Orbeli Analitical Research

Iran 4 years after nuclear deal

13 m. | 2019-09-04

T he Nuclear deal is the biggest diplomatic achievement within Iran’s post-revolutionary modern history. The negotiations on the nuclear deal during the presidency of Mahmoud Ahmadinejad (2005-2013) failed to produce any serious results, with an agreement finally reached during Hassan Rouhani’s term. It allowed Iran to neutralize the growing military threat that was stacking up against it and abolished most of the international sanctions that had piled up on the nation. This has paralyzed the country’s economy, which ultimately lead Iran’s vulnerability on both an international scale and their immediate region.

The agreement signed between Iran and “P5+1”on the Joint Comprehensive Plan of Action on July 14, 2015 was preceded by two years of tense negotiations and intermediate solutions.

The agreement, the so-called preliminary version of it was signed in Geneva November 2013, according to document the negotiations must continue for six months from January 20, 2014, until the parties draft the copy of a final agreement. However, on July 20, 2014, the deadline for the implementation of the Joint Action Plan was closed, the parties failed to reach any agreement. The negotiations were prolonged for another four months until November 24. After seven day of tense negotiations held in Vienna, in November 2014, the parties decided to continue the talks until July 1, 2015 so as not to break the Geneva Agreement. 2 weeks later, the agreement was finally signed, which was ratified on October 18 and entered into force on January 16, 2016 [1].

In 2015, Iran, five permanent members of the UN Security Council and Germany signed the nuclear deal.

The implementation of the nuclear deal can be divided into two parts: before the US’ announcement on a unilateral withdrawal from the deal (May 2018) and after it, when the sanctions on Iran were restored in two stages and “P5+1” format changed into “P4+1”. Here the key negotiations started on Europe’s fulfilment of the obligations undertaken by the nuclear deal and about the opportunities to compensate for the damage caused on Iran’s oil and banking field as a result of US actions.

After the nuclear deal, Iranian society was optimistic expecting rapid lifting of sanctions, unblocking proceeds from the oil sales a developing industry and the creation of new jobs.

Citizens of Iran celebrate Hassan Rouhani’s presidential win in 2013

During the presidential race in 2013, Hassan Rouhani promised to solve the problem, assuring that achieving agreement on the nuclear program will neutralize external challenges. Rouhani’s team was sure that the social-economic issues would gradually be resolved by overcoming external threats [2].

Despite the process of nuclear deal implementation and modifications resulted by the US actions, it played a very important political, economic and security role for Iran.

Though all member countries playing an important role in the pursuit of the nuclear deal, Iran’s public-political discourse and negotiation on the nuclear deal had been perceived as a process aimed at improving Iran-US relations. Iran in essence has been divided into two parts regarding US and Iranian relations. Conservative powers insisted that they shouldn’t trust the US and proceed for a nuclear deal, while the reformists including president Hassan Rouhani and Foreign Minister Mohammad Javad Zarif, believed that the “negotiations are not weakening Iran’s sovereignty and it is rather the dialogue with the West and neutralization of challenges, which will enable complete the development of Iran”.

Actually, the Spiritual Leader Ali Khamenei’s position was crucial here, who had given his consent to the nuclear deal, but in his letter to Rouhani on October 2015, which touched upon the implementation of the nuclear deal, he emphasized “the US being an unreliable partner” [3].

Mohammad Javad Zarif, current Foreign Minister of Iran and John Kerry, the former US Secretary of State, while negotiating.

When the nuclear deal had actually stopped as a result of the processes initiated by Donald Trump, the opponents of Hassan Rouhani started to immediately accuse the Iranian authorities of signing a non-profitable deal. Whereas, it should be stated, that it wasn’t the only decision made by Rouhani and Zarif. The nuclear deal was approved by Iran’s Supreme National Security Council, including the heads of executive, legislative and judicial branches, two representatives of the Supreme Leader, the Chief of the General Staff of the Armed Forces and the Ministers of Foreign Affairs and Information ( intelligence) [4].

Even after the US withdrawal from the nuclear deal and after the restoration of sanctions, Iran’s Foreign Minister Mohammad Javad Zarif during his July 2019 visit to New York expressed conviction while meeting journalists, that if they could go back to 4 years ago, Iran would re-sign the nuclear deal [5]. Moreover, Zarif repeated the same speech in the beginning of August in Tehran, when his political opponents started a large-scale “attack” against him [6].

