Ellie Geranmayeh of the European Council on Foreign Relations explains “How Europe Can Maximise the Chances of a Final Nuclear Deal“.
Setting out Europe’s objectives and obstacles to a comprehensive agreement from the US Congress and Iran’s Parliament, Geranmayeh works through four scenarios and concludes:
The Obama administration, the Rouhani administration, and Europeans have all expressed a firm desire to achieve a deal by 20 July 2014, when the JPA expires. But given the gaps in negotiating positions, the extent of technicalities that need addressing, and the mistrust and opposition forces acting against détente in the US and Iran, it is unclear whether negotiators can translate their political will into a final deal in this timeframe. Iran’s Supreme Leader has predicted that comprehensive nuclear talks would get “nowhere” while Obama rated the success chances of the talks as 50 percent.
While Rouhani and Obama are somewhat preoccupied with appeasing internal actors, Europe should redouble its efforts to encourage, and develop arguments in favour of, a final deal.
Over the next two months, Europeans with good ties to the US administration and Congress should exert what influence they can on the US political and public debate.
They should aim to shift the debate away from sanctions and military threats to focus on (a) implementation of the JPA, (b) mutual benefits gained from a more comprehensive arrangement on the nuclear issue, (c) how a deal advances shared national security interests, (d) realistic terms for a deal, and (e) explain the internal dynamics and differences inside Iran to a sceptical American audience. Europeans are unlikely to have much impact on hardliners in Congress but they could influence those who are sitting on the fence about détente with Iran.
Europeans should also extensively reach out to regional allies such as Israel, the Gulf States, and Lebanon’s March 14 movement, which are not included in the nuclear negotiations and fear that détente will increase Iran’s capacity to advance its regional interests at their expense. Europeans should attempt to assuage their concerns by briefing them on the negotiations and reassuring them that the West will not allow a nuclear-armed Iran nor acquiesce to destabilising Iranian policies on other regional issues. Greater attention should be paid to how concerns that regional allies have can be integrated into Europe’s expanding dialogue with Iran. At the same time, Europe should firmly relay to these actors that the E3+3 will resist pressures to derail a nuclear deal.
4 SCENARIOS
Scenario 1: A Final Deal is Agreed
If a final deal is reached within the initial deadline, Europeans will have a key role to play in its implementation, especially with respect to easing the EU’s unilateral sanctions. In this scenario, Europe should encourage parties to the deal to fulfil their respective obligations in a timely manner and reassure sceptics that unprecedented monitoring is being carried out on Iran’s nuclear programme by the International Atomic Energy Agency (IAEA). As well as taking active steps to unwind the unilateral sanctions the EU has imposed on Iran, Europeans should help the Obama administration to unwind US sanctions. This will require a high degree of legal and regulatory co-operation between Europe and the US — particularly regarding financial sanctions.
While implementing a final deal, Europe should also begin to engage Iran on regional security. The conflict in Syria, which is entering its fourth year, is clearly the priority. One option is a new contact group that would engage key regional actors, including Iran, Saudi Arabia, and Turkey. Progress with Iran on regional security issues such as Syria will be slow moving at best. Even if Rouhani is able to gradually play a greater role on regional issues, he will have to devise a policy based on a consensus between the foreign ministry, the Supreme Leader, and the Iranian Revolutionary Guards Corps’s Quds Force. But if the 2016 parliamentary election produces a centrist majority to boost Rouhani’s mandate and there is a gradual move towards de-securitisation, it could create the possibility of a shift towards policies that are more pragmatic and less driven by knee-jerk anti-Westernism.
Scenario 2: The Interim Deal is Extended
In this scenario, Europe could play an important role in supporting both Obama and Rouhani. Under the JPA, Iran agreed to a series of restrictions on its nuclear programme in return for limited sanctions relief and access to frozen assets. Substantively, the interim deal was favourable to the E3+3. It is clear that as part of the JPA’s rollover, the E3+3 would seek to monitor and contain Iran’s breakout timeline through continued limitations, inspection, and verification measures. To do so, Iran will need to either accept the same level of limitations as before, or potentially enhance its pledges and agree to more stringent conditions. In return, Rouhani will need to show evidence of economic relief in some nature to reciprocate Iran’s extended commitments and maintain the support of the Supreme Leader for continued talks.
