Trump’s Middle Ground on Iran Deal Sanctions Waivers Is a Myth

The 2015 nuclear agreement between the United States, Iran, and other world powers is an enormously complicated document. Reading through and interpreting the interlocking series of steps, commitments, and expressions of intent takes considerable effort. Though this is perhaps an inevitable outcome of pairing topics as devilishly detailed as nuclear proliferation and economic sanctions, the result has still been the spread of various myths about the deal’s terms and obligations.

Two in particular have emerged in recent weeks, tied to speculation over whether U.S. President Donald Trump will make good on his threat to terminate the sanctions waivers that undergird U.S. commitments under the nuclear deal, or Joint Comprehensive Plan of Action (JCPOA), in May. These misconceptions hold that terminating the waivers would not constitute a breach of the agreement, or could be presented that way, and that reapplication of U.S. sanctions covered by the waivers would not constitute U.S. withdrawal from the deal.

These myths are particularly pernicious, as they give the appearance of a middle ground for the Trump administration to occupy in its coming decision. Those monitoring this situation should make no mistake: To terminate the waivers in May will be to pull the plug on the JCPOA in every effective sense. Other arrangements to salvage something of what is left in the deal might be possible, but its grand promise would be shattered by a U.S. decision to withdraw from its sanctions relief commitments to Iran.

Myth 1: Restarting oil sanctions wouldn’t break the Iran deal

To begin, it is important to recall what’s at stake on the May 12 deadline for extending sanctions waivers. In January, when Trump threatened to not renew waivers without changes to the agreement, he did not specify which sanctions were in question. He merely noted that this would be the last such waiver of U.S. sanctions under the current terms.

Those following the situation were able to chart out the calendar to identify the sanctions in question, namely those under the 120-day review period that expires on May 12. They provide for penalties against those who conduct transactions with Iran’s Central Bank (as well as other Iranian banks if subject to U.S. sanctions) unless the countries in which those banks are based have reduced their purchases of Iranian crude oil by a significant margin over the preceding 180-day period. If a country has made such a reduction, then it is eligible for a sanctions exception and transactions can continue.

This exception is important because without it, oil and gas trade with Iran is immediately subject to U.S. sanctions. Iran requires that its Central Bank process these transactions, as it considers oil and natural gas to be state property. If you can’t do business with Iran’s Central Bank, then you cannot purchase its oil or gas if you want to keep doing business with U.S. banks.

As a result of this approach, the subjects of the sanctions are banks and banking ties, but the target is Iranian oil and gas purchases. Without directly sanctioning the oil and gas purchases, the sanctions create a strong incentive to cooperate with U.S. demands. They operate without ever having to impose a single penalty under the law.

Herein lies the problem: The moment the waiver is no longer in place, oil and gas companies the world over will need to decide whether to keep buying Iranian oil, and if they continue, how much to buy. As I have written about elsewhere, some companies may stay in Iran’s market, some may get out, and still others will make reductions as the United States demands. But, the very start of those discussions will be a violation of the JCPOA. In the agreement, the United States commits to halt “efforts to reduce Iran’s crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations that can purchase Iranian crude oil.” By not extending the waiver, the United States would be restarting a process of encouraging countries to reduce Iran’s oil sales.

Naturally, there are better and worse ways to offer encouragement, and there is considerable uncertainty as to what approach the Trump administration will take. But unless the president’s decision to terminate the waiver comes along with an express commitment not to implement penalties against those buying Iranian oil in perpetuity (which itself would be rather odd, as it would undermine the entire basis for reapplying the sanctions), the absence of the waiver itself will be all the signal necessary to persuade at least some oil and gas companies to stop buying Iranian oil. This would be alongside the more general commitment that the United States would appear to have breached: implementing the sanctions relief in good faith and refraining “from any action inconsistent with the letter, spirit and intent of this JCPOA that would undermine its successful implementation.”

