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Dealing With Iran’s Nuclear Program
Dealing With Iran’s Nuclear Program
Table of Contents
  1. Executive Summary
The Iran deal is on life support. Can Europe revive it?
The Iran deal is on life support. Can Europe revive it?

Dealing With Iran’s Nuclear Program

The announcement on 21 October 2003 of an agreement between Iran on the one hand and Britain, France and Germany on the other, is an important and welcome step in resolving the controversy surrounding Tehran’s nuclear program.

Executive Summary

The announcement on 21 October 2003 of an agreement between Iran on the one hand and Britain, France and Germany on the other, is an important and welcome step in resolving the controversy surrounding Tehran’s nuclear program. But it would be wrong to assume that it ends it. The challenge now is to use the breathing space provided by the agreement to tackle the questions – about its implementation, the future of Iran’s uranium enrichment activities and Iran’s own security concerns – that, for the time being, it has deferred.

The evidence of Iran’s putative military program is mixed but disturbing, and by no means to the U.S. alone. Both the International Atomic Energy Agency (IAEA) and European countries that have maintained close ties to Tehran have echoed Washington’s views. Iran did not disclose the existence of several nuclear facilities. When it finally did declare these facilities, it under-declared, downplaying what turned out to be extensive and sophisticated plants. It failed to report the importation from China of natural uranium over ten years ago. Most disturbing, there are indications that it introduced enriched uranium into a nuclear site without first notifying the IAEA.

Concerns about Iran’s capacity are matched by concerns about its intentions. While none of the above actions necessarily is a violation of Iran’s obligations, and while all would be consistent with a purely peaceful enterprise, Tehran’s pattern of behaviour is cause for unease. In many instances, Iran simply failed to explain its actions. When it did, those explanations were inconsistent or shifting. The IAEA has documented examples of lack of cooperation and candour. Iranian officials have placed hurdles in the path of nuclear inspectors and, in some cases, denied access. Its economic justifications for developing a nuclear energy program, while not implausible, are not fully convincing either.

Tension over Iran’s nuclear program is further aggravated by deeply-entrenched mistrust between Tehran and Washington. The U.S., alarmed at Iran’s support for groups engaged in terrorist acts and hostility to the Arab-Israeli peace process and persuaded that it is determined to develop a bomb, has grave reservations about allowing Tehran to develop any nuclear program at all. Iran believes it has a right to a peaceful nuclear program and is determined to be treated fairly as a member in good standing of the Nuclear Non-Proliferation Treaty (NPT). Powerful circles within the country, concerned about increasing encirclement by hostile or potentially hostile countries, fearful that the U.S. intends to change its regime by force, and deeply marked by the experience of its war with Iraq, when Iran was virtually abandoned by the international community, do not appear willing to forsake the possibility of a military nuclear program. Prospects for a durable deal on the nuclear issue are complicated by divisions within the U.S. administration and the Iranian regime alike that hinder clear-cut decision-making.

Ultimately, the nuclear problem will remain an issue of contention between Washington and Tehran at least until they are in a position to strike a grand bargain that addresses their wider and more fundamental dispute. But it would be foolhardy to bank on such an outcome, and in particular on the remote possibility of a change in regime in Iran.[fn]See ICG Middle East Briefing, Iran: Discontent and Disarray, 15 October 2003.Hide Footnote  A nuclear-armed Iran could encourage similar efforts by neighbours, from Egypt to Turkey and Saudi Arabia, and deal a deadly blow to the entire NPT regime. The combination of a bomb and Iran’s newly developed longer-range missile, the Shahab-3, could be perceived by Israel as a threat necessitating a military response. Conversely, a U.S. or Israeli pre-emptive strike to forestall development of a bomb could provoke deadly retaliation by Tehran in a variety of asymmetric or non-conventional ways. Moreover, should such a strike not wholly wipe out the program (as is likely), Tehran would remain with a wounded capacity to develop a bomb and a greatly enhanced determination to do so.

For these reasons, the initiative of the three EU countries should be embraced by the international community, including the U.S. On paper, the 21 October agreement signals Iran’s acceptance of the IAEA’s core demands. According to the joint statement it issued with the three EU foreign ministers, Iran will answer all the IAEA’s outstanding questions and clarify remaining gaps, discrepancies or inconsistencies in its previous explanations; sign the NPT’s Additional Protocol and commence ratification procedures; and suspend all uranium enrichment and processing activities.

Iran’s positive decision will avoid a collision with the international community and referral of the matter to the United Nations Security Council in the short run. It shows that Europe’s policy coupling pressure and engagement can produce results. But in order for the agreement to be more than a short-lived reprieve, it needs to be vigorously followed up and strengthened through the following:

  • Immediate and unconditional implementation by Iran of the steps to which it has agreed. Iran will be judged on deeds, not on words. That means, in particular, quickly providing the full transparency it promised and ensuring accelerated ratification and implementation of the Additional Protocol.
     
