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The Iran deal is on life support. Can Europe revive it?
The Iran deal is on life support. Can Europe revive it?
Iran’s Ahvaz Attack Worsens Gulf Tensions
Iran’s Ahvaz Attack Worsens Gulf Tensions

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.

People gather in Ahvaz for the funeral of those killed during an attack on a military parade in the city, on 24 September, 2018. ATTA KENARE / AFP

Iran’s Ahvaz Attack Worsens Gulf Tensions

An attack on a military parade in Iran is raising tensions in an already volatile Gulf region. Four Crisis Group analysts give a 360-degree view of perspectives in Tehran, Riyadh, Abu Dhabi and Washington and warn that a single attack can trigger further escalation.

An attack on a military parade in the Iranian city of Ahvaz on 22 September, which killed 29 people, dangerously raised tensions in an already volatile Gulf region. Iran accused a local insurgent group (which claimed responsibility), but also pointed to what it said were the group’s enablers in the Gulf and in Washington. The U.S. State Department issued a muted condemnation while proceeding with its otherwise openly hostile rhetoric toward Tehran. And key Arab Gulf states, Saudi Arabia and the United Arab Emirates, stayed mostly silent, failing to condemn the attack or express sorrow for its victims. A tragedy can create opportunities for diplomacy and eventually a new accommodation, but instead, after Ahvaz, all sides are feeding the risk of further escalation.

One Shock Away from Conflagration
By Joost Hiltermann

Iran’s Strategic Patience Stretched to the Breaking Point
By Ali Vaez

More Gunfire Expected Without a New Accommodation in the Gulf
By Elizabeth Dickinson

No Change to Washington’s Confrontational Approach to Iran
By Daniel Schneiderman

I. One Shock Away from Conflagration

The attack on a military parade in Ahvaz comes at a moment of heightening tensions throughout the Middle East following the U.S. withdrawal from the Iran nuclear deal in May. A local group called the Ahvaz National Resistance Front promptly claimed responsibility, as did the Islamic State. Iran lent credence to the Front’s claim, accusing the UK, the Netherlands and Denmark of harbouring members of the group and providing them with a media platform. But it also pointed a finger at unspecified Gulf states and the U.S. for sponsoring the attack. The truth may eventually out, but well before that a dangerous escalation could occur in the Gulf on the basis of suspicions alone.

Crisis Group on the Ground This section is contributed by Joost Hiltermann, Middle East and North Africa Program Director

While even the U.S. State Department issued a condemnation of the attack – albeit a muted one – despite the Trump administration’s strong animus toward the Iranian regime, Saudi Arabia remained silent. It may be reckoning that even an expression of sympathy would not absolve it in Iranian eyes, as Crown Prince Mohammed bin Salman has barely disguised his hostility toward Tehran. But condolences could help reduce tensions. Tehran is likely to interpret silence as a tacit admission of guilt and this could raise tensions when there is also an opportunity to lower them.

In withdrawing from the Joint Comprehensive Plan of Action (JCPOA), the Trump administration made clear that it deemed the nuclear deal not only inherently flawed but also insufficient in that it failed to cover Iran’s missile program and regional activism through the use of proxy militias. In this latter concern, it found allies in the United Arab Emirates (UAE), Saudi Arabia and Israel, which either had mixed views about, or openly opposed, the JCPOA but adamantly opposed any accommodation with Iran as a result of signing the deal. This partly explains enthusiasm with which they greeted an American president sensitive to their primary concerns and willing to counter Iran, at least rhetorically.

The situation in the Gulf therefore is increasingly fragile: one reckless move [...] could set the region aflame.

Like his predecessor, Trump appears wary of being drawn into a war in the region. At the same time, his regional allies are becoming impatient, seeing Iran’s hand in political struggles and violent conflicts in Syria, Lebanon, Iraq, Bahrain, Yemen and elsewhere. They want U.S. help in pushing back Iran’s influence in the region because they cannot confront Iran’s missiles or militias alone and walk away unscathed. So far, they have benefitted from Tehran’s decision to ignore provocations while it tries to save the JCPOA by waiting out the Trump administration. Iran has remained restrained in response to repeated Israeli attacks on its assets and personnel in Syria and continued to abide by the nuclear deal despite Washington’s withdrawal. The notoriously volatile Strait of Hormuz has been calmer than even during the Obama administration after the signing of the JCPOA.

But Iran’s patience could wear thin. Attacks on the guardians of a regime born in the 1979 revolution, the Islamic Revolutionary Guard Corps (IRGC), may be too much to bear for its hardliners, now likely itching for revenge. The situation in the Gulf therefore is increasingly fragile: one reckless move borne of overconfidence, a misread signal, or a misinterpreted or misattributed event could set the region aflame.

