and spirit of U.S. obligations – including ensuring that Iran is able to reap the economic dividends the deal entitles it to – to fencing it off, to the extent possible, from other disagreements with Tehran.[fn]Per JCPOA paragraph 26, the U.S. “will make best efforts in good faith to sustain this JCPOA and to prevent interference with the realisation of the full benefit by Iran of the sanctions lifting specified in Annex II”.Hide Footnote

Preserving the status quo does not exclude good-faith attempts to improve it. Renegotiating aspects, assuming the effort is consensual and mutually beneficial, might achieve a better and more stable outcome. A Republican president backed by a Republican-controlled Congress would have more credibility in offering incentives to Iran than Obama ever did. But if the U.S. seeks Iran’s capitulation through either economic pressure – which is unlikely to reach the intensity, scope and breadth of the sanctions that contributed to the existing outcome – or, even more dangerously, threat or use of military force, the result could be an explosive downward spiral.

Improving the JCPOA, even as implementation continues, would require a quiet Tehran-Washington dialogue in which both sides recognise one another’s security concerns and core interests, and communicate their red lines concerning both the nuclear and regional files. A possible outcome to such bilateral discussions could be an addendum to the JCPOA either strengthening some nuclear provisions (eg, longer timeframes for restrictions or more intrusive inspections) or adding non-nuclear ones (eg, curtailment of Iran’s ballistic missiles program or support for Levant militant groups) in return for rolling back the U.S. primary embargo.

If a better-for-better agreement is not attainable, the Trump administration could focus on non-Iran-specific arrangements, including creating a regional consortium for uranium enrichment or plutonium reprocessing or an international nuclear fuel bank that would remove need for a domestic enrichment program in Iran once the JCPOA sunsets. Alternatively, it could lead efforts to turn some JCPOA restrictions or transparency measures (eg, the ban on enrichment beyond 3.5 per cent and plutonium reprocessing, and continuous live-stream surveillance of key elements of the nuclear fuel chain) into common practice either at regional – as a first step toward a zone free of weapons of mass destruction in the Middle East – or global level.[fn]If the U.S. excludes Israel from such voluntary constraints, it would be a non-starter. Israel has reportedly relied on plutonium for its nuclear weapons capability but might also have a small uranium enrichment program. For more on such creative initiatives, see Alexander Glaser, Zia Mian, Hossein Mousavian, and Frank von Hippel, “Building on the Iran Deal: Steps Toward a Middle Eastern Nuclear-Weapon-Free Zone”, Arms Control Today, December 2015; Lord Hannay of Chiswick and Thomas Pickering, “Trumping Proliferation: From a one-off deal to a global standard”, European Leadership Network, 6 December 2016.Hide Footnote Curbing Iran’s missile program could also be achieved through international export control arrangements or requiring adherence of all states in the region to restrictions on range and payload.

On a more practical level, to avoid misunderstandings, the Trump administration should preserve the communication channels at the State Department, especially at the level of the office of lead coordinator for JCPOA implementation (currently Ambassador Stephen Mull), and also at the Energy Department, which have played an integral role in resolving technical issues in cooperation with the IAEA and the Atomic Energy Organisation of Iran. There is also need to create a new channel between OFAC and Iran’s Central Bank and Finance Ministry.[fn]OFAC has met several times with Iranian economic officials bilaterally and trilaterally (when a third country faced problems transferring Iranian unfrozen funds), but these meetings have been infrequent. There is also contact between the two sides through the Joint Commission, but at the diplomatic level, not that of experts who grapple daily with the technical and legal problems of normalising Iran’s banking relations.Hide Footnote While the Joint Commission’s 10 January meeting has clarified most JCPOA ambiguities that had been troubling implementation, especially in areas where the accord’s language lacks sufficient specificity, new technical hitches and interpretation differences will surely arise.[fn]Crisis Group email correspondence, European officials, 10 January 2017.Hide Footnote Resolving them will require effective communication and familiarity with the accord’s complex challenges. The IAEA is bound by its mandate from the Security Council and confidentiality agreements with its member states, but the Joint Commission should be more transparent, especially where its decisions have a significant impact on the accord’s implementation.

Iran should strictly adhere to its JCPOA commitments and move away from using brinksmanship as leverage.[fn]In addition to delaying the transfer of centrifuge infrastructure in Fordow to storage in the Natanz facility until shortly before the 16 January 2017 deadline, Iran kept its heavy-water stockpile close to the 130-ton threshold, and its low-enriched uranium stockpile just under the 300kg cap. Crisis Group interviews, U.S. and European officials, Brussels, London and Vienna, November 2016. Asked about the calculus behind this, an Iranian official retorted: “Because 299kg is under 300kg. We committed to remain under 300kg, not to keep a large distance from it”. Crisis Group interview, November 2016. Yet, as an EU official said, “implementing a long-duration agreement is difficult when you are always on the brink of surpassing the threshold, even if inadvertently”. Crisis Group interview, Brussels, 15 November 2016.Hide Footnote Exceeding the limits the accord sets, as an ex-U.S. nuclear negotiator put it, could be “technically insignificant in terms of advancing Iran’s nuclear capabilities, but … create a narrative that JCPOA opponents are all too eager to pounce upon”.[fn]Richard Nephew, “The Mirage of Renegotiating the Iran Deal”, Center for Global Energy Policy, Columbia University, 18 November 2016.Hide Footnote Tehran should also avoid deliberately provocative actions, eg, skirmishes with U.S. naval ships in the Gulf, and take other constructive steps, such as signing the Hague Code of Conduct against Ballistic Missile Proliferation (HCOC).[fn]By signing the HCOC, Iran would join the treaty’s 138 parties. HCOC provisions include commitments to provide pre-launch notifications for ballistic missiles and launch vehicles for satellites, as well as submission of an annual declaration of related policies.Hide Footnote It would be better served by focussing on structural and regulatory economic reforms needed for full realisation of sanction relief’s potential. These include continued progress on recapitalising and rendering its banking system more transparent and implementing the action plan to address its anti-money laundering and anti-terror financing deficiencies.

In return for meaningful advances on these issues, the U.S. Treasury should rescind Iran’s designation under the USA Patriot Act as a zone of primary money-laundering concern, continue a forward-leaning position to instil confidence in Iran’s market and issue licences for facilitating legitimate business. The administration should give OFAC more resources, as its staff has been stretched by a much increased workload.[fn]According to a report by the U.S. treasury department, the average time for processing licenses in 2015 increased from 71 to 88 business days, a statistic that significantly understates the problems, since half of the submissions remained unprocessed. See, “2nd, 3rd and 4th Quarter FY2015 Reports for Licensing Activities Undertaken Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000”, Treasury Department, 15 September 2016.Hide Footnote An OFAC commitment to monthly progress reports and a target for reduced processing times as staff grows could aid efficiency.

But the problem is also institutional inertia: traditionally a source of pressure on the private and public sectors to curb business with target countries, today OFAC is charged with opening the taps.[fn]A senior U.S. official said, “we definitely implemented the letter of the JCPOA, but OFAC is not in the spirit business”. Crisis Group interview, Washington, December 2016.Hide Footnote Creating a sub-division or separate entity to unwind sanctions might be more effective and signal other countries, such as North Korea with whom similar negotiations might soon be necessary, that the dividends of relief in return for policy shifts are real.

