BICOM

What has happened?

US President Donald Trump announced yesterday that all nuclear-related sanctions would be reimposed on Iran, effectively pulling the US out of the JCPOA Iran nuclear deal. The US Treasury said extensive economic sanctions would be reintroduced on Iran after a wind-down period of 90-180 days. The sanctions will hit the Iranian regime, oil exports and the Iranian economy. The sanctions will also apply to companies trading with Iran and US and European companies will need to review all their current plans that involve transactions and sales to Iran.

Why has this happened?

Trump severely criticised the Iran nuclear deal during the Presidential elections, describing it as “terrible deal” and vowing to withdraw from it. The deal was hailed as a diplomatic triumph by President Obama, so Trump clearly enjoyed pledging to consign it to the dustbin of history. Trump blames Iranian intervention for exacerbating the worst problems in the Middle East – Syria, Yemen, Iraq and Lebanon. He therefore found it difficult to understand why the US should continue to waive sanctions on Iran. He also criticised the nuclear deal for its technical limitations – nuclear inspectors must give 24 days’ notice to inspect a nuclear facility and are reluctant to inspect military sites. The deal also expires in seven years, at which point Iran can resume work on its nuclear programme. Finally, he expressed concern about Iran’s ballistic missile programme which is not dealt with in the nuclear deal.

Trump said in January that these holes in the deal needed to be fixed. The European signatories – Germany, France and the UK – believe the deal is working and that Iran is in compliance. The so-called E3 launched a series of negotiations to try and make progress on finding a compromise solution, but despite visits to the US by President Macron, Chancellor Merkel and the Foreign Secretary Boris Johnson, they were unable to prevent Trump from withdrawing from the deal.

What happens next?

The US has set out further details of exactly how extensive its new sanctions will be. If the EU and current Iranian oil buyers comply with the sanctions it will severely restrict the Iranian economy, tipping it into recession and placing extensive political pressure on the regime that is already dealing with a currency crisis and domestic unrest.

Iran has pledged to meet with the remaining signatories – Russia, China, Germany, France and the UK – to agree how the JCPOA can continue to function. All the signatories have expressed a wish to preserve the agreement. However, Iranian leaders have said if the US sanctions effectively cut Iran off from the world economy, they will lose their main rationale for complying with the original agreement. Following Trump’s decision, Iran will likely either a return to enriching uranium as they did before 2013 or, withdraw from the Non-Proliferation Treaty and seek to build a nuclear bomb.

What is the US plan for Iran?

The US is now embarking on a new strategy for dealing with Iran. Yesterday’s announcement is one part of a plan that might include action on Iran’s ballistic missile programme, its military activities in the Middle East and most urgently its military entrenchment in Syria. In some ways withdrawing from the nuclear deal was the easy part. The next stage of convincing allies that such a decision was right is more complex and will involve tough decisions about military commitments and extensive diplomacy. US allies will await more details of this plan, assuming it exists.

What is the view from Israel?

Prime Minister Netanyahu welcomed Trump’s announcement. He has been a long-time opponent of the nuclear deal because he believed it was not tough enough and failed to address the wider issues of Iranian support for terrorism and ballistic missiles that directly threaten Israel.

James Sorene is CEO of BICOM.