Some have argued, however, that there are ways around this problem. They have suggested using the concept of “safe harbors” — essentially legal breaches of U.S. sanctions that receive exemptions so that business can wind down over time — or even just relabeling the oil sanctions as Syria-related. Leaving aside for a moment the immediate violation that ending the waivers would imply, the idea that international businesses or foreign governments would buy such subterfuge strains credulity. Neither Iranians nor Europeans would be fooled into believing that a wind-down period is the same as faithful implementation of the JCPOA, or that the deal permits redesignating sanctions as measures intended for nonnuclear use. Not for nothing, the JCPOA explicitly prohibits that in paragraph 26 of the text. Moreover, winding down purchases of Iranian oil is precisely what U.S. sanctions require and what the JCPOA forbids.

Myth 2: Reapplying sanctions is not the same as withdrawing from the Iran deal

Another myth, put forward by Treasury Secretary Steven Mnuchin, is decidedly more duplicitous. Speaking to the House of Representatives Committee on Appropriations in April, he said: “If the president decides not to sign that (waiver), it doesn’t mean we’re necessarily pulling out of the deal. What it means is that the primary and secondary sanctions will go back in place.” His argument, it would appear, is that there is a difference between terminating U.S. participation in an agreement and no longer abiding by the terms of that agreement.

In one sense, of course, he is right: A decision to stop fulfilling U.S. obligations might not be the same thing as a decision to withdraw from the JCPOA’s Joint Commission or any of the other arrangements around the agreement. The United States might still attend meetings of the Joint Commission and, presumably, it would still demand a right to participate in the Procurement Channel that facilitates the sale of otherwise restricted goods to Iran. These activities are part of the agreement, and U.S. participation in them would constitute continued engagement under the JCPOA.

But Mnuchin is misleading U.S. lawmakers and the public about the consequences of U.S. sanctions relief withdrawal. As someone who helped negotiate the JCPOA, I can say unequivocally that U.S. sanctions relief was a core element of the agreement. Iranian negotiators occasionally suggested that they were negotiating not on a transactional basis, but out of concern for Iran’s rights to nuclear technology. But, when I — or other U.S. negotiators — suggested that we could dispense with discussions over sanctions relief in that event, they quickly reaffirmed that U.S. sanctions relief was a core requirement of any agreement. All parties negotiating the JCPOA understood that if U.S. sanctions relief were off of the table, many international companies and banks would refuse to do business in Iran, removing the most powerful incentive for Iran’s leadership: restoring the flagging Iranian economy.

If the United States were to end sanctions relief for Iran, the Iranian government would face two problems immediately: a blow to its international and domestic prestige, and a loss of the economic access necessary to keep the country’s various factions wired together in support of the JCPOA. The United States would not necessarily be withdrawing from the deal, but it would be withdrawing a major element of the overall bargain and would create pressure on Iran to reciprocate, probably with a nuclear restart.

Whether and how Iran might choose to restart its nuclear program is a separate question, meriting different analysis. In fact, depending on how much protection European and Asian governments are prepared to give to their companies to keep doing business in Iran notwithstanding U.S. sanctions, it is possible that Iran might be content to play up its victim status in this confrontation and let the United States absorb international opprobrium. But the Iranians might also reciprocate with the U.S. approach, asserting that they are not withdrawing from the agreement but merely restarting the installation of tens of thousands of centrifuges. The deal could live on in theory, but bereft of meaning and value.

Trump has many options in front of him. He could elect to back down from his ultimatum, taking whatever progress U.S. and European negotiators have achieved as sufficient for the time being. He could phase in the reimposition of U.S. sanctions, perhaps even under the guise of terminating waivers, but with enough wind-down time so as to permit continued talks. And he could terminate the agreement altogether — or at least U.S. participation in it. But it is folly to pretend that he could withdraw major U.S. commitments without materially — and likely fatally — impinging the nuclear deal’s integrity.