Sanctions, threats and oil: How close is Iran deal to collapsing?

The clock has begun ticking towards a crucial deadline for Europe to fulfil Iran‘s demands to deliver concrete financial incentives in order to stop the 2015 nuclear deal from falling apart.

But with the early-September date looming, the outlook for the landmark pact signed between Tehran and world powers is growing increasingly bleak.

“I am not very optimistic, because there is not much the EU can do to prevent the US sanctions,” Ali Noorani, a Tokyo-based Iranian analyst, said, referring to the series of punishing measures reimposed by Washington following its unilateral withdrawal from the deal in May last year.

The accord, which was also signed by Britain, France, Germany, Russia and China, had offered Iran relief from global sanctions in exchange for limits on its nuclear programme. US President Donald Trump said he withdrew because the deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), did not do enough to curb Iran’s ballistic missiles programme or address its support for regional armed groups.

His administration has since launched a “maximum pressure campaign” aimed at slashing Iran’s oil exports to zero, including by threatening to target any companies or countries that skirt US sanctions and forcing Tehran to open negotiations on a broader new deal.

Amid a flurry of diplomatic activities, the European signatories to the JCPOA have tried for months to convince Iran to stay in the deal, including by launching a financial mechanism to maintain limited trade with it.

But observers believe that unless Tehran promptly gets substantial benefits for its sanctions-hit economy, in exchange for giving up its large-scale nuclear enrichment under the pact, then Europe’s ongoing effort would not be enough.

“To the Iranians, this is a cruel joke. Iran needs and expects tangible sanctions relief in line with what is required by the nuclear deal,” Sina Toossi, of the Washington, DC-based National Iranian American Council (NIAC), said.

He added that it is “unlikely” Europe will be able to accomplish what Iran is asking, namely oil purchases and the normalisation of banking ties. 

“The fact is that European leaders have not shown the political will necessary to assert their independence vis-a-vis the US and forcefully push back against the threat of secondary sanctions,” Toossi said.

Flurry of diplomatic activities 

Diplomatic efforts have intensified since July 7, when Iran increased the level of uranium enrichment from 3.67 percent to 4.5 percent – just above the limit set under the deal – following the expiration of a two-month deadline it had set to European powers to protect it from US sanctions. The following day, Tehran gave Europe another 60 days to come up with a mechanism to facilitate oil trade amid growing US-Iran tensions and international fears that hawks in Washington are attempting to draw the countries into an armed confrontation.

Iran’s seizure of a foreign tanker, which was reported on Thursday, as well as the recent incidents of cargo ship attacks and drone shooting in waters off Iran, have also added to the atmosphere of insecurity and fuelled doubts that a diplomatic solution could ever be put together, observers said. Late on Thursday, it was also reported that a US warship destroyed an Iranian drone in the Strait of Hormuz. 

Iran’s Supreme Leader Ayatollah Ali Khamenei on Tuesday made it clear that his country would continue to roll back its commitment under the JCPOA, pointedly blaming Europe for not fulfilling their part of the bargain and lashing out at Western “arrogance” and “insolence”.

A day earlier, Iranian President Hassan Rouhani also struck a defiant tone, saying Tehran was willing to restore its full compliance of the nuclear agreement, only if the US lifted oil and banking sanctions and returned to what was agreed in 2015.

During a visit this week to the United Nations‘s headquarters in New York, Foreign Minister Mohammad Javad Zarif repeated Rouhani’s call, saying that “once the sanctions are lifted … the room for negotiation is wide open”.

“It is the United States that left the bargaining table. And they’re always welcome to return,” Zarif said, noting that the US “shot itself [in] the foot” when it abandoned the JCPOA. As it is, Zarif said, the Trump administration was already waging an economic war against the Iranian people.

In a separate interview, Zarif ominously warned that while his country will not initiate an armed conflict, “anybody who starts a war with Iran will not be the one who ends it.”

European foreign ministers have been scrambling to find a solution to the worsening crisis. On Monday, they huddled in Brussels and urged Tehran to avoid more actions that endanger the deal. Yet again, they failed to spell out specific economic steps to satisfy Iran.

In response, Iranian Foreign Ministry Spokesman Seyed Abbas Mousavi said Europe should not have an “unrealistic expectation” if they are unable to deliver on their promise. He said Iran would only stay committed to the deal at the same level as Europe kept its obligations.

