Iran’s not so straightforward exit from JCPOA

Dr. Mohamed A. Ramady

Published: Updated:

The world is waiting in suspense for May 12 to find out whether Iran sanctions will be waived or not.

US President Donald Trump has made no secret of his disdain for the 2015 nuclear accord negotiated by the Obama Administration between the “P5+1” – comprising the UN Security Council permanent five members, US, UK, France, Russia, China, plus Germany – and Iran.

Referred to as the Joint Comprehensive Plan of Action or JCPOA, or alternatively, he has even described it as “the worst deal ever”.

A narrower “EU-3” of British, French, and German negotiators, in close consultations with Brian Hook, the US State Department director of policy planning, have in recent weeks been negotiating a new framework to address the US concerns with JCPOA, incorporating and adding to its existing terms that may eventually be accepted by the White House. However, it is a very big bet.

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France’s President Emmanuel Macron presented the broad outlines of that proposal to President Trump, with a follow-up by German Chancellor Angela Merkel. It calls for a series of separate new agreements, in effect a “JCPOA Plus,” although the White House may prefer to present it as an entirely new, more comprehensive “Framework Agreement.”

Following his rather extraordinary state visit and over-effusive show of friendship between the two presidents, Macron suggested that Trump might choose to exit the JCPOA anyway.

Even if Trump refuses to extend the specific waivers on Iran sanctions up for review on that date, sanctions may not be immediately reinstated

Dr. Mohamed Ramady

Not a binary choice

But it is not as simple as it sounds, as that would not be an immediate May 12 binary choice – yes or no. Even if Trump refuses to extend the specific waivers on Iran sanctions up for review on that date, sanctions may not be immediately reinstated and enforced.

And the US could, in theory – as Secretary of State designee Mike Pompeo suggested in testimony before the Senate – even continue to renegotiate the existing JCPOA.

An announcement of the re-imposition of the 2012 National Defence Authorization Act (NDAA) would pull Iranian-oil importing countries Japan, South Korea, India, and China back into the US sanctions cross fire, even if not immediately. That would almost immediately put a chill on Iran’s ability to export oil.

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Under the 2012 National Defence Authorization Act, an announcement to end the waivers would re-start the process of requiring countries to “significantly reduce” oil imports from Iran, and requiring any countries that do import from Iran to seek exemptions to avoid secondary financial sanctions from the US on their own state-owned financial institutions and central banks.

Even with those exemptions, they will still be required to “significantly reduce” their oil imports from Iran. In the past, the most directly affected countries have been China, Japan, South Korea, and India. Sanctions may not be immediately enforced, and they will require the US Treasury Office of Foreign Assets Control (OFAC) to re-designate and tag affected entities.

New sanctions

An agreement in principle between the EU-3 and US should ideally come before the deadline on May 12 for the president to renew the waiver on a set of sanctions on Iran as agreed to by the Obama Administration after the 2015 JCPOA deal.

But that is just one in a series of rolling waivers. US sanctions on Iran came in four major pieces of legislation, each with its own mandated review period. The May 12 review will be for sanctions imposed under the 2012 NDAA (National Defence Authorization Act).

The other three sets of US sanctions are on a 180-day review period, and will come up for waivers in July. Those are for sanctions imposed under the ISA (Iran Sanctions Act), adopted in 1996 as the Iran and Libya Sanctions Act, the 2012 TRA (Iran Threat Reduction and Syria Human Rights Act), and the 2012 IFCA (Iran Freedom and Counter proliferation Act).

These acts broadly impose restrictions on investments in Iranian oil production, terrorism financing, revolutionary guard activities, shipping, and insurance. When push comes to shove, it is entirely within the US rights legally to unilaterally re-impose any, or all, of those sanctions.

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The White House could in theory even decide to find a reason to declare Iran in non-compliance under Sections 36 and 37 of the JCPOA and set the clock ticking on a multistage international review process towards the “snap back,” or re-imposition, of a different series of UNSC sanctions.

Whether or not an agreement comes in time for President Trump’s May 12 deadline for the extension of a set of US sanctions, if the trans-Atlantic partners are close, the May 12 deadline can be glossed over by the White House until the next series of sanction waivers comes due in July.

Even with a new deal, however, the path forward is fraught with substantial risk. First, an EU3 proposal must not only pass muster with the White House, but will need approval of the member states of the EU as well. It is already broadly assumed that UN Security Council member Russia will not agree to additional new measures, nor will fellow P5 member China.

But the biggest wild card may now lie in Iran, namely in how Tehran responds to what looks increasingly certain – at a minimum – will be an additional series of “measures” imposed on the regime – whether threatened against future potential actions, or enforced right off the bat.

Needless to say, it would all also cast a pall over negotiations the US is about to enter into with North Korea, especially after the successful North- South Korea talks on ending their state of war. With one potential world crisis being doused, the international community will not wish for another to take its place.

Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia and co-author of ‘OPEC in a post-Shale world – where to next ?’ His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.

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