Why Iran Will Be Forced To Accept A Much Stricter Nuclear Deal

Even before the Joint Comprehensive Plan of Action (JCPOA) 'nuclear deal' was agreed in 2015 between Iran and the P5+1 (U.S., U.K., France, China, Russia plus Germany), the issue of Iran testing and developing its missile technology was a crucial matter of contention. Now, though, with Iran's economy near a critical point as shown by new economic data - exclusively obtained by OilPrice.com - sources close to the government in Tehran say that Iran may be willing to agree first the first time ever to tough new rules on the country's missile program.

This would mean a much earlier re-entry of the U.S. into a new iteration of the nuclear deal, the corollary lifting of sanctions on Iran, and a flood of new oil from Iran into the official global oil market, which would add further downwards pressure on prices in an already oversupplied market.

The key economic problem facing Iran is that its foreign currency reserves now stand at around US$10 billion only, compared to about US$114 billion just before the U.S. unilaterally withdrew from the JCPOA in May 2018, and its gold reserves are also now insignificant. "This means that the Guards [the Islamic Revolutionary Guard Corps, IRGC] are facing a crunch point when it comes to funding its international network of proxies used to project Iranian influence, including in the key operational theatres right now of Yemen, Lebanon, and Syria as these people want payment in either [U.S.] dollars or gold," a source who works very closely with the administration of Iran's President, Hassan Rouhani, told OilPrice.com last week.

Moreover, this declining foreign currency reserves trend is set to continue, leaving Iran with zero such reserves within three months, as currently the rate of foreign currency-denominated capital flight out of Iran - and into Turkey, Dubai, Malaysia, and Spain, in particular - is running at around US$4-4.5 billion per month, according to the sources. Related: First Venezuela, Now Ecuador: US Refiners Need A New Source Of Heavy Crude

The IRGC has another problem relating to this, which is that industrial capacity utilization is currently running at less than 40 percent of its true capacity, due to a lack of ongoing investment. "Crucially, this means that many of the strategic medium-term contracts agreed by the Guards back before the JCPOA was agreed [in 2015] are not being completed and stand no chance of being completed in the current circumstances," said the Iran source. "These contracts include the development of sectors in foreign countries that are the foundation of Iran increasing its influence in these areas," he added. These include the build-out of a power grid extending across the Middle East, being nominally pushed by Iraq but with Iran at its center, and to the centers used to manufacture weapons and to build the shorter-range missiles including those that are now being regularly used by the Houthis against Saudi Arabia.

"There are 21 major sites like this located across the Middle East outside Iran, and they require ongoing financing to pay the people involved, key government and military figures in those countries, and to maintain the facilities themselves," the Iran source underlined. "There is no lifeline coming quickly from China either because, despite the big deals signed since 2019, it [China] is being very careful not to provoke the U.S. on the Iran issue by engaging in overt acts that the U.S. cannot ignore, such as sending funds to Iran that will be used to finance what the U.S. sees as terrorism," he told OilPrice.com.

Given this bad and still deteriorating backdrop, Iran may well be willing to finally agree to a much tougher range of clauses relating to its missile program. "There is a precedent here," highlighted the Iran source, "as, back in 2013, 2014, after the European Union [E.U.] had joined the U.S. in ramping up sanctions against Iran and the foreign currency reserves figure dropped by 50 percent in one year, Iran caved in to the demands to negotiate down the level of uranium enrichment that would be put in the final JCPOA document to the level that was finally agreed of just over 3 percent [3.67 percent]."

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At the same time as the U.S. - backed by the U.K., Germany, and France - was pushing for Iran to agree to set the uranium enrichment cap at the very low end of the ranges mentioned between the two sides during the negotiations, the Presidential Administration of then-U.S. President Barack Obama was also pushing for the inclusion of tough clauses designed to severely limit Iran's future ability to deliver any nuclear payloads, especially geared towards Iran's development of longer-range missiles that could hit either Europe or the U.S. directly. Specifically, in the original JCPOA document draft of 2014, there were two clauses that were designed precisely to disable Iran's ability to engage in this sort of missile program. The first was that Iran 'should recognize and accept the inextricable link between its nuclear enrichment program and its ballistic missile program' and the second, following on from this, was that Iran 'must end its proliferation of ballistic missiles and halt further launching or development of nuclear-capable missile systems'.

Despite the absolute support for these tough constraints on Iran's burgeoning missile program back in 2014 from both then-U.S. Secretary of State, John Kerry, and then-U.S. National Security Adviser, Susan Rice, plus the support of Obama himself, pressure from the major E.U. (and NATO) partners Germany and France to forget the clauses and just do the deal meant that they were not included in the final agreement of 2015. The desire to re-introduce these tough clauses relating to Iran's missile program - and a range of other tougher clauses also intended to be included in the original 2015 JCPOA but also dropped due to pressure from Germany and France - was the key reason why Obama's successor former President Donald Trump, took the U.S. out of the JCPOA in 2018.

It is well worth noting, though, that the current President's Secretary of State, Antony Blinken, was Deputy National Security Adviser under Rice in 2014 and supported the tougher line on Iran as expressed through the hard-line clauses that were later dropped. This may explain why, to the surprise of many on Capitol Hill, President Joe Biden has taken a tough line on Iran so far in his tenure, even authorizing a series of attacks on 26 February along the border between the Syrian city of Boukamal and the Iraqi town of Qaim against a number of Iranian-backed militant groups in eastern Syria that operate within the mostly Iraqi Shia Popular Mobilisation Forces paramilitary organization. The re-introduction of all of these tougher clauses that were dropped in the 2015 JCPOA into a new JCPOA is central to Biden's and Blinken's positions on Iran.

Iran may favorably consider conceding on the missile program issue for two other reasons. First, is that following an apparent attack on Iran's Natanz facility that houses uranium enrichment centrifuges and related equipment, Iran has concluded that the degree of infiltration by foreign intelligence assets, principally Israeli, into even its most elite and trusted military units - including the IRGC's Al Quds operation - is much greater than it had previously thought. "It is clear that Israel certainly is now able to hit targets almost at will either through direct military action or through cyber-attacks based on elements that were put into Iran's infrastructure a long time ago so until Iran has identified how to rectify this problem, the progress it can make on developing its own missile systems and uranium enrichment past a certain point is extremely limited," said the Iran source. Second, with the military element of the 25-year deal with China having also opened up the way for increased synergies on missile and nuclear technology with North Korea, Iran's need to develop its own home-grown longer-range missiles is considerably less. Given this, and the focus of the Obama, Trump, and Biden administrations on these longer-range ballistic missiles, Iran could feasibly yield to U.S. demands to dramatically scale back on the development and testing of these missiles, strike a new nuclear deal that allows it to repair its finances, and focus instead on completing and sustaining the shorter-range missiles being used by its proxies in the Middle East against its enemies in the region.

By Simon Watkins for Oilprice.com

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