international analysis and commentary

Nuclear negotiations with Iran: why the West had the upper hand

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We now have a comprehensive nuclear agreement between Iran on the one side and, on the other, the United States, the EU-3 (France, Britain, and Germany), Russia, and China. Several initial press commentaries on the agreement have suggested that Iran has achieved the lion’s share of the benefits to be generated by the agreement. However, it is likely that a more considered assessment in the weeks ahead will show that the agreement is quite balanced and might even reflect greater sacrifices by Iran than by the United States and its partners in the negotiations. In a nutshell, Iran has agreed to forego for at least a decade what is now already within its grasp, namely, nuclear weapons. It has accepted tight limits on its nuclear program. Moreover, it has accepted the most intrusive verification regime ever devised for an arms control agreement. The United States and its partners in turn will provide phased relief on international economic sanctions, but they have retained the means under the terms of the agreement to reinstitute those sanctions if Iran violates the terms of the agreement. 

Why did Iran make the fundamental decision to accept the comprehensive agreement and to forego nuclear weapons? We can find the answer to this question by taking a look at the status quo, namely, the operation of an interim accord that, while minimally acceptable to Iran, has been highly favorable to the interests of Europe and America. The fact that Iran accepted the interim accord, and has been complying with it to a quite high degree, tells us, I think, why Iran has now accepted a rigorous comprehensive agreement.

The interim accord (formally called the Joint Plan of Action) was finalized in November 2013 and came into effect in January 2014. Under the accord, Iran has frozen and even rolled back key activities that would otherwise place it on a path toward a nuclear weapon. In exchange, Iran has been granted partial relief from international sanctions, and in particular US-European financial and oil sanctions, so that it can sell about 1.1 million barrels a day on the open market, and can access from its oil earnings about $800 million in hard currency each month.

What does the interim accord tell us about Iran and its willingness to pursue nuclear weapons? In a word, it tells us that the United States and its European partners have found, after many years of policy setbacks and experimentation, a sanctions strategy that is highly effective in inducing economic damage on Iran, and this damage has been sufficient to cause Iranian leaders to rethink their nuclear aspirations. 

Let us recall the background to the interim accord. In 2010, the United States and its international partners imposed a new combination of sanctions against the Iranian oil and banking sectors such that Iran’s oil sales dropped from an average of 2.5 million barrels a day in 2011 to 1.1 million barrels per day in mid-2013. Iran’s economy, in turn, contracted by perhaps 5% in 2013 alone. The United States and its main allies, then, essentially found a way by which they could impose severe costs on Iran, indeed, they had found a way by which they could in time perhaps bring about a collapse of its economy. 

How did the Iranian authorities reply to these new sanctions? Did they make a dash for nuclear weapons? Did they lash out with terrorism or with a military campaign to stop oil tankers from transiting Strait of Hormuz? No, they decided in favor of diplomacy. That is, they decided to make a deal with the United States and its allies, the interim accord that is now in effect.

That arrangement, as noted above, has frozen Iran’s nuclear program. In return, Iran’s economy has been kept on life support. It can export less than 50% of the oil that it’s capable of producing, that is, 1.1 million barrels a day, although, as noted above, Iran could probably export at least 2.5 million barrels per day. At present, with oil priced at about $60 per barrel, Iran earns about $2 billion per month from oil exports. However, as noted above, it has access to less than one-half of those earnings, that is, as stipulated in the interim accord, about $800 million per month. The remainder of Iran’s monthly oil earnings is essentially frozen in bank accounts controlled by the United States and its European partners. The sum of $800 million, or a stunningly low amount of $125 per Iranian resident, can do no more than allow Iran to import essential goods and services. 

The interim accord in other words has been providing Tehran some relief. It has been generating for Iran a better outcome than would a total oil/foreign exchange ban – something the United States and its allies could impose – but it clearly does no more than keep Iran’s economy barely afloat.

What does the interim accord tell us about why Iran has now opted for a new, more comprehensive agreement? First, I think it tells us that Iran’s leaders have come to understand that the United States and its friends now possess a potent economic-sanctions strategy against the country, one that can truly harm and even cripple the Iranian economy. Second, and for that reason, Iran’s leaders want those sanctions removed, even if that requires paying a high cost, in terms of a comprehensive agreement and its limits on the country’s nuclear aspirations. 

Many have raised the question of whether Iran will abide by the terms of the comprehensive agreement. I think experience with the interim accord suggests that so long as any Iranian violations can be detected and sanctions can reliably be re-imposed in a short period of time, then it is likely that the Iranian side will comply with the terms of the new agreement. The evidence for this comes from the early summer of 2015. At that time there were reports that Iran was failing to comply with an element of the interim accord regarding the conversion of its stocks of enriched uranium into less threatening materials. Shortly after this matter was publicized, new reports indicated that Tehran had come back into compliance with that element of the accord. 

In other words, Iran seems to react to detection of possible violations of its commitments under the interim accord, and ultimately therefore the possibility of re-imposition of sanctions, with renewed compliance. It is likely therefore that the Rouhani government will react the same way under the comprehensive agreement. That is, at some point after the agreement comes into effect, Iran will probably undertake some degree of non-compliance in order to test its verification and sanctions re-imposition mechanisms. If there is a clear and strong push-back from the other signatories, including the “snapping back” of some sanctions, then Tehran will probably bring itself back into compliance with the agreement.

In sum, the comprehensive agreement is generally balanced. There may even be grounds to argue that Iran made somewhat greater sacrifices to get to yes than did the United States and its main allies in the talks. If that is the case, then at least a part of the explanation for the success of the United States and its friends can be found in the current interim accord and the political and economic realities that it embodies.