The failure of the nuclear deal has solely resulted by the activities of Donald Trump, while before 2017 before Trump’s term Washington was still for the nuclear deal. Iran’s social-political circles thought that the nuclear deal did not produce any positive effect on the country’s economy. The heated debate between Hassan Rouhani and his opponents during the presidential race in Iran was a good example of it [7].

The nuclear deal was solving the following issues for Iranian authorities:

Gradually resolve the disagreements by creating political relations with the US
Deepen the multilateral economic relations with the EU
Strengthening Iran’s positions and gradually increase its impact after neutralizing the external threats and improving security environment of Iran.

Although Iran states that the Iranian market is open to US companies [8], after 2018, when a number of large European corporations opened offices in Iran, no American company appeared in the market after the agreement with some discussions ongoing [9]. These were the proof of Trump’s claim that the US gained nothing from the nuclear deal [10].

Thus, since Iran already had mutually beneficial cooperation with “P5+1” countries, particularly with China and Russia, Tehran was more likely to use the nuclear deal for expanding economic cooperation with Europe, especially expecting an import of high-tech and civil aircrafts [11].

While studying the economic performance of Iran from 2014 to 2019, we focus on Iran’s economic cooperation with Europe, assessing the economic significance of the nuclear deal from that angle.

Hence, in 2014, Iran’s foreign trade volume reached $114,2 bil., of which exports (without oil) reached 61,7 bil., and imports–$ 52,4 bil. Iran’s exports to Europe reached $1,9 bil., and imports did $ 888 mil. Moreover, Italy is the only European country among the top 10 export countries, which occupied the 9^th place. The picture is different in the case of imports: here the leading country is Switzerland with the 6^th place. Germany, Italy and the Netherlands occupy the 7^th, 8^th and 9^th places respectively.

In the second half of 2015, when the nuclear deal was signed, there were quite big expectations for economic cooperation both in Iran and abroad. Although the sanctions weren’t removed immediately after signing the agreement, the enthusiasm was so big that it had a positive impact on country’s economy.

In 2015, Iran’s foreign trade volume reached $83,9 bil., of which export reached $42,4 bil., and import – $41,4 bil. Compared to last year, exports decreased by 16% and imports by 22.5%.

After the nuclear deal, some activity was noticed within the economic cooperation between Iran and Europe. Firstly, in 2014, the European countries involved in the top ten list improved their places and France joined them with $760mil. occupying the 10^th place.

The nuclear deal entered into force and actually started to work since 2016. In terms of economic activity, 2016 made a breakthrough, even a slight growth was recorded in total exports, and a significant result was recorded in trade with Europe.

Thus, Iran’s foreign trade volume reached $87,6 bil. for the mentioned period: with $43,9 bil. exports and $43,6 bil. imports. The exports increased by 3.5% and imports by 5% [12].

The economic cooperation with European countries yielded imports increased by 28% reaching $7,9 bil. compared to the same period of last year.

In 2017 economic cooperation growth between Iran and the EU was not only maintained but increased by $12 bil., recording 33% economic growth.

In 2016-2017, not only a significant growth was noticed within the traditional partner European countries, but also new countries were involved, such as Great Britain, Sweden, Belgium and Spain.

In May 2018, when the United States unilaterally withdrew from the nuclear deal and re-imposed the sanctions on Iran by 2 stages till the end of the year, a number of famous European companies left the Iranian market assessing the current risks. However, the EU regretted re-imposition of sanctions by Washington, announcing that he will maintain cooperation with Iran within the nuclear deal frameworks [13].

I n May 2018, after the US unilateral withdrawal from the nuclear deal and as a result of two-month-length negotiations, first meeting with a new “4+1” format took place in Vienna in July 6 [14] with the participating countries’ foreign ministers. After the meeting a joint statement comprising of 10 points was published, according to which “P4+1” undertook to continue the economic cooperation with Iran.

However, despite the efforts made by Iran and Europe, at the end of 2018, 22% decrease was already noticed in the trade volume between Iran and the EU, reaching about $9,8 bil.

The relationships between Iran and Europe after the nuclear deal wasn’t enough to satisfy the Iranian side, the Spiritual Leader Ali Khamenei clearly announced during meetings with Iranian ambassadors at the end of July, 2018 [15] that the negotiations with Europe should be continued. Iran mostly expected from the EU “transition from statements to real steps”, such as active support in the issues of oil and gas sales, banking system and money transfers.