  • Indefinite suspension of all uranium enrichment by Iran or, at a minimum, its resumption only under rigorous and intrusive international monitoring. Iran’s decision to suspend all uranium enrichment is a very important element of the 21 October deal. But it also is the most fragile. Iran made clear both before and after the agreement that it reserves the right to enrich uranium and has pointedly refused to specify how long its suspension would last. This issue needs to be nailed down lest it unravel the entire agreement. Ideally, Iran’s peaceful nuclear program would not include indigenous enrichment, but if Iran is otherwise in compliance with NPT, including Additional Protocol, requirements, it will be difficult to make that case. The key is to remain focused on the ultimate goal: preventing Iran from possessing an unfettered capacity to produce weapons-grade uranium. At a minimum, therefore, Iran should state that while it reserves its right to enrich uranium, it will not exercise that right without agreeing to measures – such as intrusive, permanent international monitoring and perhaps joint Iranian/international management of its enrichment facilities – beyond those demanded by the NPT and Additional Protocol.
     
  • Pending establishment of a solid track record of transparent behaviour, a halt by Iran of any effort to build a heavy water reactor and a pledge not to put any such reactor into operation without reaching agreement with the international community on appropriate arrangements. While there is nothing in the NPT that requires such a step, there is much in Iran’s heretofore evasive behaviour that warrants it. Absent the requisite confidence that Iran is not developing a nuclear weapons program, a decision to proceed with its declared intent to build a heavy water reactor would have to be strongly resisted by the international community.

If Iran responds satisfactorily, along the lines indicated, the international community should respect its right to develop a peaceful nuclear program and provide it with the necessary technology and materials. It would be helpful at the same time to develop a set of confidence-building measures – such as a U.S. commitment not to use force against Iran and the establishment of a regional security forum – to reassure Iran about its own security concerns and to encourage it to become a fully participating, responsible international player. In all these respects it will be important to develop and maintain a strong international consensus, in particular between the U.S., EU and Russia, which will require adjustments in the positions of all parties.

Amman/Brussels, 27 October 2003

The Iran deal is on life support. Can Europe revive it?

Originally published in euronews

The key question is whether the sum total of what Europe can offer Iran is sufficiently robust – financially and symbolically – to give those in Iran who argue for restraint and continued engagement a chance. 

President Donald Trump’s decision to exit the nuclear agreement with Iran earlier this month has set off a scramble to save the deal. But while European diplomats hope to scrape by through preserving as much of the deal’s dividends for Iran as possible, business leaders are planning for the worst. The fate of the Joint Comprehensive Plan of Action (JCPOA) may lie in the balance between these two outcomes.

The JCPOA is, at its core, a straightforward trade: Iran pledged to cap its nuclear program and allow for international inspections in return for much-needed relief from a web of international sanctions that largely froze Tehran out of the global financial system. The UN’s nuclear watchdog has repeatedly confirmed that Iran has kept its end of this bargain, and over the past two years, major international companies started to dip their toes in the Iranian market.

Trump’s disdain for the agreement resulted in an ultimatum to Europe at the start of this year: rewrite the JCPOA, or we walk away. Negotiations between the US, France, Germany and the UK nearly closed the gaps between the two sides, but for the White House this did not suffice. On 8 May, Trump announced that the U.S. was not only ending its participation in the JCPOA, but snapping back its entire arsenal of sanctions against Iran – and those who do business with it.

For Europe, keeping the deal alive, even without the US, is imperative. This is based neither on the economic dividends it has provided – trade with Iran last year was a meagre 0.6 per cent of the bloc’s total dealings – nor on the notion that somehow Iran’s domestic and regional policy is beyond reproach – it isn’t. Rather, it is predicated on a consensus that the nuclear agreement, secured after years of difficult negotiations, is serving its primary purpose and removed a major source of tension in a turbulent Middle East. “As long as the Iranians respect their commitments”, declared European Commission President Jean-Claude Juncker, “the EU will of course stick to the agreement … which is essential for preserving peace in the region and the world”.

President Hassan Rouhani is under pressure from hardliners to deliver guarantees that Iran’s continued compliance with the JCPOA yields the dividends to which it is entitled. Iranian hardliners have already declared their scepticism about Europe either having the will or the capability to withstand the US strong-arming it. For Europe, resisting Washington’s coercion means keeping the trading channels with Tehran open despite the pressure of US sanctions. This entails a combination of protections for European companies, such as a revised 1996 “Blocking Statute” to be implemented before US penalties become enforceable this summer, and inducements for Tehran, such as financing via the European Investment bank and processing Iran’s oil payments in a way that bypasses US restrictions.

While there is no foolproof way to shield Iran’s economy completely from the repercussions of a US exit or from continued uncertainty, the E3 (France, Germany and the UK) could develop a package whose political and economic value would be greater than the sum of its individual elements. The package could contain two sets of short-term and long-term elements.