Ultimately, the nuclear agreement – even if ostensibly firewalled from surrounding conflicts – will be sustainable only if accompanied by détente in U.S.-Iran ties and progress on de-escalating and resolving the region’s conflicts. If either side opts for escalation in the region, the other inevitably would sooner or later do the same, eventually imperilling the JCPOA. By contrast, mutual efforts to ease regional tensions, such as helping to preserve the Syria ceasefire and using influence to help bring the Yemen war under control, would be a constructive approach that could help strengthen the nuclear deal.

Other P5+1 members should go beyond expressing strong support for the JCPOA and discourage Iran from overreacting to a possible change in U.S. tone and approach.[fn]See Crisis Group Statement, “President Trump and the Art of the Iran Deal”, 23 November 2016; “EU warns Trump not to destroy Iran nuclear deal”, Financial Times, 21 December 2016.Hide Footnote The EU could revive its “Blocking Statute” forbidding compliance with U.S. extraterritorial sanctions that lack Joint Commission consent.[fn]Such legislation would provide political reassurance to European companies interested in re-entering the Iranian market by extending non-recognition of U.S. judgments and administrative determinations that give effect to U.S. sanctions, and by establishing a “clawback” clause for recovery of damages incurred for alleged sanctions violations. Council Regulation (EC), no. 2271/96, “Protecting against the effects of the extra-territorial application of legislation adopted by a third country …”, 22 November 1996. The legislation was designed to resist U.S. extraterritorial sanctions against Iran and Cuba. It effectively deterred Washington from enforcing those sanctions for more than a decade.Hide Footnote Establishing this pre-emptive measure without prejudice to the Trump administration’s commitment to the JCPOA would send a strong signal that if Washington walks away from the deal, it will do so alone, while demonstrating to Iran that the 28 EU member states will defend the agreement. The EU also could do more to help reduce tensions in the region, serving as an interlocutor between the U.S. and Iran and sounding out ideas with all sides in the various regional conflicts in which Iran is involved.

China, France, Germany, Russia and the UK should formally announce that new unilateral U.S. sanctions deemed unjustified by the majority of the Joint Commission and that interfere with Iran’s full realisation of the benefits of sanctions relief under the JCPOA would be cause to initiate disputes against the U.S. at the World Trade Organisation (WTO) and other international courts and institutions.[fn]In the late 1990s, the EU successfully challenged U.S. sanctions with a similar approach. Quentin Genard, “European Union responses to extraterritorial claims by the United States”, EU Non-Proliferation Consortium, Non-proliferation Paper no. 36, January 2014.Hide Footnote Simultaneously, they should continue to support Iran’s WTO candidacy.

More countries could provide export credit lines to reassure companies interested in trade with Iran.[fn]“Italy extends $5bn credit line and export guarantees to Iran”, Financial Times, 12 April 2016; “Norway offers €1bn in credit to Iran”, Press TV, 17 August 2016.Hide Footnote Eventually, and if banking problems continue, there might be need for a public body to do due diligence, akin to the role of the European Bank for Reconstruction and Development (EBRD) in Eastern Europe after dissolution of the Soviet Union and elsewhere today. More nuclear cooperation is also necessary to strengthen the connective tissue between Iran’s nuclear program and those of other countries, providing an insurance policy that it will remain solely civilian.

V. Conclusion

A year in, the JCPOA is working but fragile, mostly because the political environment that created the nuclear standoff has not changed. Segregating nuclear negotiations from other regional disagreements was logical – as complex as the nuclear issue was, regional politics are even more so, and there are many more stakeholders than the P5+1 – given Iran’s imminent achievement of breakout capacity. Still, the accord’s fate depends on making progress on other fronts, which in itself is contingent on preventing the JCPOA’s demise under a new, highly sceptical U.S. administration.

The same calculus that brought Iran and the P5+1 to compromise after thirteen years of standoff and two years of negotiations still holds: the alternatives to this accord – a sanctions-vs.-centrifuges race that could culminate in Iran obtaining the bomb or being bombed – would be much worse. Its unravelling now would have unfathomable consequences for the region, non-proliferation and multilateral diplomacy. To imagine a stronger pact can be built on its ruins is a chimera, as destroying it – even if gradually – would also destroy the hint of trust that led the parties to compromise, but if preserved, it is possible to build on it.

Trump is the first U.S. president in more than two decades who does not need to worry, on his first day in office, about Iran crossing the nuclear threshold to weaponisation without detection. If he tries to adjust the JCPOA by coercive pressure, he could, deliberately or inadvertently, deeply erode it, which could reignite the nuclear crisis and compound regional instability. But if, drawing on his business acumen, he opts to offer Iran a better-for-better deal, he has a unique chance to strengthen the accord for all, while helping reduce U.S.-Iran tensions. The consequences of a wrong choice could come to dominate his presidency.

Washington/Brussels, 16 January 2017

Appendix A: Map of Iran

Map of Iran United Nations. Department of Peacekeeping Operations. Cartographic Section.
Fighters loyal to Libya's U.N.-backed government (GNA) fire guns during clashes with forces loyal to Khalifa Haftar on the outskirts of Tripoli, Libya 25 May 2019. REUTERS / Goran Tomasevic
EU Watch List / Global

Watch List 2019 – Second Update

Watch List Updates complement International Crisis Group’s annual Watch List, most recently published in January 2019. These early-warning publications identify major conflict situations in which prompt action, driven or supported by the European Union and its member states, would generate stronger prospects for peace. The second update to the Watch List 2019 includes entries on Colombia, Ethiopia, Iran and Libya.

Crucial Reforms Languish as Colombia Seeks to Consolidate Peace

Almost a year into President Iván Duque’s administration, a polarised Colombia faces many obstacles in consolidating a fragile peace. Hardline elements of Duque’s administration and his Democratic Centre Party continue to take aim at the Special Jurisdiction for Peace – a rehabilitation-oriented tribunal at the core of the transitional justice arrangement reached under the November 2016 peace deal – which they argue is too lenient toward members of the Revolutionary Armed Forces of Colombia (FARC). Although Duque recently was forced to enact legislation to complete the legal framework for the tribunal after Congress and the Constitutional Court rejected his efforts to change it, it is not clear whether he and his administration are prepared to move past their focus on altering the tribunal and pay more attention to languishing aspects of the peace arrangements.

With the countryside still wracked by violence, coca cultivation on the rise, and the growth of armed groups (including dissident FARC factions, National Liberation Army (ELN) guerrillas and drug trafficking organisations), the government should invest more time and resources into implementing the peace agreement’s rural reforms. These provide the most promising path toward developing a licit agricultural economy that can displace coca production and deprive organised armed groups of their principal funding source. They also can help begin to introduce state presence into regions of Colombia’s countryside outside of official reach.

EU political encouragement and financial support can help Colombia prioritise these reforms, as well as meet the enormous humanitarian burden created by the recent influx of 1.3 million Venezuelan migrants and refugees fleeing the ongoing crisis in their homeland, and the millions of internally displaced Colombians who have fled their homes because of armed conflict over the last 25 years.

The EU and its member states can help to address this complex set of challenges by:

  • Continuing to voice strong support for the Special Jurisdiction for Peace in dialogues with the government and in multilateral fora, encouraging the government not to change or undermine the tribunal, and noting that keeping faith with the terms struck in 2016 will be important to the peace deal’s durability and Colombia’s stability.
     