For the West, the natural starting position for rolling over the JPA will be to resist giving economic relief to Tehran as a means to obtain optimal leverage for the E3+3. However, considering the realities of Rouhani’s mandate and the extent of concessions provided by Iran, this approach may set the negotiations on a dangerous course. Iran received only limited relief under the original JPA; to receive nothing for maintaining JPA levels of restrictions and inspections would be transparently lopsided and could prematurely lead to a breakdown of negotiations. Such a scenario could be avoided by providing Iran with limited economic relief in exchange for agreement to further restrictions, which could maintain both the support of the Supreme Leader for extended talks and the political traction of the pro-diplomacy camp.
Obama will most likely be preoccupied with blocking Congress from imposing new sanctions against Iran, let alone providing it with more economic relief. Given Europe’s comparative institutional freedom to pass and implement decisions, it should consider creative options for providing an economic package to Tehran as part of a JPA rollover. It could do so either through lifting parts of its unilateral oil embargo or by allowing Iran further access to frozen assets in European bank accounts at intervals when Iran
implements its commitments under an extended interim deal (such unfreezing paved the way to the agreement over the initial JPA).
During an extended JPA period, it is crucial that both Iran and the E3+3 commit to timely fulfilment of their pledges as evidence of good faith. After complying with its JPA obligations, Iran complained that Europe and the US had been slow in implementing their side of the bargain, particularly in designating banks for channelling humanitarian funds. This was an activity that the West never intended to restrict via sanctions, but in practice became impossible to carry out because banks feared they would face penalties for allowing such transfers to take place.
Europe should also continue its soft outreach to Iran during a rollover period. Although trust has broken down during recent years, Europeans have had diplomatic and economic ties for most of the Islamic Republic’s 35-year existence, though they broke down during Ahmadinejad’s tenure as president. Italian Foreign Minister Emma Bonino met with Rouhani in Tehran soon after the signing of the interim deal; since then the foreign ministers of Austria, Belgium, Greece, Latvia, Poland, Slovakia, Spain, and Sweden have also visited, and the European Parliament and the British and German parliaments have sent delegations. High Representative Catherine Ashton made a landmark trip to Iran in March 2014 in which she expanded talks beyond the nuclear file. Such contact has re-opened channels of communication and relay an important signal that Europe and Iran can return to a degree of normalised relations. If the JPA is extended, confidence-building visits should also include Iran’s hardliners, who have developed a deep distrust of Europeans in recent years and oppose détente.
Scenario 3: Congress Blocks a Deal
Congress has legislative power to allow or prevent the implementation of significant measures to ease sanctions. If it were to block a final deal, Europeans would be presented with a tough choice. Europe’s reaction to such a move by Congress would depend not only on responses by the US and Iranian administrations, but also by China and Russia, which may become more sympathetic towards Iran’s position and see an opportunity to further advance their own interests at the expense of the US. The multitude of variations to this scenario make it difficult to assess how Europe should act, but broadly speaking it would have two options.
The easiest path for Europe in such a scenario would be to simply fall in line with the centre of gravity of the debate between the US legislative and executive organs. However, this would make Europe a bystander to the potential collapse of the kind of nuclear deal with Iran that Europe has been pursuing for over a decade. Alternatively, if both Obama and the Iranian leadership remained committed to trying to implement a deal in the face of Congressional obstruction, Europeans would have the option to take a more proactive approach. They could do so by offering Iran a European economic package that in essence creates additional phases to the implementation process of a final deal. Europe could carry out this phase on its own, by taking a different stance in comparison to the US Congress regarding sanctions relief provided to Iran.