Federica Mogherini, High Representative of the EU for Foreign Affairs and Security Policy, in Tehran

Resulted by prolonged negotiations, on January 31, 2019, a toolkit (INSTEX) was developed to allow Iran to conduct financial transactions with Germany, Great Britain and France. However, so far this toolkit hasn’t worked effectively for various reasons (provided Iran’s failure to ratify the CFT Convention).

Exactly 60 days after the withdrawal of the US from the negotiations Iran announced that it refused to stick to its commitment under the nuclear deal of not enriching uranium of more than 3.75% and that is was going to redesign the heavy-water nuclear reactor of Araks.

According to the claims made by the Iranian side, these steps are consistent with paragraph 34 of the nuclear deal’s [16].

When the document was being signed in 2015, the Iranian expertize discussing the possible scenarios, mentioned: “Hassan Rouhani should first of all explain to his political opponents, whether the above mentioned institutions will fit for work in case of uranium enrichment processes and Araks’ heavy-water reactor work suspension. Who is responsible for wasting billions of dollars inefficiently? The government of Rouhani or Ahmadinejad?”

Araks heavy-water reactor

Although Iran gradually refused to comply with its obligations in response to the US actions, it is not going to withdraw from the nuclear deal.

Officially Tehran doesn’t consider it appropriate to withdraw from the deal at the moment, as it thinks that the document is in the interest of Iran [18] and during the negotiations, the Iranian side considered the fact that the US is likely to withdraw from the negotiations at some point.

By signing the nuclear deal with Iran, the US and Europe hoped that the cooperation with Tehran will contribute to the resolution of Iran’s problems with the US and Europe. Eventually, the West hoped that the effective launch of the nuclear deal will become a precedent for Iran, helping come to an agreement with the United States and Europe on Iran’s missile systems and on Iran’s operations in the Middle East. In 2020 and later in 2021, parliamentary and presidential elections will take place in Iran. Studying the current domestic politics in Iran, the nuclear deal and negotiations with the US are going to be the main topics of the entire pre-election campaign of almost all the political forces.

By giving a comprehensive assessment of the nuclear deal, it should be viewed in two dimensions. While referring to Iran’s domestic life, economy, raising the standard of living, resilience of the economy, financial stability, development of banking system and job creation, we can claim for sure, that the nuclear deal failed to solve the problems it had set. Whereas if we look at the problem from the point of solving the external issues, it becomes obvious, that due to the nuclear deal Iran not only succeeded in eliminating the threat of military it also helped Iran’s international loan increase dramatically.

If, Iran had the “status of observer” in the Middle East events before the nuclear deal and was making great efforts to neutralize the challenges threatening the country, in 2013 it became a key player in the Middle East crisis solution through the active diplomacy of Rouhani-Zarif combination.

It is an indisputable fact that Iran has played an important role in the actions aimed at overcoming the Syrian crisis, in the fight against “Daesh” and in the actions aimed to ease tensions in the region because of independent referendum for Kurdistan region of Iraq.

Whether Iran withdraws from the nuclear deal after 2021 presidential elections or not, it will lose its political significance it had during the tenure of reformist president by the end of Hassan Rouhani’s presidency. On the other hand, conservative-reformist ideology contradicts the nuclear deal [19]. Finally, neither Rouhani nor Zarif could or would implement a policy, which would go against Iran’s state interests.

The nuclear deal was signed in the geopolitical context, when there was a completely different political situation in Iran and with the United States. Thus, it is clear that it wouldn’t be possible to operate it artificially under the new conditions and the current developments to fully comply with the prevailing realities.

[1] https://bit.ly/2ZHYgPM

[2] https://www.youtube.com/watch?v=Sg9Yk_zo9sw

[3] http://farsi.khamenei.ir/message-content?id=31168

[4] https://aftabnews.ir/fa/news/601918/

[5] https://www.khabaronline.ir/news/1279737/

[6] https://aftabnews.ir/fa/news/601918/

[7] See: Internal Political Developments of Iran during the Second Term of President Hassan Rouhani

[8] https://www.isna.ir/news/98042512836/

[9] https://www.radiofarda.com/a/

[10] https://www.whitehouse.gov

[11] https://www.asriran.com/fa/news/511958/

[12] http://farsi.tpo.ir/uploads/varedat_96_27192.pdf