Trump’s attack on nuclear deal is bad news for Iran – and for America

Trump’s attack on nuclear deal is bad news for Iran – and for America

U.S. President Donald Trump dealt a blow to the Iran nuclear deal on Friday, as he announced that he would not certify that Iran is in compliance with the agreement. While the unravelling of the deal is neither automatic nor certain, Trump’s announcement will have clear implications for the agreement – and for U.S. diplomacy. Going forward, two key things to watch will be how Congress and international businesses will react to the Trump administration’s moves.

The landmark deal, or the Joint Comprehensive Plan of Action (JCPOA) as it is formally known, was agreed in 2015 between Iran and the P5+1 group, consisting of the five permanent members of the UN Security Council plus Germany. The deal is designed to curb Iran’s nuclear program in exchange for the removal of the nuclear-related sanctions imposed by the international community. This process began on “Implementation Day” in early 2016 when the International Atomic Energy Agency – the UN watchdog tasked with overseeing the deal’s implementation – confirmed that Iran had fulfilled its initial commitments.

Under an American law passed by Congress in 2015, the Iran Nuclear Agreement Review Act, the President is required to periodically certify to Congress that Iran is adhering to its obligations under the JCPOA, and that sanctions relief is “vital to the national security interests of the United States.” On 13 October, the White House rolled out a new strategy on Iran, and in a televised speech later that day Trump announced that he “cannot and will not” recertify the nuclear agreement.  For Trump, who has consistently deplored the JCPOA – most recently in his UN General Assembly speech – decertification was an expected course of action. It was nonetheless a startling decision taken amidst stark warnings from senior foreign policy advisers.

Passing the buck to Congress

Trump’s announcement does not in itself unravel the agreement. Instead, it gives Congress 60 days to decide whether or not to re-impose nuclear-related sanctions on Iran, an act that would violate the agreement. Such a development is neither automatic nor certain – Congress could decide to effectively do nothing and send the matter back to the White House. For now, however, the future of the deal rests with leaders in the Senate and the House.

The JCPOA has been heavily criticized by some lawmakers, such as Senator Tom Cotton of Arkansas, who recently laid out his vision of U.S. policy towards Iran in a speech at the Council on Foreign Relations. Nonetheless, congressional heavyweights from both sides of the aisle – including Senators John McCain and Bob Corker as well as the Chairman and the Ranking Minority Member of the House Foreign Affairs Committee – have signaled that they do not wish to undo the deal. These factors speak for a congressional status quo. Yet, even if Congress decides not to re-impose sanctions, the President’s actions have already had significant consequences.

Effects on business and investment in Iran

To start with, the uncertainty stemming from Trump’s about-face will deter investment in Iran. The risks of sanctions re-imposition will linger, even in the event of a congressional decision not to snap back sanctions. Trump’s bellicose rhetoric and confrontational stance against Iran combined with his preference for being ‘unpredictable’ – he claimed already in September to have made a decision on the Iran deal but would not share which decision – is bound to create a capricious climate for foreign investors, adding yet another layer to the already complex risk environment in Iran. Adding to the confusion is the fact that the administration has not presented any evidence of material breaches of the JCPOA from the Iranian side (the IAEA, meanwhile, has consistently insisted that Iran is sticking to the provisions of the deal).

Of course, not all businesses will respond to these developments in the same way. Companies and investors with significant sanctions exposure are the most likely to shy away from engagement with Iran altogether. Others are likely to scale back, to make it easier to swiftly respond to potential legislative changes in the future. A few daring actors will, of course, try to fill the vacuum left by more risk-averse competitors by stepping up their own presence in the Iranian market. In general, however, the latest moves by President are bound to curb investment in Iran. To take one example, HSBC stated in early 2016 that it would not be comfortable doing business with Iran until Washington straightened out its policy – something which the current administration can hardly be said to have done.

Risk of hardliner gains

A heightened risk climate for investors will have consequences for the progress of the nuclear deal. While Trump’s speech deplored the “immediate financial boost” that the JCPOA brought the government in Tehran, the resurrection of the Iranian economy has in fact lagged behind expectations. The expected “windfall” for Iran in the aftermath of the sanctions removal has so far been disappointing for the Iranian regime, especially when it comes to the establishment of international banking relationships – a backbone for economic growth and recovery.

For Iranian President Hassan Rouhani, who has run on an agenda to open and revive the Iranian economy while fending off more conservative elements in Iranian politics, delivering on these promises is paramount. Insufficient investments may give credibility to those hardliners in Iran who opposed a diplomatic outreach and the JCPOA and lead the Iranian public to question its virtues – thus undermining the agreement’s sustainability. After all, if Iran does not see the benefits of the deal, it is more likely to question its own nuclear concessions.

There are broader implications, too, for the perception of United States as a reliable negotiation partner – a question that should be highly relevant to President Trump, who has vowed to renegotiate a number of international agreements. At the moment, it seems likely that America’s credibility will become collateral damage in the Trump administration’s attacks on the nuclear deal.

About Author

Axel Hellman

Axel Hellman is a foreign policy analyst with a focus on the United States and the former Soviet Union. He holds a B.A. in International Relations from King’s College London and received his MSc in Global Governance and Diplomacy from St Antony’s College, Oxford.