This does not mean to suggest that Europe can or should implement the terms of a final nuclear deal in the absence of the US. Nor does this proposal suggest that Europe should take a softer approach towards Iran than the US administration in the actual negotiations. But if Europe can offer a serious economic package to Iran, this may be enough to persuade the Supreme Leader that Iran should continue to implement its obligations under the JPA – or at least those that are most crucial to the West in curtailing the nuclear programme. It would also buy time for Obama to persuade members of Congress to make the sanctions relief agreed to by the E3+3 permanent and to emphasise to those blocking implementation of a final deal that they could endanger the international consensus backing sanctions against Iran.
This active European approach would not necessarily be against US interests. In fact, it could even be tacitly approved by the Obama administration, which, like Europeans, will not want a collapse of the deal. While Obama could give his support to easing the UN Security Council resolutions’ sanctions against Iran, only Congress can permanently lift US sanctions under CISADA (which would also neutralise the associated secondary impact on Europe). To expand on and implement its commitments under a final deal, Tehran will at a minimum demand credible and durable relief of sanctions against its oil sector. This is something Europe is able to deliver by easing its unilateral oil embargo against Iran. As discussed below, such sanctions relief will be meaningful to Iran if Europe is willing to also ring-fence its companies from the secondary reach of US sanctions.
Europe has the political ability to act more quickly than the US Congress in agreeing to and implementing a decision to peel back parts of its unilateral sanctions against Iran. Easing the financial sector sanctions that block Iran’s major banks from accessing the Society for Worldwide Interbank Financial Telecommunication (Swift) would require considerable joint action between Europe and the US administration. But Europe’s oil embargo against Iran is less interlinked with the US. If the European Council agrees to ease this embargo, the European Parliament can be expected to ratify this decision without the kind of restrictions that Congress can impose on Obama.
Given Iran’s bleak economic projection following years of sanctions and widespread mismanagement, Rouhani is unlikely to reject a reasonable offer by Europe. His economic goals cannot be fulfilled without achieving progress on the nuclear talks and delivering the associated sanctions relief, even if others in the Iranian system are willing to return to a “resistance economy”. By reconnecting to Iran’s oil sector and allowing financial channels to facilitate necessary transactions, Europe may be able to safeguard implementation of a final settlement. Such a step would also likely increase the transparency of Iran’s economy, both in terms of how it functions domestically and also how it channels funds globally. This in turn may incentivise Tehran to consider, to a greater extent than before, the cost implications of its regional policy for trade with Europe.
However, Rouhani may come under pressure from the Majlis and other institutional actors who could push for withdrawing access for IAEA inspectors to nuclear facilities, forcing such inspectors to leave Iran, or pushing for new increases in uranium enrichment levels and the bringing online of additional centrifuges. If Iran pursues such options in response to Congress, Europe will have little appetite to take a different stance on sanctions from Congress and sceptics of détente in Europe will have more ammunition to block further diplomacy with Iran.
If the EU does lift some of its unilateral sanctions in this scenario, it will need to address the secondary effect of US sanctions under CISADA and other US regulatory measures in order for this to have the desired effect of allowing for trade with Iran. While the US executive can issue renewable waivers of the secondary effect of CISADA in specific scenarios, European entities are unlikely to do business with Iran under such temporary provisions because they will fear the costs involved with an eventual return of US
Treasury penalties should the US administration, or the state authorities, revert to a more hardline stance towards those trading with Iran. So far, Europeans have been able to avoid dealing with the secondary effect of US sanctions because their unilateral sanctions regime against Iran broadly mirrors that of the US. Attempting to permanently neutralise the impact of these US secondary sanctions will present Europe with a dilemma that requires a balancing of interests between the foreign policy pursued with Iran and Europe’s discourse with the US in the short and long-term future.
