Donald Trump announced on 8 May that the United States was withdrawing from the nuclear agreement, the Joint Comprehensive Plan of Action (JCPOA), agreed by China, France, Germany, Russia, the UK and the US in 2015. The decision had been widely flagged but came as a shock, nevertheless. What will happen now?

US sanctions

The President said that the US would be re-introducing the “highest level of sanction” and that nations that help Iran in its “quest for nuclear weapons” would also be sanctioned. This means that US sanctions waivers will not be renewed on 12 May, and that foreign companies doing business with Iran could be targets of ‘secondary’ sanctions, which aim to hit the target country by penalising third countries or their nationals that deal with the target country.

There will, however, be a delay before those sanctions come into force.

  • After 90 days, the US Treasury says Iran will be excluded from currency markets and lending money to the country will be banned. Carpet and food imports from Iran will also be banned, among other measures.
  • After 180 days, taking us to 4 November, further financial sanctions are re-imposed. Insurance services may not be provided, Iranian ports and shipping industry are sanctioned and oil transactions with the major Iranian oil companies is banned. Further sanctions on the energy sector will be re-imposed. Sanctions on certain individuals will also ‘snap back’.

Despite these “winding-down” periods, John Bolton, the new US National Security Advisor and an Iran hawk, said that no new contracts could be signed starting from now.

Sanctions law allows a certain leeway by permitting exemptions where a company’s country has “significantly reduced” oil purchases from Iran, as the Congressional Research Service explains. In 2012, several European countries and Japan received exemptions in this way. “Significant” is not defined in the law, meaning that much will depend on how the Trump Administration intends to implement the move.

Trump said that Iran would in time seek a better deal but, other than that, analysts said that there seemed no clear alternative strategy to the JCPOA.

Iran

Iran is likely to continue to fulfil its commitments under the deal at least until the sanctions start coming into force, to underline the fact that it is the US that has breached the deal, not Iran. President Rouhani has asked his Foreign Minister to investigate maintaining the deal without the US, saying that Iran would wait “several weeks” before acting on the US decision. If the negotiations are fruitless, Rouhani has ordered the Iranian nuclear authority to be ready to resume unlimited enrichment.

Europe

France, Germany and the UK issued a joint statement repeating their continuing commitment to the deal. They said that Iran should continue to receive the sanctions relief it is entitled to, and that discussions were underway to seek a solution. President Macron has said that the deal is not dead.

The problem, though, is how to protect European companies from secondary US sanctions if they continue to deal with oil purchases from Iran. In 1996 the EU enacted a ‘blocking regulation’, which aimed to protect EU firms from the extra-territorial effect of US sanctions against Cuba, Libya and Iran. Analysts question whether such a regulation would work and whether EU leaders have an appetite for the confrontation, in what some describe as the worst transatlantic rift since the invasion of Iraq.

With the UK’s exit from the EU imminent, the position of UK companies trying to do business in Iran is even more uncertain.

Russia and China

China and Russia are likely to give such support as they can to preserving the JCPOA without the US; transatlantic divisions are not unwelcome to them. Analysts also argue that the end of the JCPOA would empower Russia and China in the long term, as Iran and its neighbours move into their orbit.

Re-starting the Iranian nuclear programme?

Hard-liners in Iran have been heartened by the threat to the JCPOA and, if it proves impossible to sustain it, are likely to push both to resume preparations for a nuclear weapon and to double down on Iran’s aggressive foreign policy. The International Crisis Group says that some are also arguing for Iran to withdraw from the Nuclear Non-Proliferation Treaty (NPT).

If Iran does move ahead with a nuclear weapons programme, observers are concerned that neighbours such as Saudi Arabia will move in the same direction.

Israel has in recent months stepped up rhetoric and military action against Iranian military presence in Syria. Military action against future Iranian nuclear installations would be a strong possibility. The night after the US announcement, the Islamic Republic Guard Corps launched missiles at Israeli positions in the Golan Heights and Israel responded, saying it had struck almost all of Iran’s infrastructure in Syria.

For further information see the Commons Library Research Briefings:

The Joint Comprehensive Plan of Action nuclear deal with Iran, 16 October 2015

The Iran nuclear deal and ‘decertification‘, 25 October 2017

Image credit: Khorramshahr Missile by Mohammad Hassanzadeh (Tasnim News Agency).  This file is licensed under the Creative Commons Attribution-Share Alike 4.0 International license / image cropped.