  • Urging the government to step up progress on crucial land reforms and other measures implementing the peace agreement’s rural reform chapter, to which the EU is a major donor.
     
  • Increasing support for economic development in rural areas – especially those where coca production is rife – including by directly funding alternative livelihood or crop substitution projects.
     
  • Increasing its funding for humanitarian work to help Colombia shoulder the massive humanitarian burden created by the Venezuelan refugee and migrant influx, as well as internal displacement.

Struggling with Transitional Justice

The question of how to bring to justice former FARC members accused of serious crimes during the conflict has been highly contentious for years. Consistent with the 2016 peace agreement, the Special Jurisdiction for Peace favours reparatory community service work over jail time for FARC members who cooperate, which many in Colombia see as too lenient. President Duque came to power in August 2018 after campaigning on promises to introduce more stringent consequences for offenders, and his party spent much of the last year working toward this goal. In spring 2019, Duque lodged six “objections” to implementing legislation that Congress had already passed in accordance with the 2016 accords to establish a durable legal framework for the tribunal. But in May, Congress overrode the objections and, with the Constitutional Court upholding the override in June, Duque was forced to sign the legislation into law.

The government’s quarrels with the Special Jurisdiction for Peace are counterproductive.

Although the fight over the implementing legislation appears to be over, the Special Jurisdiction for Peace remains controversial. A recent source of dispute is the tribunal’s May 2019 decision to thwart a U.S. extradition request and order the release of a former FARC commander, known as Jesús Santrich, who the U.S. wishes to prosecute for allegedly conspiring to traffic cocaine in 2018. After the tribunal ordered Santrich’s release, he was rearrested on “new” evidence, released again (this time under order of the Supreme Court), and sworn into one of the ten congressional slots allocated to the FARC under the 2016 deal – all before disappearing from a FARC reintegration cantonment, with leaked intelligence reports suggesting he fled to Venezuela.

Whatever the particulars of this and other high-profile cases, the government’s quarrels with the Special Jurisdiction for Peace are counterproductive. The terms by which the tribunal operates, however imperfect, are at the heart of the 2016 deal and cannot be altered without jeopardising it.  Moreover, the time and attention of senior officials is urgently required elsewhere, as discussed below. The government’s recent proposal to cut 30 per cent of the tribunal’s and other transitional justice funding suggests, however, the divisive political battles around it are not over.

Rural Reform: An Uneven Track Record

Whereas the Duque administration has overwhelmingly focused its political attention on the Special Jurisdiction for Peace and bringing the FARC to justice, its implementation of the accord’s other elements – some critically important to establishing lasting peace in Colombia – has been uneven at best.

On the positive side of the ledger, the government has undertaken important steps to reintegrate FARC members back into mainstream Colombian society, including through the National Reintegration Council’s approval of 24 economic projects and other initiatives to provide ex-combatants opportunities in the licit economy (up from two at the time Duque took office). The government has also finalised sixteen regional development plans, known as PDETs (Programas de Desarrollo con Enfoque Territorial), designed through a participatory process led at the community level in 170 municipalities. These plans contain thousands of proposed measures –which the government is winnowing down based on their assessed “viability” – that are meant to promote local economic development and improve the presence of state institutions in the countryside by, among other things, investing in infrastructure and expanding access to education and health services.

Drug trafficking groups still control large parts of the countryside.

In other important respects, however, the government has ignored or dragged its feet on implementing the rural reform chapter. According to the Kroc Institute, which tracks peace agreement progress, 51 per cent of the initiatives in the rural reform chapter have made such little progress that it is unclear they will ever be fully implemented and a further 38 per cent have made no progress at all.

Land reforms – strongly opposed by the Democratic Centre’s political base of elite land owners (who see rural reform as a threat to their power and interests) – need particular attention. The peace agreement envisages three main measures to distribute land more equitably, create legal protections for owners, and encourage landholders to grow crops other than coca. One is to formalise the ownership of almost seven million hectares of untitled land by affording titles to the farmers working it. Before Duque took office, the National Land Agency had already titled 1.6 million hectares in just over a year, but its efforts appear to have slowed; as of June 2019 the number was only 1.9 million hectares. A second major measure – the creation of a government-owned “land fund” to distribute three million hectares to peasants with little or no land – is also faltering. Under the prior administration of Juan Manuel Santos, the fund’s holdings reached 525,000 hectares, but under the current administration they increased by only 32,000 hectares. The third measure – to establish a land registry to track ownership and better enable the collection of taxes – is faring better, as the High Advisor for Stabilisation secured financing to proceed with its creation.

Managing Insecurity and Coca Production in Conflict-affected Areas

As Colombia struggles with implementing the 2016 accord, organised violence continues to rise in rural areas. ELN guerrillas, FARC dissidents who did not join the peace process or left it after it began, and drug trafficking groups still control large parts of the countryside. They regulate and participate in illegal economies, seek to control the communities where they operate through makeshift justice and other governance mechanisms, and fight each other as well as the state, causing great harm. More than 145,000 people were displaced by this violence in 2018, up from 139,000 in 2017.

Bogotá feels it is under unrelenting pressure from both domestic constituents and foreign partners to deal more firmly with rural crime and violence. In response, the Duque administration has increased deployments of troops and police officers in places like Catatumbo along the border of Venezuela and Bajo Cauca in the north west. It emphasised killing and capturing criminal or armed group leaders, such as the infamous FARC dissident known by the alias “Guacho”. But in general these efforts have not allowed the government to wrest territorial control away from illegal armed groups, nor have they weakened their power in general.

In the meantime, coca and cocaine production, which fund these illegal groups and motivate them to compete and fight with each other, are at historic highs in Colombia. In 2017, (the last year for which there is reliable data) cocaine production reached 1,300 metric tonnes. The U.S. has been especially critical of Bogotá for its inability to curb production, and President Trump has threatened to decertify Colombia as a partner to the U.S in counter-narcotics efforts, which would make the country ineligible for most U.S. assistance.

Only by addressing the deep socio-economic disparities that grip [rural] communities can Colombia truly move past the legacy of violence.

Whether or not this is likely to happen, the Colombian government has taken the White House’s discontent very seriously. It has committed to combat coca production through increasing forced eradication, promising to destroy 80,000 hectares of coca this year, and to substitute another 20,000 for legal crops. The Ministry of Defence appears to be preparing to return to aerial fumigation even though it is highly likely that the Constitutional Court – which has previously prohibited fumigation because of the alleged carcinogenic effects of the weed killer glyphosate – will force the spraying to stop.

Beyond issues of legality, a return to fumigation would be counterproductive policy. Prior efforts to control the coca economy through aerial fumigation (Colombia fumigated over one million hectares between 2000 and 2015) have failed. Part of the problem is that the technique is ineffective: multiple studies have shown that spraying a hectare of coca only destroys a small fraction of the crop, and that any minimal inroads it can make are unsustainable over time. Because farmers are cultivating coca plants to be more productive, seeking to curtail production by focusing predominantly on lowering the number of productive hectares is misguided.

