Iran shows new savvy in defining outcome of key nuclear deal meeting

Bourse and Bazaar | Esfandyar Batmanghelidj: Following two months of rising uncertainty after President Trump decided to withdraw from the nuclear deal despite Iran’s continued compliance with its commitments, the remaining parties to the Joint Comprehensive Plan of Action (JCPOA) assembled in Vienna on Friday. The meeting of foreign minister was convened at Iran’s request. 

Iranian expectations of the meeting centered on an “economic package” that was to be offered by Europe—with the support of Russia and China—to keep Iran in the nuclear deal. As Iranian foreign minister Javad Zarif made clear in a tweet prior to the meeting, in the view of Iran, “sanctions and JCPOA compliance are mutually exclusive.” In short, if Europe, Russia, and China are to expect Iran to remain committed to the nuclear deal, they must neutralize the negative effects of US secondary sanctions.

Up until last week the foremost concern had been whether Iran would be able to maintain viable banking channels in the face of a more aggressive US sanctions posture, especially given the limited progress that had been made in reintegrating Iran into the global financial system since Implementation Day. Yet, the announcement that the US would not be providingsignificant reduction exceptions to allow Iran’s oil customers to maintain their imports when sanctions return in November, will prove Iran’s most significant challenge. Iran relies on oil exports for 40 percent of government revenue.

Iran engaged in expectation management regarding the package ahead of the meeting, perhaps indicating that the Rouhani government has finally learned the consequences of overselling the economic promises made during JCPOA-related talks. The president’s office released two statements Thursday evening indicating that Rouhani had held phone calls with his German and French counterparts. Most pointedly, Rouhani told Macron that the economic package prepared by Europe “does not include all of [Iran’s] demands,” but that Iran remained hopeful that the joint commission meeting would help fill the gaps.

In this way, Friday’s meeting of the joint commission was cast as a test for the French, German, British, Russian, and Chinese diplomats. Would the diplomats be able to develop the necessary economic countermeasures to keep Iran in the deal? Would they be able to show concrete progress on the positive commitments that had been made in the days following Trump’s withdrawal? When drafting the JCPOA, the diplomats had relegated the economic aspects of the deal to an annex, where implementation languished on all sides, slowing trade and investment, until Trump made his fateful decision—was it too much to expect practical solutions to emerge now?

In this context, the joint statement released by the European External Action Service and EU High Representative Federica Mogherini, who chaired the ministerial meeting, was underwhelming. The statement reiterated that “in return for the implementation by Iran of its nuclear-related commitments, the lifting of sanctions, including the economic dividends arising from it, constitutes an essential part of the JCPOA.” As part of this commitment, the statement “affirmed” the commitment of the participants to measures focused on the “promotion of wider economic and sectoral relations with Iran” as well as “the preservation and maintenance of effective financial channels.” Most importantly given Trump’s declared intention to drive Iran’s oil exports to zero, the participants affirmed their intention to defend “Iran’s export of oil and gas condensate, petroleum products and petrochemicals,” among other areas of economic intervention.

The statement was comprehensive in detailing the areas in which Iran wishes to see concrete measures taken, but it did not provide much greater detail than similar statements issued in the weeks immediately following Trump’s withdrawal of the deal. Besides noting that “that the EU is in the process of updating the EU ‘Blocking Statute’” and “the European Investment Bank’s external lending mandate to cover Iran”—two measures first announced in May—no specific tactics were declared in the statement. Of course, it would be a mistake for parties to the JCPOA to reveal their proposed countermeasures too soon, as this would invite American authorities to find ways to undermine them. Yet, nothing in the statement itself seemed to dissuade those hoping for meaningful solutions from a sense of disappointment.

It was therefore notable that Zarif very proactively shared a positive assessment of the meetings upon their conclusion. On one hand, Iran’s foreign minister showed trademark deference to Iran’s other power-brokers, telling reporters that the proposal presented to Iran—“not precise and not a complete one”—should be implemented before the next round of US sanctions come into force in August and that it “is up to the leadership in Tehran to decide whether Iran should remain in the deal” on the basis of this implementation.

Yet, speaking to Iranian media, Zarif highlighted his satisfaction that the parties to the JCPOA, including three “close allies” of the United States, had remained firm in their desire to withstand US pressure. He also highlighted in these interviews and in subsequent tweets that the discussions were “moving in right direction on concrete steps for timely implementation of commitments.” He was remarkably upbeat.

That Iran had achieved a political success was made clear as French foreign minister Jean-Yves Le Drian told reporters that the parties to the deal were trying to deliver an economic package “before sanctions are imposed at the start of August and then the next set of sanctions in November. He added, “ For August it seems a bit short, but we are trying to do it by November.” Le Drian also implored Iran to “stop threatening to break their commitments to the nuclear deal,” a statement that may have been taken to undercut the French willingness to help Iran achieve an economic package.

But on the contrary, such as statement proves that Iran retains leverage in the negotiations. Whether signaling the resumption of enrichment activities or the closure of the Strait of Hormuz, a coordinated messaging campaign by the Rouhani administration, which includes public statements by Rouhani himself, by Zarif, by Iran’s atomic energy chief Ali Akbar Salehi, and even by IRGC Quds Force commander Qasem Soleimani, has served to remind the world powers of the significant consequences should Iran withdraw from the deal. The assembled foreign ministers were clear that an economic package is the desired political outcome because they need Iran to remain in the deal. Zarif got what he needed from the ministerial meeting. Two months following Trump’s abrogation of the nuclear deal, the remaining parties to the agreement proved able to present a consensus position on the need to protect Iran’s economic interests in direct contradiction of the declared US policy.

