Is the Iran Deal Finally Dead?

Europe’s frantic efforts to save the nuclear pact at the U.N. probably won’t work.

Iranian Foreign Minister Mohammad Javad Zarif speaks next to European Union High Representative for Foreign Affairs and Security Policy Federica Mogherini during a plenary session at the United Nations building in Vienna, Austria on July 14, 2015. (Joe Klamar/AFP/Getty Images)
Iranian Foreign Minister Mohammad Javad Zarif speaks next to European Union High Representative for Foreign Affairs and Security Policy Federica Mogherini during a plenary session at the United Nations building in Vienna, Austria on July 14, 2015. (Joe Klamar/AFP/Getty Images)

Could there be a starker test of global power balances than what is occurring at the United Nations over Iran this week?

On Monday, a grinning Mohammad Javad Zarif, Iran’s foreign minister, stood next to Federica Mogherini, the European Union foreign affairs chief, as she announced elaborate plans in New York to undercut U.S. President Donald Trump and save the 2015 Iran nuclear deal, including a “special vehicle” designed to bypass U.S. financial sanctions. In a rare joint statement, France, Germany, Britain, Russia, and China all declared themselves behind the plan.

The next day, Trump, wearing his now-familiar grimace of cold command, informed a silent General Assembly hall that he was doing more than just killing the “horrible” Iran nuclear deal. He was also imposing major new unilateral sanctions that appear designed to promote regime collapse. In his speech at the annual U.N. General Assembly gathering Tuesday morning, Trump all but called Iran’s leaders illegitimate, saying they only “sow chaos, death, and destruction.” 

“We ask all nations to isolate Iran’s regime” and to deny it “the funds it needs to advance its bloody agenda,” Trump added.

But Trump plainly wasn’t asking. Rather, the U.S. leader appeared to be delivering yet another fiat to the world—and, as he made clear, not only for Iran’s economic isolation. Trump’s policy amounts to virtual asphyxiation, including a cutoff of Iran’s financial lifeblood, oil sales.  

Iranian President Hassan Rouhani, who spoke after Trump on Tuesday, accused Washington of “economic terrorism” and pursuing regime change, even as the U.S. president offered to talk bilaterally with Tehran (a move Iran has rejected). “It is ironic that the U.S. government does not even conceal its plans for overthrowing the same government it invites to talks,” Rouhani said.

What this adds up to is a rare if not unprecedented standoff on the world stage. The United States is now aligning itself against almost the entire globe over Iran, and especially against an unusually united Europe. And yet, strikingly, the odds are that Trump will win the contest of wills. Despite the efforts of Mogherini and the major European powers to preserve Iranian’s ability to sell oil, many analysts are skeptical that the U.N. Security Council-approved nuclear pact can survive U.S. recalcitrance beyond the end of the year.

The question of European willpower will grow more acute in coming months, as Trump appears ready to impose a “with us or against us” ultimatum as he moves to the next round of sanctions in early November.

Many major European businesses, including Deutsche Telekom, Airbus, the French energy giant Total, carmakers Peugeot and Renault, and Germany’s Siemens and Daimler have already ended operations in Iran. Denmark’s A.P. Moller-Maersk is among the many big companies that plan to stop shipping Iranian oil.

U.S. sanctions threaten to cut off any business that facilitates an oil transaction with Iran from the U.S. financial system. For most major international businesses, banishment from U.S. markets and, more importantly, the American-dominated global financial system would be a death sentence. And for both European governments and companies, that factor has outweighed any thought of invoking the EU “blocking statute” that theoretically allows firms to defy U.S. sanctions.

“With the return of U.S. secondary sanctions, every business in the world faces a choice between doing business with the United States or doing business with Iran. For almost all, that is no choice at all,” said Matthew Kroenig, a Georgetown University expert in sanctions and nonproliferation and a former Defense Department official who has often taken a hard line against Iran. “The Iran nuclear deal was dead as soon as the United States announced it was withdrawing. The Europeans were delusional to think they could save it.”

Even so, European governments might just be able to keep the Iran deal, which the United States left more than four months ago, on life support for a time. They plan to do this both through the SWIFT international banking system—which Iran remains part of since the 2015 nuclear pact was signed—and a new “special purpose vehicle” that would amount to a kind of barter system.

Under the new vehicle, Iranian oil could be exchanged for European goods without money changing hands.

SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication, and as long as Iran stays in the system, which connects more than 11,000 financial institutions around the world, it can also find ways to move money across its borders. But Belgium-based SWIFT has buckled to U.S. pressure in the past, locking Iran out of the financial system as part the Obama administration’s sanctions campaign in 2012. Losing access to SWIFT again would severely hamstring Iran’s ability to trade.

But it’s not clear such ad hoc creations can keep Iran’s economy alive.

“The companies that have already left Iran or are planning to leave will not come back because of this,” said Nicolas Véron, a French economist at the Peterson Institute for International Economics. “But it could help in terms of Iran’s ability to sell oil for money. The simple principle is this creates a screen, because none of the people who buy oil from the [special purpose vehicle] would transact with any entity under U.S. sanctions.”

To stop the new system, the Trump administration would have to effectively sanction the EU—and despite the president’s caustic rhetoric toward Europe, it’s not clear he’s willing to go that far. Still, says Richard Nephew, a former State Department official who helped negotiate the nuclear deal, for Europe creating the vehicle “is only half the battle. We haven’t really seen any indication that there’s a concerted effort by the Europeans to do the other half, which is, how do you get a Siemens to be comfortable sending goods to Iran?”

It didnt help that Trump administration officials on Tuesday castigated the Europeans over their plan, with Secretary of State Mike Pompeo saying that the special purpose vehicle only helps Iran support terrorism. In a hard-hitting speech in New York, Pompeo denounced Iran’s government as an “outlaw” regime that “brazenly defies the vision of the United Nations” and has continued a four-decade-old policy of using its oil wealth not for its own people but to finance terrorist “operatives” from Europe to Africa to Asia and South America.

Pompeo also appeared to call for regime change in Iran, telling the Iranian people: “You deserve better than the fruitless revolution, a revolution that has been imposed on you by corrupt leaders.”

For now, Iran maintains a tentative embrace of the nuclear deal and appears to be observing most of its major requirements for a nuclear stand-down, experts say. Complying with the accord is the only way Iran can get any economic benefits of the sort it was promised with sanctions relief in 2016. And Rouhani knows that if Iran renounces the agreement, the EU will also reinstate sanctions.

Even so, the Iranian leader can stay in the damaged deal for only so long, some analysts believe. Rouhani, in his U.N. speech, made a new plea to Trump to return to the pact (even as he accused him of displaying a “Nazi disposition”), but Rouhani is in serious political trouble at home. After running on a platform of opening Iran to the world, he faces outrage both from regime hard-liners and a restive population that thought they’d be better off by now, three years after the nuclear agreement was negotiated. In late August, the Iranian parliament voted for only the second time in its history to reject a presidential agenda, repudiating Rouhani’s economic plans to mitigate reinstated U.S. sanctions. “Certainly, we made—and we have made—mistakes,” a humiliated Rouhani said at the time.

By threatening Iran with a recession, the renewed sanctions have slammed its currency, the rial, which has lost about two-thirds of its value this year and plunged to a new low against the U.S. dollar this week.

China, Turkey, and a few other countries have continued to defy Trump by buying Iranian oil, raising the prospect that a few holdouts from U.S. pressure could keep Iran’s main industry afloat.

But one by one, nations are dropping out of trade with Tehran, fearful of U.S. retaliation; the latest appears to be India, which after early defiance of Washington now seems set to cut its Iranian oil purchases to zero. Thus, the survival of the nuclear deal will almost certainly come down to the stare-off between the United States and Europe. And as the months go by, Iran will likely succumb to temptation to covertly resume its nuclear program.

“My understanding is that the [International Atomic Energy Agency] inspectors are already not getting to places they need to go,” said David Albright, a nuclear expert who runs the Institute for Science and International Security. “The worry is that the Europeans by themselves are not in a position to press Iran to comply. They’re probably cheating at the margins more and more. So the Europeans are in a bind. They do want to save the agreement, but they’ve told Iran, ‘If you violate the agreement, EU sanctions will come back.’”

And Donald Trump will have won—or will seem to have. Because the likeliest outcome of the pact’s demise would probably be an even more hard-line Iran, one that is presently stronger in the region than it was in 2013 as nuclear deal negotiations got underway—and as desirous as ever to acquire the bomb.

Michael Hirsh is a senior correspondent and deputy news editor at Foreign Policy. Twitter: @michaelphirsh

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