Iran has already stated that INSTEX, the special purpose vehicle created by Europe to process payments bypassing the US financial system, is insufficient as it only allows trade for humanitarian activities that are not even covered by US secondary sanctions. Instead, Iranian officials want the workaround mechanism to cover the key oil trade.

Following Monday’s meeting in Brussels, British Foreign Secretary Jeremy Hunt signalled more diplomatic efforts ahead saying, “there is still some closing, but [a] small window to keep the deal alive.”

The bloc’s top diplomat, Federica Mogherini, also downplayed Iran’s breach of the enrichment level on July 7, saying the UN nuclear watchdog did not deem the recent move “to be significant non-compliance”. So for now, no EU penalties are in the works against Iran, she added.

‘On the edge’

On Iran’s part, the incremental steps taken to walk away from the deal are meant as leverage to push Europe into action, said Noorani, the Tokyo-based Iranian journalist.

“I think Iran is on the edge now,” he said.

If Europe fails to deliver in the next few weeks, and Trump piles on more pressure, “Iran will have no recourse but to increase its own pressure, by increasing its nuclear capability,” added Toossi, of NIAC.

Among the options Iran is reportedly considering is raising uranium enrichment to 20 percent, which is the level maintained before signing the JCPOA in 2015. Some experts, however, disputed that number, calling it a “hype” aimed at the Europeans.

Ultimately, it may not be up to Europe, but Trump to roll the dice and talk to Iran, said Abas Aslani, a Tehran-based foreign policy expert affiliated with the Rouhani administration.

“He has to make a decision to accept the reality, to come to talk to Iran,” Aslani said, while pointing to the hurdles faced by the US president.

Trump’s ‘disoriented’ policy

On Wednesday, Trump reportedly tapped anti-war Senator Rand Paul as a special emissary to talk to Iranian officials. But it is not clear how much mandate he has to negotiate, given the presence of hawks in the Trump administration and the White House, including Secretary of State Mike Pompeo and National Security Advisor John Bolton.

While Iran has let the “window towards diplomacy open”, Trump’s allies in the region, as well as the people around him, may “not like any kind of engagement or negotiations” to happen, Aslani pointed out.

“They have capitalised and invested a lot on Iranian isolation, rather than engagement. That is why it has become a little bit difficult for Trump to engage in any talks.”

For Noorani, Trump’s “disoriented” policy towards Iran, has left Tehran confused about Washington’s real intentions, further muddling any prospect of rapprochement.

Since Iran’s shift “from the policy of strategic patience to active resistance”, the US has been indirectly more involved diplomatically with Iran, according to Younes Zangiabadi, vice president of the Toronto-based Institute for Diplomacy and Peace.

“It is important to underline that Trump is personally pushing and following up on meetings between Iran and the allies of the US,” he told Al Jazeera.

Behind the scenes, France is also trying “to create the right environment” for the inclusion of the US in talks with Iran within the JCPOA framework, “at least as an observer for the initial steps,” Zangiabadi said.

Now it is up to the French side, to convince Trump “to impose no more sanctions” and freeze some of the current banking and oil sanctions, if they want any form of negotiations to take place between Tehran and Washington, he said.

Freeze for freeze

Among the options being considered is the so-called “freeze-for-freeze” deal, in which the US will suspend the Iran sanctions, or parts of it, and in return, Iran will stop reducing its JCPOA commitments, or the pace of its nuclear activities.

As for the Iranians, it would be doubtful that they would bow down to Trump’s “maximum pressure” and “bullying”, despite the hardships ordinary citizens are facing under the current sanctions, Zangiabadi said.

That is because there is an “unusual consensus across the Iranian political spectrum that now is not the right time to negotiate with the US,” he said.

Meanwhile, Fereshteh Sadeghi, a Tehran-based political analyst, acknowledged that “there is anger regarding the current economic situation” in the country. However, it is less directed at Trump, than the Iranian establishment’s “mismanagement and rampant corruption”.

Yet, the dire economic situation and the public pressure have not had an effect on whether or not Iran wants to talk to the US, she said, adding that as long as the government is surviving, it will dictate when and how it wants to talk to Trump.

In the end, the fate of Iran and the entire region lays in the hands of the US president, Toossi argued.

“The principal problem is Trump’s disastrous Iran policy, which has needlessly and recklessly put the two countries on a collision course.”