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Why A New Nuclear Deal With Iran Looks Unlikely

A key complicating factor in the ‘if and when’ conjecture over the U.S. and Iran re-opening talks on the Join Comprehensive Plan of Action (JCPOA) in light of the new incumbent at the White House, President Joe Biden, is that Iran has its own Presidential Election scheduled for 18 June this year. With current President, Hassan Rouhani, constitutionally prohibited from running due to his having already served two terms in the top job, this Presidential Election will essentially be a referendum on whether the Iranian people want to stick with a relatively more West-leaning, reformist government – exemplified initially by the Rouhani regime – or whether it wants a return to the more anti-West, hardline governments before Rouhani took power first on 3 August 2013.

In broad terms, Rouhani’s Presidential Election victory in 2013 was founded on the generally young and highly-educated population’s belief that by pursuing the more Western-friendly policies advocated by Rouhani and his moderates, long-standing economic sanctions against Iran would be removed and then a huge wave of Western investment would flow into the country. The practical guardians of the 1978/79 overthrow of the Shah – the Islamic Revolutionary Guards Corps (IRGC) – had no choice but to allow him to try, given the strength of his popular mandate. By 2015, it appeared that Rouhani’s approach was beginning to yield results, as the JCPOA was agreed between Iran and the P5+1 group of nations (U.S., U.K., France, Russia, and China plus Germany) on 14 July of that year, with the initiative led on the West’s side by then U.S.-President, Barack Obama. This agreement was then formally implemented on 16 January 2016, whereupon a slew of high-profile, high-value deals started being agreed in principle by Western firms with Iran.

When Donald Trump won election as U.S. President on 8 November 2016, it was clear that disassembling the JCPOA would be a top priority of his new administration. Partly this was due to reports from the hawkish elements of the defence and intelligence communities that suggested that Iran was using the deal to secretly renege on key elements of its commitments and partly this was due to Trump’s desire to destroy a flagship achievement of Obama’s presidency ‘out of spite’, according to the highly in-the-know U.K. Ambassador to the U.S., Sir Kim Darroch in 2019. On 8 May 2018, then, the U.S. formally unilaterally withdrew from the JCPOA and re-imposed its own sanctions on Iran from the latter half of that year. Despite the continued support of all of the other P5+1 group of countries for the deal, plus nearly all of Europe and Asia, the U.S.’s hold over business dealings and transactions done in U.S. dollars – the world’s reserve currency – meant that in practical terms, all companies that used the U.S. dollar or had any dealings with the U.S. were unwilling to go ahead with deals with Iran. Consequently, all of the big deals agreed by Western companies especially with Iran were cancelled and/or indefinitely postponed. Related: South Korea To Build World’s Largest Offshore Wind Farm

Although Rouhani was still in office at this time – having secured re-election in 2017 on the continued promise of the JCPOA and corollary Western investments – his power amongst the people disappeared from the moment that the U.S. withdrew from the JCPOA and it was clear that other Western countries had little choice but to go along with the U.S. lead. As this was happening, so the IRGC came back to prominence, principally with the view that now that Iran could not expect economic and political support from the West it should instead look East for these, in particular to the two other big members of the original P5+1 group of nations who signed the JCPOA – China and Russia. This allegiance has subsequently been solidified with the far-reaching updates of the 25-year deal agreed in August 2019 between Iran’s Foreign Minister, Mohammad Zarif, and his China counterpart, Wang Li, that was, in turn, an extension to the original China-Iran comprehensive strategic partnership that had been signed in 2016.

The chances of the U.S. coming back to the negotiating table with Iran to redraw the JCPOA were pushed to zero – despite occasional signs that this may well happen – when the IRGC found out that Washington was actively lobbying Rouhani to curb the power of the IRGC both by rolling it into the regular army and forcing it to give up all of its business interests. According to various sources, the IRGC at that time held significant ownership shares in 27 companies that were publicly traded on the Tehran Stock Exchange and had placed top commanders at the heart of more than 200 Iranian companies across the oil, gas, petrochemical, automotive, transportation, telecommunications, construction, and metals and mining sectors. After this revelation, the IRGC launched a fight-back against any possibility of the U.S. rejoining the JCPOA first by orchestrating the possible impeachment of Bijan Zanganeh, Rouhani’s stalwart Petroleum Minister, and second by engaging in a series of high-profile testing of ballistic missiles – the very thing that it knew would incense the Americans, and third by allegedly being the key mover in the Houthi attack on U.S. ally Saudi Arabia in September 2019. Related: Trading Giant Gunvor: $60 Could Be The Ceiling For Oil Prices

