Trump ramps up pressure on Iran as he refuses to sign sanctions waiver

14 May 2018
14 May 2018, Week 19, Issue 674

US President Trump has fired a shot across the bows of the JCPOA by refusing to sign the latest sanctions waiver, creating even more uncertainty about Iran’s relations with the West. Simon Watkins reports

What: President Trump has said that he will pull the US out of the JCPOA, and will not sign the latest sanctions waiver.

Why: He has been rubbishing the deal since it was signed and will now seek to implement more punitive measures against Tehran and those doing business in Iran.

What Next: The EU may look to protect the interests of European firms. Either way, the bloc faces a tough choice - take sides with the US and boycott Iran, or side with Tehran, China and Russia.

US President Donald Trump’s refusal today to sign the waiver on sanctions against Iran has thrown into chaos the landmark nuclear accord eventually agreed in 2015.

Broader and deeper sanctions are now set to be re-imposed on Iran in the first instance by the US, leaving Europe to decide on how to proceed with Iran and presenting Russia and China with a golden opportunity to enhance their already substantial ties with the oil and gas-rich country. The deal was agreed between the Islamic Republic and the US, UK, France, Russia, China and Germany.

It had been thought in the run-up to Trump’s election that his negative rhetoric on the Joint Comprehensive Plan of Action (JCPOA) – engineered in part by his Democrat opponent, Hillary Clinton, when she was Secretary of State – was simply pre-electoral posturing designed to appeal to core voters and Republican hawks.

While Trump described the deal as a “disaster, ranking among the worst deals in US history”, he also said that although he “would love to [say] that I’m going to rip up this contract … But you know what? Life doesn’t work that way.”

A senior legal source in Washington told NBI: “At that point, it seemed as though he was going to take a pragmatic approach to the deal and just try to get it toughened up a bit, to include ballistic missile testing. If anything, though, his attitude seems to have hardened, encouraged by the appointment of new hardliners to his inner circle, especially John Bolton [as National Security Advisor] and Mike Pompeo [as Secretary of State].”

Statement of intent

The clear statement of Trump’s intent to roll back the JCPOA came on October 13. He refused to certify Iran’s compliance with the Iran Nuclear Agreement Review Act (INARA) on the basis that it was not in the interests of US national security, with the intention being that the US Congress would re-impose sanctions.

“Congress did nothing except play politics with him and kick it back to him,” said the legal source. “But at the time of non-certification, Trump stated unequivocally that it would be the last time he would sign a waiver on sanctions unless the US’s European allies agreed to ‘fix the terrible flaws of the Iran nuclear deal’,” the source added. Trump identified four critical components to the deal that had to be addressed.

The first of these is that Iran must allow immediate inspections at all sites requested by international inspectors. The second is that Iran must never even come close to possessing a nuclear weapon. The third is that, unlike the nuclear deal, these provisions must have no expiration date. The fourth is that the legislation must explicitly state in US law – for the first time – that long-range missile and nuclear weapons programmes are inseparable, and that Iran’s development and testing of missiles should be subject to severe sanctions.

As there has been no tangible progress on any of these four conditions, the rhetoric from Trump and his close advisors has become more fatalistic in recent days.

Last week, Secretary of State Pompeo publicly underlined – in a joint appearance in Tel Aviv with Israeli Prime Minister Benjamin Netanyahu – that the US would pull out of the Iran nuclear deal if the ‘flawed’ accord could not be fixed to its satisfaction.

He added that the US remained “deeply concerned about Iran’s dangerous escalation threats to Israel and the region, and Iran’s position to dominate the Middle East remains, and the US is with Israel in this fight”.

For his part, Netanyahu highlighted that “aggression” by Iran had grown “many fold since the signing of the nuclear deal [in 2015], and Iran has tried to gobble up one country after the other”.

Not fit for purpose

Two further reasons have compounded Trump’s view that the JCPOA in its current form will not work and should be dumped as soon as possible, a senior source in Washington who works closely with the Trump Administration told NBI.

One of these is the conclusions reached by the CIA’s counter-Iran operations, Michael D’Andrea, that although Iran is abiding by the nuclear enrichment caps it has become far more of an incremental threat in the region in the past six months – in collusion with the Russians – than the US had bargained for.

“[D’Andrea’s] findings are always taken very seriously, as he was the key figure in weakening Al Qaeda, oversaw the final manhunt for Osama Bin Laden, and led US operations in Iraq against Islamic State,” the source said.

The second reason is the formal appointment of John Bolton as National Security Advisor. “Trump was going to appoint John [Bolton] as Secretary of State when he took office but didn’t for various political reasons. However, he has always taken his opinion very seriously, as since his view on how to effect change in North Korea appears to have been successful, Bolton’s view on how to do the same with Iran is also holding sway right now,” added the source.

“Ultimately, Bolton believes in regime change in Iran, if necessary through military action, but the removal of the JCPOA is a start,” the source concluded.

Differences of opinion

Despite having the metaphorical ball put in its court, Europe has done little to persuade Iran into changing its view on changing the terms of the JCPOA.

Last week, on Iran’s official government website, President Hassan Rouhani was quoted as saying: “Iran won’t accept additional restrictions and the deal, formally known as the Joint Comprehensive Plan of Action, is by no means negotiable.”

This was despite ongoing efforts over the past few weeks from French President Emmanuel Macron to keep the JCPOA in play, in some form or another.

These efforts included a three-day visit to Trump and extended telephone calls to Rouhani, in which they agreed, according to Macron, “to work mainly in the next few weeks on protecting the content of the 2015 agreement in all its aspects”.

