November 17th 2016

Trump’s election reopens issue of Iranian nuclear programme

The election of Donald Trump as president of the US has provoked huge uncertainty about the direction of domestic and foreign policy, reflecting the fact that Mr Trump's campaign was run largely outside the Republican Party, expressed contradictory views, and offered far more in slogans, soundbites and Tweets than substantive plans. However, one area where he was relatively consistent was his repeated criticism of the Joint Comprehensive Plan of Action (JCPOA), agreed in July 2015 with Iran alongside the US, Russia, China, Germany, the UK, France and the EU. As a result, the JCPOA now appears under threat, but it may be that Mr Trump's unilateral tendencies will, ironically, undermine any US administration efforts to sink the agreement.

Although Mr Trump is a foreign-policy novice, the mooted make-up of his administration is likely to be hugely hostile to the JCPOA. His chief of strategy, Stephen Bannon, for example, is the former head of the far-right Breitbart News, and those reportedly under consideration for secretary of state include John Bolton, the former UN ambassador who in the past has advocated military strikes against Iran, and Rudolph Giuliani, the former mayor of New York. Both Mr Bolton and Mr Giuliani have been public advocates for the Mujahedeen‑e Khalq, a violent Iranian opposition group previously listed by the US as a foreign terrorist organisation that is loathed in Iran for its co-operation with the former Iraqi dictator, Saddam Hussein, and for many bombings in Iran, including one in 1981 that left Ayatollah Ali Khamenei, now Iran's supreme leader, with a lifelong disability.

There will also be pressure on Mr Trump from his closest allies. One of his largest donors, a casino billionaire, Sheldon Adelson, is a staunch supporter of the Israeli right who opposed the nuclear agreement and in 2013 advocated dropping a "warning" nuclear bomb in the Iranian desert. Although Israel is divided over the JCPOA, with many security and military experts convinced that it is in Israel's interests, the country's prime minister, Binyamin Netanyahu, has been a critic of the JCPOA and will encourage Mr Trump's stated notion that Israel is under threat from Iran and "Islamic terrorism", and therefore that the US should take a stronger stand against Iran.

"Dismantle" or "enforce" could have a similar effect

Mr Trump has said that he would "dismantle" the "disastrous" JCPOA but also, alternatively, that he would "enforce it like you've never seen a contract enforced before"—thus implying he would keep it. However, given the complexities of the agreement, it is highly likely that tough enforcement could be used to undermine the deal in any case. In an example of the kind of issue that could be counted as a violation, in early November the UN's International Atomic Energy Agency (IAEA) found that Iran had exceeded set limits on the production of heavy water, which reached 130.1 tonnes compared with the maximum allowed 130 tonnes. Heavy water is a substance used as a coolant, but which can be used, by a process Iran does not possess, to make a plutonium-based weapon.

Many US sanctions against Iran are not covered by the JCPOA—such as those related to Iran's designation by the State Department as a state sponsor of terrorism—and those that are covered have been lifted by executive order. If Mr Trump were to use presidential powers to reintroduce sanctions removed as part of the JCPOA, this would in effect break the agreement—although the administration might argue that it was a proportionate response to an Iranian violation. Alternatively, a Trump administration could tighten the application of other sanctions, or introduce new ones, while continuing to uphold the JCPOA. New sanctions could also be introduced by Congress. In the past, the most punishing US sanctions used against Iran have threatened third parties, including Asian oil buyers, with the prospect of exclusion from the US, including access to the dollar.

A challenge for Europe, Russia and China

Both Iran's president, Hassan Rouhani, and the EU foreign policy chief, Federica Mogherini, have both argued that the US unilaterally cannot tear up a ten‑year multilateral agreement. Equally, with Russia and China probably keen to keep the agreement in place, given their economic and, in Russia's case, strategic ties to Iran, it may well be that the JCPOA would persist even with the US's withdrawal. Russia in particular has close relations to Iran: it has helped to develop Iran's nuclear programme—notably the Bushehr power station, intended as the first of three by 2025—and has supplied important weaponry to Iran, including the S300 air defence system. Russia and Iran are also allies in supporting the Syrian president, Bashar al‑Assad, in that country's civil war.

For Europe, the immediate challenge might be for companies that are seeking to invest in, or trade with Iran, but are wary of possible US retaliation. A French energy major, Total, for instance, which on the day Mr Trump was elected signed a US$6bn preliminary agreement for developing phase 11 of Iran's massive South Pars gasfield, will be watching carefully. China, meanwhile, is Iran's largest trading partner, and has already expressed disquiet over Mr Trump's promise to impose import tariffs on Chinese goods. The consequence of a Trump administration withdrawing from the deal would also raise issues for other US allies—including Japan, South Korea and India. However, with the South Korean and Indian leaders already visiting Tehran this year, and Japan's prime minister expected to go soon, their enthusiasm for closer ties is clear.

US abandonment of the JCPOA could provide a tactical advantage to Iran

Overall, although a US abandonment of the JCPOA would create some uncertainty about Iran's prospects, it would probably still not prevent an increase in Chinese, Russian, Indian, and even European investment and trade. However, much will depend, of course, on Iran's reaction to any US withdrawal. Mr Rouhani has said that the agreement is not renegotiable, and any renegotiation is in any case unlikely given that Iran had already made significant concessions in reducing its enrichment capacity. Indeed, any concessions would be politically harmful for Mr Rouhani, especially with a presidential election looming in May 2017, and could provide a fillip for the fundamentalists who argue that the US is not to be trusted and have opposed the JCPOA since its onset.

At this stage we expect Iran to abide by the agreement, albeit much will depend on the stance of the supreme leader, Ayatollah Ali Khamenei (who backed the JCPOA). Not only does the treaty provide an avenue for the economy to pull out of its lengthy recession—initially driven by sanctions, which were subsequently compounded by the oil price slump—but by sticking within the limits of the JCPOA (including intrusive IAEA inspections) a potential US, or Israeli, air strike would be far less likely. Finally, maintaining the agreement could also provide a tactical advantage for Iran. In particular, assuming that Europe and others would continue to trade with Iran, sticking with the JCPOA would be consistent with Iran's intermittent foreign policy tactic of dividing the US from other world powers—an approach that would also no doubt hold considerable appeal for Iran's hardliners. In this central scenario, even if the US withdraws, we expect the JCPOA to persist, with Iran's trade expanding, perhaps hesitantly, in the face of US opposition and potentially strengthened US sanctions.

Previous article
Next article

Featured analysis

Economy | August 21st 2019

EIU global forecast - Central banks ease monetary policy

Politics | August 13th 2019

Saudi Arabia's foreign policy challenges remain significant

Politics | July 25th 2019

As Gulf tension mounts, regional oil producers mull options

See all