Europeans have traditionally had an uneasy relationship with the secondary effect of US sanctions on foreign entities. Europe could draw on precedents where it has resisted the secondary effect of US sanctions and ring-fence itself from CISADA through a mixture of political and legal measures including (a) issuing regulations ordering European companies to defy the secondary nature of US sanctions, (b) issuing regulations that annul US court decisions imposing penalties on European companies’ assets beyond their jurisdiction on account of non-compliance with US sanctions, (c) creating a mechanism for European companies to claw back penalties paid to US enforcement agencies pursuant to secondary sanctions, and (d) threatening in some cases to complain to the World Trade Organization (WTO).
Circumventing the secondary impact of US sanctions against Iran will not be cost-free. US legislators seem to have learnt from these precedents and imposed sanctions on Iran though a complex patchwork of executive orders, legislation, and regulations that avoid potential legal challenges and make it extremely difficult for European entities to trade with Iran because they risk forfeiting business in the US.
If Europeans push for a permanent exemption from the secondary effect of US sanctions against Iran, they will need to work with the private sector to find a way for Iran and Europe to actually trade without significantly endangering their business in the US. If member states commit to creating the necessary political environment to push back against the secondary effect of US sanctions, European companies that have a long history of trade with Iran, particularly in the insurance and petroleum sectors, may also be more willing to resist them.
Europeans will also be concerned about a war with Congress that could endanger transatlantic co-operation on other issues. In particular, Congress could further thwart Obama’s attempt to negotiate a Transatlantic Trade and Investment Partnership (TTIP) – a key priority for Europeans. However, this worry in relation to a TTIP may become less acute for Europe as Congress is denying Obama the fast-track
negotiating authority he sought. Europe will have to balance these risks against the danger of a collapse in a nuclear deal with Iran as well as the potential for a more functional relationship with Iran in the Middle East and the dangers of setting a precedent that Europe will bow to US secondary sanctions. This more active and independent strategy for détente with Iran is one that Europe should seriously debate if the position taken by Congress opposes not only the US president but also European interests.
Scenario 4: Negotiations Break Down
There may come a point, either during the initial JPA or a potential extension period, where the E3+3 and Iran cannot reach mutually agreeable terms for a final deal and one or both sides walk away from the negotiations. The US and Europe would likely hold Iran responsible for the breakdown while Iran would blame the West. Much would depend on the reactions of China and Russia. Whether they decide
to support the West or on the other hand risk the unity of the E3+3 by leaning towards Iran will be influenced by the sequence of events and the reasoning for the breakdown. It could also be affected by other factors such as the Ukraine crisis.
In such a scenario, Europe would revert to the role it played until last year’s breakthrough: it would seek to avoid a military strike on Iran (and prevent the associated negative spillover) and to keep the door open to diplomacy in future. Europe would need to manage the fallout in such a way that talks can be resumed while avoiding the possibility of Iran’s administration (and the Supreme Leader) slipping back into a radical hardline narrative. The aim should be to encourage all sides to return to the negotiation table during the tenure of Obama and Rouhani, who have brought their respective administrations closer than ever before in reaching a zone of agreement over the nuclear file.
At the same time, to avoid the possibility of a military strike against Iran, Europe will also need to put in place mechanisms to slow down Iran’s progress on its nuclear programme. Some will want to pressure Tehran through more extensive sanctions in the hope that Rouhani’s administration will react more rationally than Ahmadinejad’s. Although this may be preferable to a military strike, Europe should prepare for enhanced sanctions to cause a backlash from Tehran’s hardliners pushing for Iran to pursue a shorter breakout capacity than it has in the past. This move will narrow options open to Europe and the US administration for resuming diplomacy.
Renewed sanctions could also have effects beyond the nuclear issue. They would strengthen the case of the hardliners that Iran should revert to the “economy of resistance” that would, among other things, bring Tehran closer to Moscow in circumventing Western sanctions — a prospect that has been made more tangible by the Ukraine crisis. In particular, the ongoing oil barter deal between Iran and Russia has been viewed as Iran’s fallback option for economic revival if substantive sanctions relief is not forthcoming by January 2015 as part of the nuclear talks. In such a scenario, the Supreme Leader would also likely support the hardliners in pursuing a more aggressive policy towards the West on regional security.