II. Iran’s Strategic Patience Stretched to the Breaking Point

Iran’s border provinces, where the majority of the country’s ethnic and sectarian minorities reside, have been historically restive – be it the Kurds in the west, Azeris in the north east, Arabs in the south west or Balochis in the south east. Like in other frontier provinces, the Ahvazis have legitimate grievances against the central government. Sitting on Iran’s vast oil and gas richness, Khuzestan province remains impoverished and underdeveloped. Discrimination against the region’s majority-Arab population and Sunni minorities dates to the establishment of the Pahlavi dynasty in the early twentieth century. Severe environmental degradation and relentless dust storms have transformed the province from a “wetland to a wasteland”. These issues have repeatedly stirred protests over the years, including most recently in July, with locals angry about a lack of access to clean water. These local problems have fuelled more radical separatist movements and are exploited by regional and extra-regional powers hostile to the Islamic Republic.

Crisis Group on the Ground This section is contributed by Ali Vaez, Project Director, Iran

The Ahvaz National Resistance Front is an umbrella organisation for several separatist groups, one of which, Nezal ( حركة النضال العربي لتحرير الأحواز or Arab Struggle Movement for the Liberation of Al-Ahwaz ), launched a satellite TV channel seven months ago. It broadcasts a media campaign against the central government in Tehran, inviting the locals to resist its rule through sabotaging oil pipelines and destroying public and private property. The group’s increased activism in recent months points to new resources, which Iranian authorities allege are coming from Saudi Arabia and the United Arab Emirates (UAE) with encouragement from Washington.

Last year, Saudi Crown Prince Mohammed bin Salman threatened that “we won’t wait for the battle to be in Saudi Arabia. Instead, we will work so that the battle is for them in Iran”. Such declarations play into the Iranian narrative and fears. So does a 2017 memo by John Bolton, currently the U.S. national security advisor, that advocated “providing assistance” to Khuzestan Arabs and other minorities in Iran as a means of building pressure on the country and containing its regional influence. That neither Riyadh, Abu Dhabi or the White House condemned the attack in Ahvaz (the U.S. State Department did, however) further confirms Iran’s suspicions. These are compounded by commentary from prominent Emiratis that “moving the battle to the Iranian side is a declared option” and that attacks of this kind “will increase during the next phase”.

Regardless of who instigated it – if this wasn’t an independent operation by the Ahvaz National Resistance Front – the attack demonstrates Iran’s vulnerability to the same pathologies that have torn the region apart. Iranian grievances caused by internal mismanagement and shortsightedness could be exploited by regional actors and exacerbated by global powers, further deepening internal fault lines and fuelling tensions. Iran has been largely shielded from this plague so far; if that changes, regional turmoil will doubtless escalate further.

The attack demonstrates Iran’s vulnerability to the same pathologies that have torn the region apart.

The Ahvaz attack, however, could also play in the Iranian leaders’ favour. They have been warning for a while that the hostile administration in the U.S. is not targeting the Islamic Republic, but Iran as a polity. The discourse revolves around the concept of Iran’s “Syria-cisation” – an alleged ploy by the U.S. and its allies to fragment Iran along its ethnic and sectarian fault lines. Propagating a siege mentality could help change the subject domestically from complaints over mounting economic troubles to a nationalistic rallying around the flag to preserve the country’s territorial integrity, which requires a strong central government.

The attack could also play into the hands of the Islamic Revolutionary Guard Corps (IRGC), which despite a series of recent missteps (failing to foil ISIS’s twin strikes in Tehran last year, Israel’s January 2018 coup in removing the country’s nuclear secrets from the heart of the capital and now the targeting of the Ahvaz parade on the Iranian equivalent of Memorial Day in the U.S.) is likely to receive more government support to crack down on separatist groups and fix security breaches. It is also likely to have more manoeuvring space to flex its muscles in the region, either by pushing back against Iranian armed dissidents – as the recent missile attacks on the Kurdish Democratic Party of Iran in Iraqi Kurdistan demonstrated – or imposing a cost on the U.S. and its allies by indirectly targeting their assets.

There will be tensions between the urge to retaliate and the imperative of sticking to Iran’s “strategic patience” strategy, which the leadership deems expedient for surviving a rough patch. Iran’s response ultimately depends on a broad range of elements, from dynamics within the region to what the remaining parties to the Joint Comprehensive Plan of Action (JCPOA) can do to preserve some of its economic dividends for Tehran.

III. More Gunfire Expected Without a New Accommodation in the Gulf

The attack in Ahvaz is likely to ratchet up regional tensions between Iran and Saudi Arabia while reinforcing widely held, if questionable, suspicions among many in Riyadh and its Gulf allies that the Iranian regime is on the verge of crumbling from within. Calmer actors on both sides would see this moment as a sign that détente between Riyadh and Tehran is more necessary than ever. More likely, however, the incident will embolden those in Riyadh, Abu Dhabi, Manama and Washington who argue for ever-stronger economic sanctions and more direct military pressure against Iran. To at least some of these hawks, the goal is not just to roll back Iran’s regional footprint but to encourage political change in Tehran.