The most immediate challenge is to keep Iran’s oil exports flowing into Europe.

The most immediate challenge is to keep Iran’s oil exports flowing into Europe. The EU would have to protect energy companies with a small footprint in the US to continue purchasing Iranian oil and gas, and empower pertinent European central banks to process related payments. Movement of funds could occur at the “net level”, that is, Iran’s revenues from exporting oil to Europe could be used to pay for Iran’s imports from Europe. The EU could also publish a general licence and describing an acceptable standard for due diligence and regulatory compliance for its companies to conduct legitimate business with Iran, thus providing them with a legal shield against secondary US sanctions.

The EU could replace its so-called 1996 Blocking Statute that prohibited European companies from complying with secondary US sanctions imposed on Iran with legislation that supports its companies when they press charges against US regulators at the International Court of Justice or International Chamber of Commerce. It could also establish a “clawback” clause for recovery of damages incurred for alleged sanctions violations through imposing tariffs on US exports to the EU.

The E3 – along with other willing EU member states – could announce a joint effort by their state-owned export credit or investment agencies to cover the risks, including those related to sanctions, that their companies might face in trading with Iran. In the past few months, a number of European governments have taken significant steps to facilitate legitimate trade with Iran by sharing the risks through such a mechanism, but the E3 can spearhead a more systematic, multilateral effort. France’s Agence Française de Développement, Germany’s Kreditanstalt für Wiederaufbau and the UK’s Department for International Development could launch a joint effort to support infrastructural development projects in Iran and enter into negotiations with Tehran to select projects and extend loans as soon as possible.

Medium-term measures would require more time to negotiate and implement, but could signal the seriousness of the European commitment to the JCPOA as well as to developing a cooperative and mutually beneficial relationship with Iran. The EU could create a multilateral Euro-denominated trading bank comprising state-owned and medium-size to smaller private banks. Its aim would be to pool these institutions’ resources and share risks, process payments, and provide credit guarantees and insurance services to European private-sector firms seeking to trade with or invest in Iran, and share due diligence and compliance information.

The European Commission could move Iran from the list of potentially eligible to fully eligible countries for receiving loans from the European Investment Bank to finance large public or private sector projects, and negotiate a framework for the bank’s operations in Iran. Also, the EU and Iran could negotiate and sign a long-term energy partnership, which in return for Iranian natural gas supplies to Europe via existing or new pipelines would provide Iran with access to cutting-edge renewable energy technologies.

Finally, the EU and Iran could enhance civil nuclear cooperation, including construction of new civilian nuclear power reactors in return for an agreement to turn Iran’s enrichment plants into joint European-Iranian ventures or staff them with European nationals.

Such measures affirm a commitment that so long as the Iranians stay at the table, Europe will take the lead in salvaging the deal, even in the face of significant pressure from their transatlantic ally. Success could, in turn, eventually serve as a platform for discussing regional flashpoints, or cooperating on issues such as civil nuclear technology, banking reform or the environment.

But diplomatic will must also contend with commercial realities. Even before the US withdrawal, many multinational companies and most international banks were hesitant to conduct business with Iran. As sanctions move from potential to actual, the list of European firms announcing their intention to wind down existing operations grows by the day.

Sales of civilian airplanes to Iran by Airbus and Boeing, for example, which were among the most financially substantial and symbolically significant agreements struck with Tehran after the lifting of sanctions, will no longer receive the necessary licences from US authorities. France’s TOTAL, which struck a multi-billion Euro deal to work on Iran’s South Pars gas field, has announced that unless it is granted an exemption by Washington, it will abandon the project by early November. Polish energy firms, German banks and Danish shipping companies are among those who have made similar declarations. US Secretary of State Mike Pompeo’s speech on 21 May outlining a pressure-centric approach to “crush” Iran’s economy is likely to accelerate this exodus.

European officials acknowledge that their ability to convince the private sector is limited.

European officials acknowledge that their ability to convince the private sector is limited. As the French president, Emmanuel Macron, put it: “the French president is not the CEO of Total”. Companies are responsible to shareholders; regardless of any diplomatic side benefits, they will not do business in Iran may at the cost of losing access to the US market, or being slapped with massive fines by the long arm of US enforcement authorities.

The key question is whether the sum total of what Europe can offer Iran is sufficiently robust – financially and symbolically – to give those in Iran who argue for restraint and continued engagement a chance. Without it, Europe will have lost an opportunity to keep a renewed nuclear crisis from adding to the long list of tensions within the region that would eventually reach European shores in the form of refugees and more radicalism, and Iran will have little incentive to make new compromises with a partner who failed to deliver. Trump did not kill the deal, but how Europe’s leaders navigate between Washington’s reach and Tehran’s expectations over the coming weeks could well determine if it can survive.