For better or worse, the most promising fix for the persistence of organised armed groups and illicit economies in Colombia’s rural communities lies with the rural reforms set forth in the 2016 peace plan. Only by addressing the deep socio-economic disparities that grip these communities can Colombia truly move past the legacy of violence.

The Venezuelan Crisis

On top of its domestic challenges, Colombia faces an increasing humanitarian burden caused by the crisis next door. Since the Venezuelan economic and political crisis dramatically worsened in 2017, more than one million Venezuelans have fled to Colombia, swelling the ranks of the more than 300,000 internally displaced Colombians due to violence in that same time period and millions of Colombians displaced during a quarter century of conflict who have not yet returned home.

While the government has proved generous and welcoming to Venezuelans by providing temporary residency and access to health and education, infrastructure along the border is woefully inadequate and many migrants choose instead to live in squalor in Colombia’s big cities. Although Colombia is a middle-income country, additional donor support is urgently needed. The UN and other humanitarian agencies estimate the funding needs for Venezuelan refugees in Colombia are around €280 million for 2019, of which only €67 million are currently covered by donors. Bogotá is contemplating relaxing deficit targets so that it can spend an extra €800 million on meeting the needs of Venezuelan refugees and reallocating money that should be spent on other priorities, including implementation of the 2016 peace deal.

The Road Ahead

The best way forward for Bogotá lies in faithfully implementing the 2016 peace accords. As a major donor – an EU Trust Fund will have disbursed €120 million in support for rural development and reintegration by the end of 2020 – the EU and its member states are well positioned to press Bogotá to drop polarising disputes about FARC accountability and bear down on critically important rural reforms.

Given EU leadership on justice and accountability issues, it can be a strong voice for pressing the Duque government to turn the page on its disputes with the Special Jurisdiction for Peace, making the point that the tribunal is the imperfect product of a political compromise, but undermining it would jeopardise lasting peace in Colombia. It should also push the government to fully fund all transitional justice mechanisms, including the Special Jurisdiction, in its 2020 budget, notwithstanding recent announcements that it will seek to cut funding for the transitional justice mechanisms by 30 per cent.

The EU and member states should also underline how important it is for political leaders to dedicate more attention to languishing aspects of the peace accords. They should make clear that they see these reforms as the key to a stable and prosperous future for Colombia, and in particular for the rural areas that continue to face rampant violence. Much as Bogotá deserves credit for the progress it has made on FARC reintegration, too many reforms have either stalled or failed entirely to get started. At the top of the list are land reforms that have largely stalled since Duque took office.

The EU should consider increasing its humanitarian assistance to meet the needs created by the growing Venezuelan influx.

While peace and security in the countryside ultimately depend on these reforms, in the shorter term, the EU should continue to help the Colombian government strengthen its presence and capacity to provide services in impoverished rural areas, including by funding projects for conflict resolution, promoting criminal accountability and building infrastructure. In addition, the EU should encourage the government to focus less on coca eradication, and more on efforts to stimulate the development of licit economies in conflict-affected areas through alternative livelihoods and crop substitution.

Given these challenges, and the fact that successful rural development and peace agreement implementation are envisioned to take fifteen years in Colombia and cost billions of euros, the EU should begin to consider extending the Trust Fund beyond 2020, and adding more resources to it. In a similar vein, the EU should consider increasing its humanitarian assistance to meet the needs created by the growing Venezuelan influx, and to help Colombia shoulder the burden without taking funds away from the crucial reform effort that is still in its early stages.

Preventing Further Conflict and Fragmentation in Ethiopia

Ethiopia is being buffeted by deadly unrest as it attempts a rapid transition to multi-party democracy under Prime Minister Abiy Ahmed. His government has chalked up significant achievements during the last eighteen months of political and economic liberalisation. But the challenges it faces were laid bare on 22 June when the president of one of the country’s regional states, Amhara, and the Ethiopian military’s chief of staff were assassinated in concurrent events in separate cities. The killings came after intercommunal clashes in more than ten areas in 2018 led almost three million Ethiopians to flee their homes, the world’s largest conflict-related internal displacement in any one country that year.

Strains within the ruling coalition, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF), have contributed to the unrest. The EPRDF is almost inseparable from the Ethiopian state itself, controls all tiers of the federal system and has ruled for 27 years with an iron grip. Tensions among its four member parties have aggravated the country’s challenges while at the same time undercutting the government’s authority and ability to manage them. Ascendant ethno-nationalist and other opposition movements have exploited the ensuing political opening and further exacerbated instability. Particularly urgent is an evolving crisis in the Southern Nations, Nationalities and Peoples Regional State, where the Sidama, the largest ethnic group in Ethiopia’s south, pledge to declare a new regional state on 18 July, potentially setting off unrest and clashes between Sidama activists and other ethnic groups. Political tensions and insecurity have also led officials, opposition actors and diplomats to question whether it will be possible to hold credible parliamentary elections, currently scheduled for May 2020 and which Abiy promises as a milestone toward more open politics, on time.

Regional EPRDF parties should avoid appointing hardliners to top slots.

Calming rising tensions before they derail Ethiopia’s transition is becoming critical. Each of the country’s major flashpoints likely requires its own set of de-escalatory measures. But Ethiopia’s leaders can take some general steps. Abiy and other EPRDF leaders should do everything within their power to rein in intra- EPRDF discord. Abiy himself should avoid fuelling the perception he is favouring his own Oromo political base. In this light, his recent appointment of General Adem Mohammed, an Amhara, as new military chief of staff, instead of the Oromo deputy chief who was next in line, was sensible. Central authorities should rely on federal security forces to deal with disturbances in regions only as a last resort, instead trusting regional forces where possible, lest federal forces stir up local anger; deploying the army in an attempt to thwart the Sidama’s self-declaration of statehood would likely backfire, for example. Regional EPRDF parties should avoid appointing hardliners to top slots. On some intra-EPRDF disputes, the mediation of respected former Ethiopian statesmen or military or religious leaders might help.

The EU and its member states should use the influence their good relations with Abiy’s government and their important aid bring by:

  • Continuing to engage Prime Minister Abiy and the EPRDF leadership and encourage them to adopt the measures above, notably seeking to dial back dangerous inter-communal tensions.
     
  • Given the urgency of the Sidama crisis, considering increasing European development assistance to accompany the south’s likely administrative rearrangement, in the event that the Sidama do unilaterally pursue their own regional state from 18 July. This could help avert protests among activists of other groups in the south by demonstrating that their concerns are also being attended to.
     
  • Aiming to cushion with financial aid and technical support any negative side effects of economic liberalisation, while EU diplomats can advise that economic reform be implemented carefully to avoid shocks, such as a severe reduction in construction jobs due to reduced infrastructure investment, or the rapid removal of subsidies on items like wheat, cooking oil and electricity that could exacerbate political problems.
     
  • Expediting the release of the EU’s planned electoral support package, with its first disbursements in September 2019, to help move forward preparations for the parliamentary vote.

Rising Ethno-nationalism and Potential Flashpoints

Ethiopia’s ruling coalition is fraying. The EPRDF has controlled all tiers of government from federal to village level since coming to power in 1991, routinely using repressive tactics to sideline challengers. Since taking office in April 2018, Prime Minister Abiy and his government have carried out bold and significant reforms, overhauling the federal security apparatus, making peace with neighbouring Eritrea, releasing more political prisoners and inviting exiles back home. But while these steps were long overdue, they have further weakened the EPRDF’s unity and authority, particularly as they came on the back of three years of anti-government protests before Abiy took office.

