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Clifford Chance

Clifford Chance
Risk Insights<br />

Risk Insights

Analysis and opinion on boardroom risk trends and issues

A new Iran deal needs more ambition and higher stakes

The world's major powers and key stakeholder countries all agree on the importance of deterring Iran from developing nuclear weapons, but have yet to agree on how to do so. Rewinding the tape and restoring the nuclear non-proliferation deal that collapsed in 2018 is one alternative, but cannot provide a lasting solution. The Biden Administration should unveil a broader vision in tandem with European allies to attract greater domestic and international support for their negotiating objectives.

In 2018, the Trump Administration abandoned the Joint Comprehensive Plan of Action (JCPOA) that the Obama Administration had negotiated, leaving Europe, China, Russia and Iran as the remaining parties. After the Trump Administration zealously expanded the pre-JCPOA US sanctions campaign to shut down trade between the rest of the world and Iran, Iran abandoned its own nuclear forbearance commitments under the JCPOA. Absent some new incentive to curb its nuclear ambitions, Iran now seems bound to follow the path of North Korea and join the nuclear club.

To prevent this geopolitical calamity, the Biden team has announced their willingness to rejoin the JCPOA and withdraw the Trump-era sanctions if Iran commits to verifiable compliance with the JCPOA's nuclear non-proliferation constraints. However, even if the political and diplomatic obstacles to restoring the JCPOA can be overcome, the JCPOA was always an inherently unstable, temporary and incomplete solution to the deeper underlying challenges presented by Iran's hostile regional agenda. 

After a US-led coalition deposed Saddam Hussein and gifted Iran enormous influence over the new political landscape in Iraq, Iran found further opportunities to project power in Lebanon, Syria, Yemen and throughout the so-called Shia crescent. Iran's relentless efforts to destabilize the Middle East have made its nuclear ambitions only the most pressing of multiple sources of regional and international concern.

The JCPOA had one goal, to deter Iran from going nuclear by offering Iran open access to all world markets except the United States. The JCPOA did not resolve any non-nuclear concerns or preclude the parties from imposing sanctions in response to such concerns. The Trump Administration therefore did not need to renounce the JCPOA to designate Iranian sanctions targets under US sanctions programs against, e.g., terrorism, cyber-crime and human rights violations.

With few exceptions, the JCPOA also did not offer Iran access to the US market or authorize the involvement of US persons or the US financial system in non-US business with Iran. America's so-called primary sanctions have prohibited the involvement of such US elements in trade and commerce with Iran since 1995, except for US humanitarian items such as food and medicine that were excluded from the embargo. Under the JCPOA, the US no longer threatened to designate non-US firms as sanctions targets and exclude them from the US market for transacting with Iran, but only if they excluded US elements from that business. The JCPOA thereby provided an economic boost to Iran and its non-US trading partners while continuing to deprive most US firms of similar opportunities.

Thus, although the JCPOA achieved its immediate goal, it could not have provided a lasting solution even without Trump because it did not give the United States or Iran sufficient incentive to resolve their broader differences. And before US supporters of the JCPOA could attempt to build on its foundation, US opponents had taken office and renounced the deal.

The same cycle is likely to repeat again unless the United States and Europe jointly embrace a multi-step plan under which a restored JCPOA must ultimately lead either to Iranian concessions on regional stability or loss of access to European as well as US markets. 

Iran has survived for over 25 years without US market access. It can revive and grow its economy solely by accessing European and other non-US markets, which is why it signed the JCPOA in 2015.  For the same reason, the Biden Administration can obtain nuclear-related concessions from Iran simply by removing the Trump era sanctions that deter non-US firms from non-US trade with Iran, without opening the US market.

But a nuclear-only deal on these JCPOA terms will not endure unless the parties commit to follow-on negotiations that address other multilateral concerns. And because Iran does not need access to the US market, the success of these follow-on negotiations could depend more on European rather than US resolve. In particular, offering US market access to Iran after Iran already has access to other world markets will not alone induce Iran to make any non-nuclear concessions. The inducement must come from Iran's potential loss of access to the European market unless a nuclear-only deal is followed after a reasonable negotiating interval by a broader deal. 

After renouncing the JCPOA and inciting Iran to do likewise, the Trump Administration disregarded international norms and assaulted European sovereignty by threatening to expel European firms from the US market unless they terminated their entirely non-US business with Iran.  If the US and Europe instead commit to work together, and make permanent access to both their markets equally contingent on a longer-term solution to non-nuclear issues with Iran, with the nuclear deal only as the immediate first step, it might create a broader spectrum of political support for a renewed JCPOA and give US as well as European business and workers the opportunity to benefit from a successful outcome.