The lack of deals resulting from the U.S.’s re-imposed sanctions on Iran meant that there was no trickle-through of wealth to the people as Rouhani had promised and the Iranian economy remains stretched, to say the least. This apparent lack of success led to a very poor showing in last year’s parliamentary elections for Iran’s Rouhani-aligned moderates, with the swing in popularity to the hardline (‘Principlist’) faction - comprising religious conservatives supported by the IRGC - portending a decisive shift towards the hardline state model, reinforced by China’s intentions for Iran within the parameters of its geopolitical game-changing ‘One Belt, One Road’ strategy. It is true that the specific powers of Iran’s 290-member parliament (Majlis) are not as extensive as those of the parliaments of many other countries but it is also true that the same hardline conservative inclination is already entrenched in the fact that all of the legislation passed by Iran’s parliament then needs to be approved by the Guardian Council of the Constitution. This is a 12-member body that acts in the manner of a general constitutional overseer, with half of its membership always being Shia theologians directly chosen by the Supreme Leader – currently, Ali Khamenei – himself. The other six members are lawyers selected by the head of the judiciary, who is, in turn, also directly appointed by the Supreme Leader. A clue as to what Khamenei thinks of the recent reformist agenda of Rouhani came in May 2019 when he said to a group of university students: “If you, the youth … prepare the ground for the formation of a young and pious government, your griefs will be over, and these griefs are not only yours.”

There is an argument that the JCPOA will be renegotiated by dint of the fact that it is in the economic and political interests of both the U.S. government and the government of Iran. Certainly it seems that Biden’s new government is open to the possibility, albeit that the deal will have to be redrawn along the lines of the original draft deal drawn up by former President Barack Obama and then-Secretary of State, John Kerry, as analysed in depth by OilPrice.com recently. For Iran’s government as well, although the exercise of the ‘resistance economy’ model (the concept of generating value-added returns by leveraging intellectual capital into business development wherever possible) has mitigated against complete financial disaster, life would be undoubtedly be easier with the U.S. back in the JCPOA and no longer sanctioning the country. What this argument fails to consider, though, is that it is not down just to the two governments: the IRGC is currently dominant, and it is thoroughly supported by the Spiritual Leader, Ali Khamenei, and the country’s parliament, and China. The IRGC knows full well that any re-engagement with the U.S. will be predicated in part on the IRGC’s powers being radically reduced, and probably again by the methodology of it being rolled into the regular Iranian Army and of its being divested of all of its business interests. For China, meanwhile Iran (and its sponsored state, Iraq) simply cannot be replaced geographically, politically, economically, or in terms of oil and gas resources. Given this, it comes as absolutely no surprise that the IRGC has been up to its usual tricks – seizing a tanker, threatening the Strait of Hormuz, and talking of increasing uranium enrichment – to deter the early onset of JCPOA re-engagement talks with the U.S. Given that the Iranian Presidential Election is likely to be won by someone extremely sympathetic to the IRGC (and the Supreme Leader, and China), this approach to re-energising the JCPOA is unlikely to change any time soon.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on February 05 2021 said:
    Whoever wanting to negotiate with Iran has to be aware of three great traits of the Iranians. The first is that they are great diplomats. The second is that they are master chess players. And the third is that they have great pride in their country’s civilization and place in the world.

    President Biden said during the presidential elections that he is prepared to re-join the Iran nuclear deal if Iran returns to strict compliance - but he wouldn't lift sanctions until then. He added that Trump’s "maximum pressure" policy has failed while Iran is now closer to a nuclear weapon than it was when Trump came to office.

    Iran has made it clear that that it will neither agree to any limits on its nuclear and ballistic missile development programmes nor will it negotiate with President Biden without a lifting of US sanctions first or at least a significant easing of them. This is something President-elect Biden will find difficult to accept and therein lies the rub.

    Moreover, Biden will come under intense pressure from Israel and US allies in the Arab Gulf not to re-join the nuclear deal or lift the sanctions. Whether under Trump or Biden or any other US president, Israel comes first in US strategic calculations even ahead of US own interests. So nobody should, therefore, bank on a lifting or even easing sanctions on Iran soon.

    On the other hand, one has to consider the unthinkable eventuality that Iran might be happy by the level of success it has achieved so far in nullifying and evading US sanctions. It might even think that the sanctions are a small price to pay for forcing the ejection of US military presence from Iraq and making Iraq a vassal of Iran thus achieving a spectacular geopolitical victory over the United States.

    Iran’s Foreign Minister, Mohammed Zarif once boasted that If there is an art that we have perfected in Iran that we can teach to others for a price, it is the art of evading sanctions. They have been teaching Venezuela that art and getting paid in gold. To this could be added the Iranian Goreh-Jask oil pipeline which when completed by the end of March 2021 will allow Iranian crude oil exports to bypass the Strait of Hormuz and will also enhance Iran’s geopolitical reach immeasurably by allowing it to be able to use the threat of closing the Strait of Hormuz for political reasons without hindering its own oil exports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • One Second on February 06 2021 said:
    I agree with this assessment. Trump has done great damage to the US' interests in that region.

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