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U.S. Touts Sanctions Success as EU Announces Iran Package | The P4+1 and Iran Nuclear Deal Alert, August 24, 2018
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Authored by Kelsey Davenport on August 24, 2018

U.S. Touts Sanctions Success as EU Announces Iran Package

During an Aug. 19-22 trip to Israel, National Security Advisor John Bolton said U.S. sanctions reimposed on Iran are having economic effects “even stronger than we anticipated” and that the United States expects that Europeans will see that the “choice between doing business with Iran or doing business with the United States is very clear.”
 
Iran figured prominently in discussions between Bolton and Israeli Prime Minister Benjamin Netanyahu. At a joint Aug. 20 press conference, Netanyahu again thanked the Trump administration for withdrawing from the nuclear deal with Iran, applauded the reimposition of sanctions, and said “all states should follow America’s lead and ratchet up pressure on Iran.”
 
However, outside of U.S. allies in the Middle East, there is little support for Trump’s decision to exit the multilateral nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), and reimpose sanctions, and the remaining P4+1 parties to the deal (European Union, China, France, Germany, Russia, and the United Kingdom) continue to look for avenues to sustain the agreement.
 
The European Commission announced an €18 million support package for Iran—the first tranche of a larger €50 million package—that includes private sector support for small and medium enterprises in Iran, technical support for addressing environmental challenges, and projects on drug harm reduction. The package comes on top of earlier steps from the E3 (France, Germany, and the United Kingdom) and the EU to protect legitimate European business with Iran. (See below for details.)
 
The Aug. 23 EU announcement did not reference U.S. sanctions or withdrawal from the JCPOA. It noted that the “normalization of trade and economic relations with Iran constitutes an essential part of the JCPOA” and said the deal opened the way for a “new chapter in EU-Iran relations.”
 
Some officials in Europe are calling for the EU to do more. German Foreign Minister Heiko Maas talked about EU and U.S. differences over the JCPOA as part of the broader decline in the US-EU relationship in an Aug. 21 oped. Maas wrote that it is essential to strengthen European autonomy by setting up payment channels independent from the United States, creating a European Monetary Fund and building an independent SWIFT system. (SWIFT is a global financial messaging system.)
 
It is unclear if German Chancellor Angela Merkel supports these steps. While she agreed that the EU’s relationship with the United States is changing and the EU needs to take on more responsibility, she said cooperation with Washington is important, particularly on security. Merkel acknowledged the difficulties in facilitating transactions with Iran but noted that SWIFT plays an important role in combatting terrorist financing.
 
Discussions on sustaining the JCPOA, including a meeting between the P4+1 and Iran, will likely continue around the UN General Assembly in September.—KELSEY DAVENPORT, director for nonproliferation policy


The P4+1 Respond to First Round of U.S. Sanctions

The first set of U.S. sanctions on Iran entered into full effect Aug. 7. These sanctions impact trade in metals, coal, steel, and the automotive sector, as well as the purchase or sale of Iranian rials. Licenses for aircraft sales and foodstuffs were also revoked Aug. 7.
 
In an Aug. 6 statement on Iran, Trump said that “applying maximum economic pressure on the Iranian regime” is the goal and he is “open to reaching a more comprehensive deal that addresses the full range of the regime’s malign activities.”
 
It is not clear how Trump plans to conclude this “comprehensive deal” after violating an agreement endorsed by the UN Security Council that Iran was fully adhering to, particularly given that the remaining P4+1 parties pledged to sustain the agreement.
 
EU foreign policy chief Federica Mogherini and the E3 (France, Germany, and the United Kingdom) Foreign Ministers said in an Aug. 6 joint statement that they are “determined to protect European economic operators engaged in legitimate business with Iran” in accordance with EU law and the UN Security Council resolution endorsing the deal. The statement also noted that the EU blocking regulation, which protects EU companies from U.S. sanctions and prohibits them from abiding by the measures, went into effect Aug. 7.
 
It is unclear, however, whether the regulation will provide companies enough protection from U.S. sanctions penalties for them to risk continuing to do business with Iran. A number of companies pulled out of the Iranian market ahead of the Aug. 7 deadline. Nathalie Tocci, a special advisor to EU foreign policy chief Federica Mogherini, said Aug. 7 that the EU will sanction European companies that abide by U.S. secondary sanctions, although it seems unlikely that the EU will follow through on that threat.
 
The Russian Foreign Ministry issued a statement pledging to do “everything necessary” to implement the nuclear deal, including measures to protect trade with Iran. When Rouhani met with Russian President Vladimir Putin Aug. 12, Putin reiterated the importance of preserving the JCPOA, and said Moscow is ready to develop further cooperation with Tehran on “areas of interest to both sides.”
 
The Chinese Foreign Ministry said Beijing has “consistently opposed unilateral sanctions” and would protect its commercial cooperation with Iran.
 
Other states are also looking for options to maintain trade with Iran. The Iran-Italy Chamber of Commerce says it will support conducting transactions using smaller banks that do not use the U.S. dollar, insulating them from U.S. sanctions.
 
Idriss Jazairy, UN special rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights, also weighed in on the reimposition of U.S. sanctions. Jazairy called the action illegitimate and said that the “unjust and harmful sanctions are destroying the economy and currency of Iran, driving millions of people into poverty and making imported goods unaffordable.” He appealed to the United States to allow food, medicines, and agricultural commodities into Iran.


State Department Forms New Iran Action Group

Secretary of State Mike Pompeo announced the creation of the Iran Action Group Aug. 16 and named Brian Hook as head of the team, with the title Special Representative for Iran. Hook had been working on Iran from his prior State Department position as Director of Policy Planning. He was deeply involved with U.S. negotiations with the E3 on options to address Trump’s “flaws” in the JCPOA.
 