Macron’s efforts are largely a product of commercial considerations, a senior source who works closely with Iran’s Ministry of Petroleum (MoP) told NBI. “Iran has said it will sue French companies, such as Total, Peugeot and BNP Paribas, if they keep delaying on agreements because of Trump. The total value of these agreements is 9.2 billion euros [US$10.97 billion] in the first instance,” he said.

However, France’s view is representative of a broader unease in Europe over following Trump’s line, he added. Both German Chancellor Angela Merkel and British Prime Minister Theresa May have privately made it clear to Trump in recent days that the best way for the US to obtain a favourable outcome from Iran is to stay in the JCPOA deal and integrate it in a larger framework, rather than walking away.

Indeed, last year, the EU’s foreign policy chief, Federica Mogherini, said that the JCPOA agreement “is not a bilateral agreement … so it is clearly not in the hands of any president of any country in the world to terminate [it].” She added: “The president of the United States has many powers, but not this one.”

More latterly, German Foreign Minister Sigmar Gabriel warned: “We also have to tell the Americans that their behaviour on the Iran issue will drive us Europeans into a common position with Russia and China against the US.” This could mean the EU enforcing the EU Blocking Regulation that would prohibit EU persons from complying with US secondary sanctions targeting Iran.

Legal implications

Now that Trump has not signed the waiver, a number of other key pieces of US legislation will come back into play, Anthony Rapa, a Washington-based lawyer with Steptoe & Johnson, told NBI. Specifically, these are: the Iran Sanctions Act (ISA), the National Defense Authorisation Act for FY2012 (NDAA 2012), the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA), and the Iran Freedom and Counter-Proliferation Act (IFCA).

“By refusing to renew the waiver, Trump has essentially has flicked a switch that reactivates the nuclear sanctions under these statutes. This allows him the authority to impose sanctions on non-US persons that: make certain investments relating to Iran’s development of its petroleum resources; provide refined petroleum products to Iran; and provide goods, services or support relating to Iran’s domestic petroleum refining capabilities and associated infrastructure, ability to develop domestic petroleum resources, or domestic production of petrochemical products; purchase, subscribe to, or facilitate the issuance of Iranian sovereign debt or the debt of any entity owned or controlled by the Government of Iran; provide significant support to Iran’s energy, shipping, or shipbuilding sectors, or to Iranian port operators; provide significant goods or services used in connection with the Iranian energy, shipping or shipbuilding sectors; provide certain metals to Iran; and provide insurance, reinsurance and underwriting services for any activity for which sanctions have been imposed under US law,” he said.

However, there remains the question of enforcement. Interestingly, the ISA, NDAA 2012, ITRSHRA and IFCA provide that the President is required to impose the above sanctions if no waivers are in place. But that requirement is of dubious constitutionality, and in any event it seems unlikely that Congress would push him too hard on the subject.

“So the extent of enforcement of the reactivated sanctions (if any) would be within President Trump’s discretion, and there is no telling what he would do, if anything, in terms of enforcement,” Rapa noted.

“Refusing to issue the waivers, by itself, would be a shot across the bow, in that it would introduce significant uncertainty regarding the continuing effectiveness of the JCPOA and the sanctions risk related to trade with Iran,” he said.

“But imposing sanctions on non-US companies – for engaging in Iran-related business that they understand to be permitted under the JCPOA – would be something else entirely, an order of magnitude more severe,” he told NBI.

Setting aside the question of enforcement, there is also the question of how Iran would respond to Trump refusing to renew the statutory waivers.

“Iran would have a strong argument that this would constitute a clear violation of the JCPOA, as JCPOA Annex V, Paragraph 11, requires the President to issue waivers on ‘Implementation Day’ – which occurred on January 16, 2016 – and further to ‘direct that all appropriate additional measures be taken to implement the cessation of application of sanctions…’” Therefore, Rapa added, Iran could seek redress under the dispute resolution mechanism of the JCPOA, or could threaten to pull out of the JCPOA entirely.

Cause and effect

In non-legislative terms, there are likely to be three key effects, Mehrdad Emadi, senior economist for risk analysis and energy derivatives markets consultancy Betamatrix, told NBI.

“First, there would probably be a short-term rise in the oil price, but other oil producing countries such as Iraq, Russia and Saudis would fill in most of the void left by Iran’s reduced exports of crude,” he said.

This would be caused by a drop in oil output from Iran. NewsBase Research (NBR) anticipates that oil flows from the Islamic Republic could fall by up to 250,000 bpd in the medium term if US sanctions are ramped back up on the commodity. This has, however, already been largely priced in, and NBR anticipates only a modest bump as a result, perhaps towards US$80 per barrel.

“Second, there would be a substantial increase in the risk of doing any kind of business with Iran by Western firms, as we are already witnessing agreements with Boeing, Airbus and Total, which are in semi-freeze status,” he added.

“And thirdly, and the most negative for the West, especially Europe, will be the continuation of the integration of the Iranian economy into the sphere of interest and control of Russia and China, where Iranian foreign trade will be based on rubles and yuan in almost all of its oil and gas transactions,” he underlined.

“The biggest loser of this will be the EU, where the monopoly reach of Russian energy companies will become substantially tighter and more difficult to resist, while at the same time, at least semi-permanently, [they] will eliminate Iran’s ability to become a key supplier of energy to Europe,” he concluded.

It is no surprise that European leaders have tried hard to change Trump’s mind. With these efforts having fallen on deaf ears, there will now be yet more uncertainty over the future of European relations with Iran.

Edited by

Ian Simm

Editor

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