Moreover, while headlines from the likes of Reuters and Bloomberg heralded “no breakthroughs” and “unresolved” issues given the unspecific statement, Zarif’s positive assessment speaks to the fact that Iran was given some indication during the proceedings of what Wall Street Journal reporter Laurence Norman referred to as “real work and genuine ideas” to help Iran both on the banking challenges and the preservation of the all-important oil exports. To this end, Zarif made clear that progress on implementation would follow “direct bilateral efforts.”

It is important to note that the ministerial meeting was far from the only diplomatic or technical dialogue in which Iran has participated since the survival of the nuclear deal was plunged into doubt by Trump’s violation in May.  In just the last week, President Rouhani held successful official visits to Switzerland and Austria, two longstanding trading partners. This follows, an important official visit by Rouhani to China, as well as working-level dialogues in France, Sweden, Belgium, the Netherlands, and the United Kingdom. These meetings have included officials from the Central Bank of Iran, Ministry of Industry, and Ministry of Transportation among executives from state and private sector enterprises. It is these bilateral exchanges, not joint commission dialogues, which have given Iran a more precise indication as to how its economic interests might be protected.

The fact that Iran is back under US secondary sanctions is a failure of multilateralism. But Iran has now recognized that the solution to this failure will not be found in a multilateral format. Whether looking to the European Union or the JCPOA parties, the need to generate politically driven consensus on economic countermeasures will prove cumbersome. As noted by Eldar Mamedov, even the European Parliament is an arena prone to “sabotage.” Mamedov, a parliamentarian, illustrates this fact by recounting recent efforts to block the European Investment Bank’s mandate to fund projects in Iran.

Bourse & Bazaar white paper published in January on the “economic implementation of the nuclear deal” correctly diagnosed that “the joint commission itself is poorly suited to conduct [economic] coordination given the divergent views” of its parties on “matters of sanctions and economic implementation.” In recognition of this fact, the paper recommended that the “European External Action Service (EEAS), which has taken the mantle of leadership on the nuclear deal since the change in American administrations, would be well positioned to convene… a new multi-agency commission for economic implementation, formed in accordance with European commitments under the JCPOA,” In effect, the paper envisioned a joint commission-type body specifically for economic matters. While the joint commission convenes foreign ministers and their diplomatic teams, an economically focused commission would seek to convene economic ministers and their technical staff.

Such a proposal would seem to be supported by the particularly strong stance taken by French economic minister Bruno Le Maire on the need for France to defend its economic interests in Iran in the face of US secondary sanctions. From the Iranian perspective, the inclusion of Laya Joneydi, Iran’s well-regarded vice president for legal affairs, in Iran’s delegation to the joint commission meeting was a positive step, in part because, as noted by Adnan Tabatabai, it was refreshing to see an Iran represented by a female official.

Yet, it is probably the case that convening technocrats into a multilateral format would only serve to limit their effectiveness in the near-term. The political limitations faced by nuclear experts Salehi and US secretary of energy Ernest Moniz during the JCPOA negotiations offers a compelling case study. The Rouhani administration is now aware that given the limited timeframes, Iran’s will need to assemble a patchwork of solutions from various countries, particularly by expanding focus beyond France, Germany and the United Kingdom to seek direct cooperation with a wider ranger of EU member states. Based on institutional and economic factors, some countries will be better able to devise solutions on oil imports, others on banking channels, and others on insulating their multinational corporations or promoting their SMEs. To underscore the point, even the revival of the blocking regulation, a piece of EU law, will depend on the individual implementation and enforcement of member states. When it comes to technical matters and economic implementation, only bilateral dialogues can really deliver.

But if Rouhani and Zarif have learned the limitations of the joint commission and how to work within those limitations, they must also recognize their own limitations. It is impractical for the majority of outreach on the economic package to depend on Zarif and Iran’s foreign ministry. While the lion-like Bijan Zanganeh ably leads the oil ministry, there is a glaring lack of leadership in key bodies such as Iran’s central bank, ministry of economic affairs, and ministry of industry. Both Rouhani and his first vice president Ehsaq Jahangiri have been signaling for several months that a cabinet reshuffle may be on the cards. The politicking behind such a reshuffle is complicated, as parliament would need to confirm new ministers, opening Rouhani to a new round of attacks. But the urgency of new leadership could not be clearer.

If Iran is to succeed in “direct bilateral efforts” to ensure the implementation of an economic package, it must be able to send capable ministers to Europe, Russia, China, and other trading partners to meet with their counterparts in these critical coming months. Zarif can certainly craft a conducive political environment, as evidenced by the positive joint commission outcome, but the foreign ministry cannot orchestrate the defense of Iran’s economy singlehandedly, if for no other reason than the fact that when it comes to the economy, internal challenges greatly outnumber the external ones which Iran’s diplomats can reasonable consider within their domain.

Iran demonstrated real savvy in defining the outcome of the joint commission meeting. No longer seeking to unsatisfactorily bend political commitments into practical solutions for its longstanding economic problems, the Iranian delegation proved willing to aptly designate matters of implementation to the numerous bilateral dialogues currently underway. This allowed a relatively positive political outcome to be taken on its own terms, especially with an Iranian audience in mind. If the Rouhani administration can assemble the right teams for these bilateral exchanges, the vital economic package can still be delivered upon. Hope persists.