Pompeo said the Iran Action Group will be responsible for “directing, reviewing, and coordinating all aspects” of the State Department’s Iran activities and will work on making Trump’s Iran strategy “a true multinational undertaking.”
 
Hook said the current U.S. strategy addresses “all manifestations of the Iranian threat” and the group’s work will focus on advancing the 12 areas Pompeo outlined in May, particularly “nukes, terrorism, and the detention of American citizens arbitrarily detained.”
 
Hook said that the purpose of sanctions is “simply to deny the Iranian regime revenues to finance terrorism.”
 
Representatives Elijah Cummings and Eliot Engel, the ranking members of the House Foreign Affairs Committee and the House Oversight and Government Committee, wrote a letter to Pompeo Aug. 22 expressing concern about Hook’s appointment. Cummings and Engel said documents show that Hook engaged in “gross acts of retaliation” against State Department employees. Cummings and Engel wrote an earlier letter to Pompeo in March expressing similar concerns and said the State Department has refused to make Hook available or provide documents related to the accusations of retaliation.


Expectations for Oil Cuts Unclear Ahead of November Deadline

Hook confirmed during an Aug. 16 press conference that the U.S. goal of zeroing out Iran’s oil exports by Nov. 4 remains, but said the United States will evaluate reductions by states on a “case-by-case basis.” The remaining U.S. sanctions impacting the Central Bank of Iran and oil exports come into full effect Nov. 5, after the 180-day wind-down period comes to an end. Given the crucial role that oil plays in Iran’s economy, these measures are far more significant than the Aug. 7 sanctions. Iran’s willingness to continue abiding by the deal may be determined by how much oil it can export after Nov. 5.
 
China still maintains it will not reduce oil imports from Iran, and imports in July were higher than June levels. Reuters reported Aug. 20 that China is shifting to cargo ships owned and insured by the National Iranian Tanker Company for transporting oil purchases. This move may be motivated by insurance companies ending coverage for transporting Iranian oil in anticipation of the Nov. 4 sanctions deadline.
 
South Korea is likely to cut imports of Iranian oil and seek a waiver to continue buying from Iran in the future. South Korean trade officials have reportedly met twice with U.S. counterparts to discuss a waiver.
 
While Saudi Arabia has offered to increase oil production to meet any shortfall caused by the U.S. sanctions, Iran pushed back against Riyadh’s plan at the Organization of Petroleum Exporting Countries (OPEC). Iran’s envoy to OPEC said “no country is allowed to take over” the production and exports of another country and noted that OPEC has not issued a license for any such action. 
 
The sanctions impact not only purchases of Iranian oil, but also investment in Iranian oil and natural gas projects. The French energy company Total had requested a waiver from the United States to continuing operating in Iran, but officially pulled out of a project to develop the South Pars natural gas fields in August after Pompeo rejected the EU request for waivers. The Russian oil company Lukoil stated earlier this year that it would be suspending joint ventures in Iran because of U.S. sanctions.
 
For more information on specific responses by companies to U.S. sanctions reimposition, see Iran Watch, a website by the Wisconsin Project on Nuclear Arms Control, which maintains an online database available here.


UK Steps Up on Arak Reactor

Iran says that the United Kingdom will assist in the redesign of the Arak heavy-water reactor, likely taking over U.S. commitments.
 
Under the terms of the JCPOA, Iran removed the calandria of the Arak reactor, filled it with cement, and committed to redesign the reactor so it would annually produce far less weapons-grade plutonium than necessary for one bomb. (JCPOA, Annex I, Section B.)  Iran also committed to ship out the spent fuel from the reactor for its lifetime and not to reprocess any spent fuel for 15 years.
 
While China will assist Iran on the ground with the reactor modifications, the United States was involved in the planning and design work. Presumably the United Kingdom will fill in that role.


Iran Unveils New Short-Range Ballistic Missile Variant

Iran unveiled a new variant of its short-range Fateh ballistic missile Aug. 13 that Defense Minister Amir Hatami described as having pinpoint accuracy and the ability to evade radar. He said the missile had been successfully tested and mass production of the system will boost Iran’s national defense.
 
The Fateh short-range ballistic missile is sold-fueled and has an estimated range of 300 kilometers with a 500-kilogram payload. Fox News reported Aug. 10 that Iran tested the Fateh during a recent military exercise. It was the first ballistic missile test Iran conducted in more than a year.
 
Iran’s ballistic missile activities are not limited by the JCPOA, but the UN Security Council resolution endorsing the deal contains a nonbinding provision that calls upon Iran to refrain from testing missiles designed to be capable of delivering nuclear weapons and a binding prohibition against transferring ballistic missiles without Security Council consent.
 
Iran maintains that none of its systems are “designed” to carry nuclear warheads and that its testing is permissible. Officials, including the Supreme Leader, have stated that Tehran is voluntarily restricting the range of its ballistic missile development to less than 2,000 kilometers.
 
In a new report, Reducing the Risk of Iran Developing an ICBM,  Michael Elleman, senior fellow at the International Institute for Strategic Studies, puts forward a proposal to lock in a range limit of 2,000 kilometers for Iran’s ballistic missile development and to set conditions for satellite launches, which together reduce the risk of Iran developing an intercontinental ballistic missile.
 
Although Iranian officials have ruled out negotiating on ballistic missiles, particularly while the future of the JCPOA is in jeopardy, sustaining the JPCOA and pursuing a separate agreement on ballistic missile limitations would further reduce the threat of Iran’s missiles. Even if an agreement limiting Iran’s ballistic missiles cannot be reached, full implementation of the JCPOA puts up permanent barriers to Iran arming its ballistic missiles with nuclear warheads, and conventionally-armed ballistic missiles pose far less of a threat.


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Author: 
Kelsey Davenport