Disagreements have worsened over power sharing, regional autonomy and territory among the EPRDF’s four component parties, the Amhara National Democratic Movement (now the Amhara Democratic Party), the Oromo People’s Democratic Organisation (now the Oromo Democratic Party), the Southern Ethiopian People’s Democratic Movement and the Tigray People’s Liberation Front (TPLF). At the same time, ethno-nationalist movements are on the rise in some regions, squeezing EPRDF parties, who have themselves taken harder line positions in response. These dynamics risk contributing to burgeoning inter-ethnic violence, which already over the last few years has reached levels unprecedented in decades. The 22 June assassinations and alleged attempted regional coup came as a stark illustration of the gravity of the crisis affecting both ruling party and country as a whole.

A handful of inter and intra-ethnic flashpoints are particularly worrying. First is friction between the Tigray and the Amhara. The main source is the Amhara’s longstanding claim to the Wolkait and Raya territories that are currently part of Tigray regional state and border Amhara. Tigray security forces have repressed protesters in Raya that were seeking to be part of Amhara and, previously, Amhara protesters and militia have killed and evicted Tigrayans from Amhara, particularly the Gondar area in northern Amhara state. The former Amhara regional security chief, Asaminew Tsige, whom the federal and Amhara governments blamed for the 22 July killings of Amhara’s regional president and two colleagues, also promoted the return of parts of Tigray’s territory to Amhara.

Tensions between the Amhara and Oromo have been aggravated by the 22 June assassinations and events leading to them.

Second are rising tensions between the Amhara and Oromo, Ethiopia’s two largest groups. The EPRDF parties representing them – the Amhara Democratic Party (ADP) and the Oromo Democratic Party – united to propel Abiy to power and reverse the TPLF’s longstanding domination of the ruling coalition. But friction between them has mounted since, over matters including high-level appointments and disputes over the capital Addis Ababa. In the case of the capital, which is multi-ethnic but surrounded by Oromia regional state, in February Amhara and other groups opposed the Oromia government’s demolition of illegal housing on the capital’s outskirts, while in early March Oromo protested the transfer of new government apartments built in Oromia by the city administration to Addis Ababa residents. Addis Ababa, founded in 1887, is an autonomous city accountable to the federal government, but some Oromo factions say it is a colonial settlement on Oromo land and should be administered by Oromia region, or that the city’s encroachment into Oromia must be reversed.

Tensions between the Amhara and Oromo have been aggravated by the 22 June assassinations and events leading to them. The appointment of Asaminew, an Amhara nationalist who was jailed in 2009 for his part in a coup attempt and released by the federal government in February 2018, as regional security chief by the Amhara government in November 2018 reflected the ADP’s growing ethno-nationalism and its desire to outflank the one-year-old National Movement of Amhara, an opposition party espousing Amhara nationalism. Asaminew fuelled Amhara-Oromo friction by using provocative rhetoric about what he portrayed as impending Oromo domination and involving regional security forces in clashes with Oromo militia in an Oromo enclave of Amhara in early April 2019 that left dozens dead. Since the 22 June assassinations, doubts over the federal government’s account of the killings and a sweep of arrests of Amhara nationalists and others have hardened regional opposition to the Orom0-led federal government. Large crowds of Amhara gathered for Asaminew’s funeral, including uniformed security forces.

The third fault line is between the TPLF – which rules Tigray and, until last year, had long dominated the EPRDF and the security apparatus – and the federal government led by Abiy, the head of the Oromo Democratic Party. The TPLF’s main sources of grievance are its loss of federal power; what it argues are selective prosecutions of Tigrayan top officials – notably of TPLF Executive Committee member and former national intelligence chief Getachew Assefa – for human-rights abuses and corruption; and opposition to a federal commission that is tasked with assessing interregional boundary disputes, such as the Amhara claims on Wolkait and Raya. The TPLF sees the commission as likely to rule against it and rejects it as unconstitutional because its mandate allegedly clashes with that of the upper house of parliament. The TPLF-run regional authorities apparently refuse to detain Getachew, whose whereabouts are unknown but suspected to be in Tigray, despite the federal authorities issuing his arrest warrant.

The Sidama statehood demand could have a domino effect across the southern state, leading to its fracturing and more conflict and displacement.

Fourth is continuing unrest in Oromia. Three years of anti-government protests since 2015, which largely took place in that state, forced the internal shifts that brought Abiy to power. Violence has continued since. The September 2018 return of leaders of the Oromo Liberation Front (OLF), a formerly banned armed group campaigning for Oromo rights and autonomy, sparked ethnic skirmishes, as Oromo youth replaced national flags in the capital and surrounding areas with the OLF banner, provoking the anger of, and clashes with, other groups. If the electoral board registers the OLF, which is seen as the standard bearer of the Oromo liberation struggle, as a political party, it could sap votes in 2020 from Abiy’s Oromo Democratic Party: while leaders like Abiy are popular with youthful protesters, many Oromo regard the ruling Oromo party as ineffective and for years subservient to the TPLF. Moreover, OLF-linked factions are still fighting the military in western Oromia, with each side accusing the other of being the aggressor.

Lastly, the Southern Nations Nationalities and Peoples Regional State, home to 45 indigenous groups, is in disarray. In 2018, the south’s largest ethnic group, the approximately four million strong Sidama, took advantage of EPRDF incoherence to renew claims to its own regional state. The federal government for months largely neglected the problem, neither preparing to meet its constitutional obligation to hold the referendum (the electoral authority that should administer the vote has also been undergoing reform) on forming a new state that the Sidama had requested nor reaching an agreement with Sidama leaders on rescheduling their statehood bid. Sidama leaders say they will self-declare their own regional state on 18 July, which the authorities are set to reject as an unconstitutional move. This risks triggering violence between Sidama and federal security forces in Hawassa City, currently the administrative seat of the Southern Nations but which the Sidama intend to make the capital of their new regional state. The Sidama statehood demand, and any attendant violence, could have a domino effect across the southern state, leading to its fracturing and more conflict and displacement.

Re-railing the Transition

Prime Minister Abiy’s government has rapidly advanced vital reforms, accelerating a transition set in motion under his predecessor, Hailemariam Desalegn. But the 22 June killings and alleged attempted regional coup throw into sharp relief the enormous challenges remaining. Of these, rising tensions among Ethiopia’s regions, and among the EPRDF parties that govern them, pose the most immediate risks. A different set of de-escalatory measures is likely necessary for each flashpoint. Moreover, some grievances date back many years and will take time to resolve: the Amhara and Tigray are unlikely to settle their territorial dispute any time soon, for example, and aimed provocative statements at each other on 10 and 11 July 2019. But Ethiopia’s leaders can take some general steps that could help rein in intra-EPRDF tensions, lower the temperature overall and buy time for further reforms that would help build a more democratic system that is able to address such issues.

Abiy himself should avoid any action that might aggravate the perception he favours his own Oromo community, in both his high-level appointments and the government’s action against protesters and activists. He made a sound decision when appointing of General Adem Mohammed, an Amhara, to replace the military chief of staff killed on 22 June, instead of the Oromo deputy chief who was next in line. But the mass arrest of National Movement of Amhara activists and other opponents in the wake of the 22 June killings appears to have backfired.