Crisis Group on the Ground This section is contributed by Elizabeth Dickinson, Senior Analyst, Arabian Peninsula

There was a deafening silence from Saudi Arabia and its Gulf allies in the hours after the assault. Neither Riyadh, nor Abu Dhabi nor Manama issued statements. The Qatari and Kuwaiti foreign ministries decried the incident in statements that only further deepened splits within the Gulf Cooperation Council. Among Saudi grievances with Qatar is Doha’s warmer relationship with Tehran. (After the United Arab Emirates (UAE)’s chargé was summoned in Tehran the day after the attack, Minister of State for Foreign Affairs Anwar Gargash tweeted a denial of UAE support for the Ahvaz militants.)

Their silence is illustrative of an increasingly mainstream view in the Saudi, Emirati and Bahraini security apparatuses that the region’s ills all link to Iran. While not new, this reading has taken on a new intensity and urgency. Gulf powers sense a regional power vacuum and are engaged in a zero-sum competition to fill space. And unrest is moving ever closer to home, as Yemen’s Iranian-allied Huthi rebels fire ballistic missiles at the kingdom. Riyadh and Abu Dhabi are also keen to keep the Trump administration’s attention focused on Iran, realising they may not always have a sympathetic ear in the White House.

There was a deafening silence from Saudi Arabia and its Gulf allies in the hours after the assault.

In this context, it is tempting for Saudi Arabia and the UAE in particular to wish for and even anticipate regime change in Tehran. Riyadh and Abu Dhabi viewed economic protests in Iran earlier this year as the first crack in stability. To some Saudi and Emirati commentators, the Ahvaz attack is further evidence of an Islamic Republic whose citizens are losing patience. While they do not expect a full-scale popular uprising tomorrow, they see change on the horizon, provided sanctions can continue squeezing the Iranian economy.

Ahvaz is a particularly sensitive area for the Gulf’s relations with Iran. Home to an Arab minority as well as an important military base, Khuzestan province, of which Ahvaz is the capital, has long been a point of contention between them. It was the area of Iran which Iraqi forces invaded in 1980, hoping to be welcomed by the local population and push on from there to Tehran in a swift motion. Sunnis in the Gulf have often pointed to Iran’s treatment of its Arab Sunni minority (a subset of Khuzestan’s Arab population) as evidence of a sectarian regime that deserves censure. Solidarity with Iran’s Sunni community, in particular, is widespread in the Saudi media and society. Saudi and Emirati commentators pointed to Saturday’s attack as a sign that Iran’s beleaguered minorities are finally fed up.  Tehran is in fact to blame, they argue; Sunnis and other minorities have faced repression for too long. Ahvaz is the inevitable explosion from keeping the lid on a boiling kettle.

In the coming days, some in the Gulf expect that the events in Ahvaz could give Iran an “excuse” to play the regional victim – and offer justification for both a further crackdown on its Sunni minority and an attempt to retaliate in the region. The Islamic Revolutionary Guard Corps (IRGC) “may try to do anything anywhere” in response to the attack, a Saudi analyst close to the government told Crisis Group. 

All this bodes terribly for Iran-Saudi tensions, and in turn, stability in the half-dozen countries where the two powers are competing by proxy. Saudi Arabia and Iran may trade insults, but in Yemen, Iraq and even distant theatres from Afghanistan to West Africa, their respective allies will trade gunfire until the two states find a new accommodation in the Gulf.

IV. No Change to Washington’s Confrontational Approach to Iran

Heading into the coming “high level week” of the UN General Assembly, any U.S. counterpart hoping to see a more dovish side of the U.S. when it comes to Iran policy is likely to be disappointed.

Crisis Group on the Ground This section is contributed by Daniel Schneiderman, Deputy U.S. Program Director

True, the State Department condemned the attack, saying: “We stand with the Iranian people against the scourge of radical Islamic terrorism and express our sympathy to them at this terrible time”. In another context, a statement like this might be seen as a subtle olive branch to Iran. After all, last year the administration blamed Iran’s government for a series of jihadist attacks that took place on a single day in June 2017 against Iran’s Parliament building and Khomeini’s tomb. That yesterday’s milder statement was made under the watch of the highly hawkish current National Security Adviser John Bolton (a lead architect of the Trump administration’s withdrawal from the Iran deal) rather than his more measured predecessor, H.R. McMaster, made the discrepancy all the more interesting.

Yet there is no reason to believe U.S. policy is diverting from its confrontational track. The U.S. has made clear since May (when it pulled out of the Iran deal) that it would pressure the Iranian regime to end its destabilising regional activities and reinstate a tough sanctions regime. It followed up by creating the Iran Action Group at State, led by new Special Representative Brian Hook, charged with implementing that policy. More than the Ahvaz statement, the correct bellwether of U.S. posture toward Iran is likely what U.S. Secretary of State Mike Pompeo said on 21 September (in an interview with CNN’s Elise Labott): “We have told the Islamic Republic of Iran that using a proxy force to attack an American interest will not prevent us from responding against the prime actor”. This referred to the U.S. perception that Iranian proxy forces in Iraq are responsible for attacks against the U.S. Embassy in Baghdad and the Consulate in Basra – and was a none too subtle hint that such proxy action could trigger a direct U.S. attack on Iran itself.