The ball is in Europe’s court to save Iran nuclear deal

While Tehran and Washington engage in a high-stakes game of brinkmanship in the Persian Gulf, the future of the Iran nuclear deal may end up being determined not by either of those parties, but by Europe.

In May, a year after the United States pulled out of the Joint Comprehensive Plan of Action (JCPOA), Tehran warned it would gradually decrease compliance with the deal. The posture shift was a reaction to what Iran perceives as the failure among the remaining parties – namely France, Germany, and the United Kingdom (the so-called E-3) along with Russia and China – to honor their economic commitments under the deal.

The fact that Iran is phasing its steps out of compliance – setting 60-day deadlines for each successive move such as going to higher enrichment levels – has raised hopes that Tehran could be persuaded to reverse course if Europe takes small but meaningful steps. So now European officials are desperate to keep the deal alive.

“What the Iranians want at this stage is really for the Europeans to put their neck on the line and stand up to the U.S.,” says Dina Esfandiary, an Iran specialist serving as a fellow at the Harvard Belfer Center and the Century Foundation. “If the Iranians are able to witness the Europeans doing something like that, I think that’ll go a long way towards at least making Tehran more amenable to more discussions with Europe on how to freeze the escalation that’s going on at the moment.”

Spurring Europe to act

Iran, analysts concur, has given up on strategic patience. It wants Europe and the remaining parties in the JCPOA to do more to offset U.S. sanctions. Last week, the United Nations’ nuclear watchdog confirmed that Iran had exceeded its uranium enrichment cap of 3.67% to just below 5%. Tehran has threatened to increase that to 20% enrichment or higher, a prospect that worries nuclear nonproliferation experts.

In response, foreign ministers gathered in Brussels on Monday to brainstorm ways to deescalate tensions and keep the 2015 deal afloat despite the withdrawal of the United States and a relentless maximalist campaign of U.S. sanctions.

“The risks are such that it is necessary for all stakeholders to pause, and consider the possible consequences of their actions,” the leaders of France, Germany, and the United Kingdom said in a statement Monday. “We believe that the time has come to act responsibly and to look for ways to stop the escalation of tension and resume dialogue.”

Iran expert Esfandyar Batmanghelidj sees Tehran’s move as “a gamble” that succeeded making Iran a priority at the highest level in Europe – the focal point of Monday’s meeting and high-level diplomacy by France. French President Emmanuel Macron dispatched his top diplomatic adviser to Tehran in a bid to jump-start talks to avoid uncontrolled escalation or even an accident.

The most tangible and visible step that Europe has taken to date is the establishment of Instrument in Support of Trade Exchanges (INSTEX), a complex bartering mechanism to facilitate humanitarian trade between Iran and Europe that deliberately skirts U.S. measures. This solution was developed by the governments of the E-3 in consultation with the European Union after European banks signaled their unwillingness to risk cross-border transactions with Iran in the face of U.S. sanctions pressure. Getting it off the ground has been technically complex.

“From a European perspective, this is unparalleled,” notes Ms. Esfandiary. “They’ve never had to set up this kind of mechanism before. They’ve never had to stand up to U.S. sanctions before.”

It has also been politically fraught with the United States even threatening to sanction EU officials connected to INSTEX. This complicates buy-in from companies that might have U.S. interests, although it would be a good instrument for multinationals already present in Iran. Even a scaled-up INSTEX, the analysts concur, can only help mitigate – not completely offset – the impact of U.S. sanctions on Iran.

The limits of INSTEX

But while INSTEX became operational at the end of June when test transactions were carried out, it has simply not worked fast enough in the eyes of Tehran.

“Iranians understand that Europe is making some efforts, but there is this sense that it is simply not enough in view of the economic hardship that is being caused for the country,” says Mr. Batmanghelidj, founder of media company Bourse & Bazaar, which tracks economic developments in Iran. “There are inherent limits on what Europe can do particularly because the focus of what Iran is looking for is on the economic side.”

And it is unlikely, for both technical and political reasons, that oil exports will be plugged into the system as Iran would like.

“INSTEX alone is not going to be the silver bullet that convinces Iran to reverse or remedy its actions that are not compliant,” says Ellie Geranmayeh, deputy director of the Middle East and North Africa Program at the European Council on Foreign Relations. “It is going to require a package.”

That package would have to include Chinese purchases of Iranian oil at a price and under conditions that don’t completely undermine Iranian interests. It is also going to require nuclear countries like Russia and China to continue the cooperation on Iran’s nuclear facilities. And it is going to require some of the new rounds of Iranian sanctions since April to at least be eased for a period of time, she says.

“The least worst option”

A challenge is the different strategic outlooks between Europe and Iran. For Iran, the JCPOA is a priority issue. Not so for the Europeans who need to keep the United States on their side strategically – especially on defense issues and NATO.

“If the Europeans are not willing or able to deliver something substantial to Iran, it means we need to get pragmatic and choose the least worst option ahead,” adds Ms. Geranmayeh.

“In my view that’s about a kind of JCPOA-lite arrangement where you keep the cornerstones of the deal in place. That means that at least some period of time … you get a freeze on Iran’s nuclear escalation and in return you give Iran the minimal, marginal economic steps that you are able to give.”

The EU is a major trading partner for Iran, with almost 21 billion euros’ worth of imports and exports in 2017. The bloc, says Mr. Batmanghelidj, needs to signal to Iran that there is a road map and institutional support for a continued Europe-Iran economic relationship and a growing one in the future.

Besides INSTEX, the European Union has adopted a financial support package for Iran. The governments of Austria, the Netherlands, and Sweden have also pushed forward with economic cooperation with Tehran.

“The problem is that all of these disparate efforts have not been packaged in a strategy,” says Mr. Batmanghelidj.

Snapbacks

While Europe is quietly sympathetic to the logic of Iran’s gambit, it could also trigger the JCPOA’s “dispute resolution mechanism” if pushed too far. The mechanism allows signatories to “snap back” economic sanctions on Tehran if they find that it wasn’t meeting its commitments under the agreement.

The analysts say this would be premature given that Iran waited more than a year after the U.S. pullout from the deal to reduce its compliance. But Iran’s gradual and calculated escalation also provides justification for voices within European governments that the deal with Iran is no longer viable.

“European officials cannot appear as lenient to an Iran that has violated the deal to its domestic constituents,” adds Mr. Batmanghelidj. In the long term, Iran risks sanctions snapback, whether that’s European Union or United Nations sanctions.

This scenario would bring joy to the anti-Iran hawks in Washington and Tel Aviv who are drumming for military confrontation with Tehran. It appears unlikely in the short term, as President Donald Trump and Iranian leader Hassan Rouhani have both signaled their aversion to an all-out confrontation. Nonetheless, the growing rift between Washington and Tehran has severely tested the diplomatic wherewithal of European powers.

As united as they are on wanting to salvage the JCPOA, there is only so much they can achieve in the absence of a change of heart in the White House.

“I don’t think the Europeans stand a chance reasoning with the U.S.,” says Ms. Esfandiary. “Their best bet is to unify and stand strong … a) to defend their own interests and b) to show that, OK, the appeasement period is over and now we disagree with Washington, so we’re going to do what’s best for us.”