The government should also be cautious about using federal security forces to deal with disturbances in regions. It should do so only as a last resort if there is a grave threat to the country’s stability or a risk of bloodshed that regional forces cannot contain. It should be wary about using federal forces to try and obstruct the Sidama’s declaration of statehood, for example. Similarly, the deployment of those forces to try and arrest former national intelligence chief Getachew Assefa would be highly likely to stir up local Tigray resistance. Instead the federal government should tackle such issues through concerted dialogue with the relevant regional leaders. For their part, the EPRDF parties should refrain from further inflammatory rhetoric and avoid appointing hardliners to top slots; finding leaders inclined toward compromise for the Amhara regional president and security chief may well prove a challenge but is critical. Respected former Ethiopian statesmen or military or religious leaders could potentially play a role in mediating among EPRDF leaders to find at least immediate fixes to problems related to existing grievances in order to achieve some short-term stability and set the transition back on track.

Increased EU development assistance could prop up government spending if necessary and support the authorities in undertaking economic reform.

The EU and its member states should use whatever influence they have with Prime Minister Abiy’s government to encourage such measures, while urging all actors to moderate demands and show patience. They can also take a handful of concrete steps to help minimise risks. First, if the Sidama self-declare their regional state on 18 July, the EU and European governments could offer financial support to accompany the broader administrative rearrangement that a new Sidama state would likely trigger in the south. The promise of additional funds for development projects could help assuage frustration among other groups – some of whom have concerns about the new Sidama state or harbour statehood aspirations of their own – and thus possibly avert protests by their activists that could turn violent. Any plan for increased aid should, however, guard against incentivising future attempts by local leaders to attract extra government resources through agitation, possibly by ensuring that the new arrangements represent a comprehensive settlement backed by all southern groups.

Secondly, increased EU development assistance could prop up government spending if necessary and support the authorities in undertaking economic reform in a manner carefully sequenced and guards against a slowdown, which could aggravate political instability. European financial aid and technical support could be critical to such reforms.

Lastly, while parliamentary elections are still some way off, preparations are lagging. The new electoral board was formed only last month, for example; electoral laws are not yet finalised, parties may still table potentially far-reaching changes to the electoral system; and some parties are registered while others are not. Furthermore, the mounting tensions, intercommunal bloodshed and general instability since Abiy took office and for three years before could make conditions for the vote fraught. The Ethiopian authorities themselves need to move forward on the basis of consensus among the main political factions, inside and outside the EPRDF. But by expediting the release of its planned electoral support package, with its first disbursements in September 2019, the EU can help advance preparations.

How the EU Can Soften Iran-U.S. Tensions

Tensions between Iran and the U.S. have grown at an alarming pace in recent months. The Trump administration’s “maximum pressure” campaign, following its withdrawal from the 2015 nuclear deal, has inflicted significant harm on Iran’s economy – an estimated 80 per cent of which is now under unilateral sanctions. Yet economic coercion has so far failed to either compel Iran to change its behaviour in the desired direction or bring it to the negotiating table. Instead, it has responded by shooting down a U.S. drone, claiming it had entered Iranian airspace; it is also accused by many of attacking tankers near the Strait of Hormuz and by the U.S. of encouraging its Shiite militia allies in Iraq to target U.S. assets.

This escalation poses three distinct threats: the unravelling of the Joint Comprehensive Plan of Action (JCPOA), which constrained Iran’s nuclear program; the possibility of a direct military engagement between Iran and the U.S., by design or miscalculation; and broader regional spillover across a series of flashpoints. These threats could jeopardise European security, especially the latter two scenarios. Europe should save the JCPOA by honouring its commitments and trying to contain (and de-escalate) tensions between Tehran and Washington.

The EU, working closely with its member states, should take the following steps to:

  • Intensify ongoing efforts to facilitate trade with Iran through the special-purpose vehicle (INSTEX) by injecting export credit into it and expanding it to other EU and non-EU states to pre-empt further incremental breaches of the JCPOA’s nuclear restrictions by Tehran. To ensure compliance, the EU should continue to strike a careful balance between supporting the consolidation and expansion of INSTEX and criticising Iran’s missile program, regional policies and human rights record; and it should stay united in its response to any further breaches of the JCPOA by Iran.
     
  • In parallel, expand, deepen, and broaden existing cooperation with Iran on development projects to demonstrate its willingness to invest in Iran and help improve the Iranian people’s economic well-being regardless of Washington’s hostile policies toward Iran. In this vein, the EU should consider hiring a Persian-language spokesperson to better communicate its goals and plans to Tehran and the Iranian public.
     
  • Explore opportunities for expanding the existing E4-Iran dialogue framework for Yemen and Syria to include other regional issues, such as stability in Iraq and Afghanistan.
     
  • Forge discreet channels for dialogue on areas of disagreement with Tehran, such as Iran’s ballistic missiles program and human rights record, and help open communication channels between Iran and regional actors as well as between Iran and the U.S. to de-escalate tensions and prevent a military conflict by miscalculation.
     
  • Explore the possibility of initiating and supporting a regional dialogue on reducing tensions and preventing the inadvertent outbreak of conflict.

Safeguarding a Beleaguered Deal

The EU played a key role in shepherding the arduous negotiations that yielded the Iran nuclear deal four years ago. Today it has an even more critical role in preventing the JCPOA from unravelling. Since the agreement was implemented, and especially after the U.S. withdrawal in May 2018, Iran has seen the JCPOA’s core bargain (limiting its nuclear program in return for economic normalisation) break down under the pressure of intensified U.S. sanctions. In May 2019, Tehran began to take incremental (but still reversible) steps reducing its compliance. These became concrete in early July, when Iran surpassed the 3.67 per cent uranium stockpile threshold, which the JCPOA capped at 300kg, and started enriching above that level in violation of the deal’s terms. It also threatened to take additional steps by 6 August if the remaining parties to the deal fail to salvage its economy in the face of U.S. sanctions. The challenge, now and over the coming year, is to protect an accord that has delivered crucial non-proliferation gains.

Deep mistrust and limited communications channels could allow an isolated and accidental incident to quickly spin out of control.

A second growing concern is the possibility of a direct military clash between the U.S. and Iran. Washington has been progressively bolstering its military presence in the region in response to assessments of heightened Iranian threats. The fact that the U.S. came close to launching a retaliatory strike in mid-June after Iran shot down a U.S. drone it claimed had breached Iranian airspace underscores how precarious the situation has become. If Washington continues to pursue a coercive maximalist strategy whose endgame is Iran’s capitulation rather than diplomatic engagement, the short- to medium-term prospects point to growing friction rather than de-escalation, let alone a major diplomatic breakthrough of the type President Trump says he is championing.

Rising tensions could ignite a confrontation in several ways. Should Iran continue to breach the JCPOA limits, its activities could reach a point that the U.S. and Israel find intolerable and conduct a military operation against Iran’s nuclear installations. From its side, Iran, through its own forces or local allies, could target U.S. interests or those of its partners; the U.S. has asserted that any American deaths would prompt a muscular response. May and June already saw a string of attacks against shipping in and around the Gulf of Oman, responsibility for which Washington explicitly pinned on Tehran. The spark need not be intentional: deep mistrust and limited communications channels could allow an isolated and accidental incident to quickly spin out of control. Should a clash occur, it could draw in other state and non-state actors in the region, rapidly devolving into a larger conflagration.

A third challenge is that developments in another theatres – for example, in Yemen, Syria or Iraq – could draw the U.S. and Iran in more deeply, exacerbating tensions between them. Take, for instance, a possible attack by Afghanistan’s Taliban in Afghanistan or an Iraqi paramilitary group against a U.S. military or diplomatic facility, resulting in loss of life or substantial damage. In the current environment, the U.S. may assign blame to Iran and launch retaliatory attacks without first ascertaining whether Iran or other local actors bear primary responsibility.

Recommendations for the EU and its Member States

European action is essential for addressing the first of the three challenges laid out above, and important in tackling the other two. While France, Germany and the UK (the E3) have established INSTEX, the EU should encourage its consolidation and expansion to other European (and perhaps even non-European) states. The E3 should inject several billion euros worth of export credit into the mechanism to render it operational and allay concerns of Europeans firms and banks, which remain fearful of U.S. penalties and would welcome backing from their governments. Seven other EU countries (Austria, Belgium, Finland, the Netherlands, Slovenia, Spain and Sweden) announced on 1 July their interest in joining INSTEX. Involving non-EU states such as China, which continue to import oil from Iran, or Russia, which is willing to be a conduit for exporting petrochemical derivatives from Iranian oil to Europe, could generate much needed funds for European exports to Iran. Europe should clearly state – and warn the Trump administration – that targeting INSTEX or its Iranian counterpart will entail consequences.

Separately, but in parallel to these efforts, the EU should deepen and expand technical and development cooperation with Iran across a range of fields, such as water, narcotics, refugees and private sector promotion. It should also consider expanding the E4-Iran dialogues on Yemen and Syria to other regional conflicts, such as Iraq and Afghanistan. At the same time, it should seek discreet avenues for discussing other sensitive issues with Tehran, be it on Iran’s missile program or human rights record. These channels can help maintain diplomatic contacts and help prevent dangerous escalations.

The EU, particularly member states such as France, should strongly press for a freeze in the escalatory cycle between Tehran and Washington.

Success on this front could help not just stabilise the nuclear deal but build leverage and cooperation for non-nuclear discussions, including on de-escalating Iran’s role in regional conflicts. While the U.S. continues to pursue a sanctions-driven strategy, the EU, particularly member states such as France, whose president has a direct channel to his U.S. counterpart, should strongly press for a freeze in the escalatory cycle between Tehran and Washington. From Washington’s side, this would need to include, at a minimum, waivers to loosen the noose on Iran’s oil exports; and from Tehran’s, a return to full JCPOA compliance, releasing U.S. prisoners and agreeing to broader talks about the JCPOA’s future and other areas of dispute.

Be it on the nuclear issue or less time-critical initiatives elsewhere, the EU should enhance its image in Iran, which, because of its inability to shield the Iranian economy from U.S. sanctions, has been damaged to such a degree that Iranians widely view it as “good cop” to the Trump administration’s “bad cop” rather than an independent diplomatic partner. This requires the EU to hire a Persian-speaking spokesperson to communicate its goals to Tehran and the Iranian public. Balancing expressions of concern and criticism with constructive and mutually beneficial discourse, and striking a balance between public and more discreet methods of messaging, could prove the best approach to influencing Tehran’s decision making in these dangerous times.

Avoiding a Protracted Conflict in Libya

Since the outbreak of violence in Tripoli last April, the prospect of a negotiated settlement to end the competition for power in Libya has only grown more remote. The military offensive launched by the Libyan National Army (LNA), which is headed by Field Marshal Khalifa Haftar and based in the east, against forces allied with the UN-backed Government of National Accord (GNA) in Tripoli has thwarted UN-led efforts. Those had been aimed at forging a new power-sharing deal or charting a consensual roadmap to reunify critical Libyan state institutions, split between east and west since 2014. The pursuit of outright victory has displaced earlier strategies aimed at reconciling the two rival political and military authorities. For Haftar-led forces, success means capturing the capital, expelling armed groups opposed to the LNA, imposing transitional arrangements that would sideline Prime Minister Faiez Serraj’s GNA, and gaining control of state funds held by the Central Bank of Libya. For the Tripoli-based government, winning entails pushing the besieging forces outside the boundaries of western Libya and implementing a political roadmap that marginalises Haftar.

Diplomatic paralysis pervades this state of affairs. UN Security Council members are divided and unable to call for a cessation of hostilities, mostly owing to U.S. opposition to a draft resolution that would have done just that. The U.S. claims it resisted the draft resolution because it lacked a mechanism to ensure compliance, but its stance more likely reflected White House sympathy for Haftar and for his Saudi, Emirati and Egyptian supporters. More broadly, continued military support (in violation of a UN arms embargo) and funding for Haftar from Saudi Arabia, the United Arab Emirates (UAE), Egypt, France and Russia, and to pro-GNA forces by Turkey and Qatar, are fuelling both sides’ willingness to continue the fight.

Much is at stake for Europe. A protracted conflict in Libya would further destabilise its southern neighbourhood with direct economic and security ramifications, and would continue undermining EU cohesion in dealing with migration. Against the backdrop of UN Security Council paralysis, however, the EU and its member states likely have little leverage to stop the war, especially as European capitals are divided between those that betray a bias toward either Haftar (as in Paris) or the GNA (as in Rome). Still, the EU and member states could and should contribute to de-escalating tensions in the following ways:

  • Urge governing authorities in Tripoli and eastern Libya to reconsider their uncompromising positions and nudge them toward agreement on an internationally-monitored ceasefire, followed by negotiations for new political, military and financial arrangements under UN aegis and with EU technical and financial support;
     
  • Through joint or concerted high-level diplomatic missions representing all EU member states, or by tasking the EU foreign policy chief Mogherini to represent a common EU position, persuade Abu Dhabi, Riyadh and Cairo to recognise that a prolonged LNA offensive is unlikely to produce the swift or “clean” victory that would stabilise Libya and that their interests are better served at the negotiating table. They should similarly seek Ankara’s and Doha’s cooperation in persuading the GNA to sit with the LNA;
     
  • Seek to persuade President Donald Trump’s advisers, who themselves appear somewhat divided, to adopt a more even-handed approach toward the Libyan conflict by calling for a cessation of hostilities, including through the UN Security Council;
     
  • If and when a ceasefire is in place, support an economic dialogue to reconcile the Central Bank of Libya’s two separate administrations and address financial grievances that deepen the conflict, thus paving the way for a military de-escalation and a return to talks.

Tanks and Banks

After three months of war, more than 1,000 battlefront deaths and 100,000 displaced civilians, neither Haftar nor Serraj is near victory. Tripoli government forces scored a tactical win in late June when their fighters expelled Haftar’s forces from Ghariyan, a town 80km south of the capital. But in Tripoli’s southern suburbs, where front lines might shift daily, rival forces have been locked in a stalemate for the past three months and airstrikes from both sides continue. Despite this, and the casualty toll, neither side shows appetite to accept a ceasefire, as both view the conflict as existential and believe they can prevail on the battlefield. This means the deadly war around Tripoli likely will drag on and this, in turn, could bring additional military support from both sides’ external backers, triggering new fighting and likely further stalemate, but with even greater destruction.

[An important] conflict driver is competition over oil revenues, specifically management of and access to state funds.

The fighting around Tripoli is unlikely to end without greater regional support for a ceasefire. Libya’s institutional fractures, which have become conflict lines, and the existential narratives embraced by both sides reflect deeper geopolitical divides through the Middle East and North Africa. Haftar receives support from the UAE, Saudi Arabia and Egypt, who argue he is the only Libyan leader who can rein in Islamists of all stripes, whether the Muslim Brotherhood, jihadists or Qatari and Turkish-backed GNA-aligned militias in Tripoli, all of whom they view as a single undifferentiated enemy. The support offered to Haftar by his regional backers, like that offered to the GNA by its own Qatari and Turkish defenders, reveals the depth of the schism and the significance of this dividing line in regional politics. Tacit U.S. support for this worldview (dictated more by White House priorities elsewhere in the region than by a concrete U.S. vision for Libya), and the push to reshape the regional order espoused by the Emirati, Saudi and Egyptian axis, has also deepened Libya’s internal divides.

While international rifts and competing regional ambitions remain an overarching conflict driver, locally, interlocking competing narratives of political and military legitimacy, a battle for power, tribal rifts and recriminations, and a deeply polarised media are making the war even more intractable. But another important, often overlooked, conflict driver is competition over oil revenues, specifically management of and access to state funds, held by the Central Bank of Libya. Since 2014, the Central Bank has been divided into two rival administrations reflecting the country’s broader institutional divides: the internationally-recognised headquarters in Tripoli and the Benghazi branch, which operates as the central bank but is loyal to the east-based government and parliament. The Benghazi branch, which funds Haftar, has no access to the country’s oil revenues, which have accrued to the Central Bank in Tripoli. Instead, eastern authorities have funded themselves – illegitimately, in Tripoli’s eyes – by issuing almost $30 billion in promissory notes processed by east-based commercial banks. But this parallel funding scheme has strained the banks, which began to show signs of stress just as Haftar launched his offensive in April.

De-escalating the Libyan conflict necessitates resolving this longstanding financial dispute and the immediate banking problems it poses. Failure to mend the financial rift could prompt the Haftar-backed government to pursue independent oil sales, which would ultimately deepen the split between the duelling authorities in east and west.

Zero-Sum Logic and Muddled Roadmaps

Although neither side is likely to win on the battlefield, the LNA and GNA-aligned forces, both captive to zero-sum logic, have rejected calls for a ceasefire and resuming talks. Instead, they propose conflicting political roadmaps that exclude their opponents from future negotiations. Haftar repeatedly declared that the assault on Tripoli will proceed and that, once it succeeds, he will impose a new transitional government. This would entail dismantling the governing bodies created by the 2015 UN-backed Skheirat agreement, disbanding his opponent’s militias, forming a constitutional committee and holding a referendum on a draft constitution, followed by elections. In this, Haftar sees no role for the UN or those who have risen to power as a result of UN mediation.

For his part, Serraj has publicly refused talks with Haftar. Apparently convinced that pro-GNA forces were close to military victory, he announced his own roadmap in June, from which he specifically excluded Haftar. Serraj’s plan consists of holding a nominally inclusive National Conference under UN aegis that would appoint a judicial committee to draft a new election law. In an attempt to bring east-based leaders to his side, he made vague promises about economic decentralisation and fairer resource distribution.

In principle, Serraj’s proposal hits all the points favoured by his Western interlocutors (inclusivity, decentralisation, elections and a UN umbrella), and for this reason it received endorsement from the UN, EU and some member states. However, he – like Haftar – has a distorted assessment of the power balance on the ground, overestimating his own strength and underestimating his adversary’s. This translates into an unrealistic belief that either side can implement its own roadmap without first reaching a settlement with the other.

Recommendations for the EU and Its Member States

The EU and member states should urge parties on both sides of the conflict to move away from their rhetoric of imminent triumph and toward more pragmatic positions that would open space for a possible de-escalation, an internationally-monitored ceasefire and resuming political and security sector talks, in the first instance to create new security arrangements in the capital. Through joint or concerted high-level diplomatic missions representing all EU member states or by tasking the HR/VP Mogherini to represent a common EU position, they should emphasise to decision-makers in Abu Dhabi, Riyadh, and Cairo that a prolonged LNA offensive is unlikely to produce a swift or “clean” victory that would stabilise Libya, and dissuade them from playing out their regional rivalries on the outskirts of Tripoli.

Instead, given the stalemate and the fact that prospects of a quick LNA victory have faded, they should argue that those countries’ best interests lie in convincing Haftar to agree to a ceasefire and support UN-led talks for a political and military settlement. They should underscore that continued airstrikes in the capital are alienating public support for the LNA’s cause while also empowering the very armed groups that Haftar’s offensive was meant to drive out of Tripoli. Likewise, they should press the GNA’s backers to refrain from supporting a counteroffensive by Tripoli-based forces that would pursue LNA forces beyond Tripoli’s environs eastward or to LNA-controlled oil installations. They should seek Ankara’s and Doha’s cooperation in persuading the GNA to sit with the LNA at the negotiating table.

The EU should seek to persuade the White House that a protracted conflict in and around Tripoli will not unify Libya under one ruler, but will rather fragment and destabilise it further.

A ceasefire would allow all sides, and their foreign backers, to work together on new security arrangements in the capital, the shortcomings of which were one of the original triggers of the conflict. In particular, the two sides need to agree on the role of armed groups, namely which ones continue to operate or demobilise, and decide who will secure what areas.

The EU and members states should also press the Trump administration – which at times has appeared inconsistent and divided between the White House on the one hand, and the State Department and Pentagon on the other – for clearer and more even-handed U.S. policy toward Libya. This should include U.S. support for a UN Security Council resolution calling for a cessation of hostilities. To this end, the EU should seek to persuade the White House that a protracted conflict in and around Tripoli will not unify Libya under one ruler, but will rather fragment and destabilise it further. Such ongoing fighting may well undermine U.S. anti-terrorism objectives: prolonged conflict almost certainly will strengthen armed groups, including those linked to radical Islamist organisations such as al-Qaeda and ISIS, whose affiliates have started operating with impunity in southern Libya since the outbreak of hostilities in April.

European diplomats also should press Washington to reject demands made by pro-LNA emissaries aimed at lifting or circumventing UN-imposed restrictions over Libya’s crude oil exports. For this purpose, they should convey the message to the U.S. administration, in particular the White House, that authorising independent oil sales to eastern authorities could, in the short run, give the upper hand to Haftar forces but poses the graver, long-term risk of consolidating the split between western and eastern authorities.

Finally, the EU and member states ought to intensify efforts to help reunify the rival Central Banks and offer technical advice on how to avert a looming banking crisis; likewise, as Crisis Group previously advocated, they should support UN efforts to forge an agreement on the management of Libya’s finances. They should step in to promote a financial and economic dialogue between rival branches of the Central Bank, especially at a time when the U.S. (which traditionally has led initiatives regarding Libya’s financial sector) has become far less active diplomatically. Failing to manage this dispute will only prolong the war and compound Libya’s post-2011 humanitarian emergency.