Today, the first tranche of sanctions on Iran go into effect. Iran will struggle with the economic implications but is unlikely to concede to the extensive demands of the Trump Administration. In November, the sanctions will turn to crude oil, complicating U.S. relations with a host of countries who import Iranian crude. The drama, therefore, is not just between the U.S. and Iran, but also between the U.S. and Iranian crude importers. Look for intended and unintended linkages between waivers to the sanctions and other economic or diplomatic objectives of the Trump Administration.
As of today, the United States has taken a tangible step resulting from its withdrawal from the Iran nuclear accord – reimposing a first tranche of sanctions against companies that continue to do business with Iran. The second set of sanctions re-imposition occurs in November, which includes bans on Iran’s sale of oil and dealings with its central bank. The effect of both sets of sanctions are to force non-U.S. companies and countries to choose between continuing to have economic relations with Iran or continuing to have access to the U.S. market including its banking system. Pleading by U.S. allies for exceptions or more time, and a recent updating of the blocking mechanism by the European Union, so far have had no effect on U.S. economic diplomacy. Washington seems intent on forcing other countries, including the other signatories of the nuclear agreement – Russia, China, and the EU – to pull out of the nuclear accord or at least to make it functionally null and void in terms of providing Tehran with rewards for its limitations on its nuclear programs.
U.S. Secretary of State Michael Pompeo has laid out a set of preconditions for re-entering into a negotiation with Iran about its nuclear program and lifting of U.S. sanctions: 1) Iran ending all nuclear enrichment and development of nuclear-capable missiles; 2) release of all American citizens; 3) end Iran’s support for Hezbollah, Hamas, Islamic Jihad and Houthi militias; and 4) withdraw its forces from Syria. This is a much broader set of conditions than those covered by the nuclear accord. President Trump contradicted his Secretary of State by offering to meet with Iranian President Rouhani without conditions. It was not clear whether a meeting would involve negotiations on sanctions or Iranian capabilities or behavior. Secretary Pompeo reiterated the conditionality of U.S. policy shortly after President Trump’s statement. Iran turned down offers of a meeting almost immediately. Just over the weekend, President Trump predicted that Iranian economic problems and resulting domestic political dissent would force Iran to the table to negotiate in relatively short order.
Even with goals short of regime change, the Trump administration has laid out an ambitious set of goals that are unlikely to all be met through economic levers, even if foreign companies and states comply. The 2015 nuclear deal was difficult enough to reach – requiring both an Iranian president politically strong enough to make a deal with the “Great Satan” and credible offers of sanctions relief by the U.S. and other economic actors. President Rouhani is now under pressure from some ordinary Iranians over the state of the economy, and his hardline opponents who are trying to blame him for further economic downturns. In the meantime, the Trump administration’s pulling out of the nuclear deal despite the evidence that Iran was complying makes future American commitments to ease up on sanctions if Iran changes behavior not credible. Similarly, Iran does not have a simple path out of Washington’s increasing economic pressure. Iran’s threats to close the Straits of Hormuz are not militarily credible for any meaningful period of time. Ongoing threats to do so are a diplomatic tool to try to influence others and assuage domestic audiences. Iran has few other levers available that would affect a Washington comfortable operating with few allies in this sphere outside of Israel and key Gulf Arab states.
The end result is likely to be a long period of simmering tensions and slowly increasing pressure on the Iranian economy, but not necessarily the kind of change in behavior that Washington is seeking. More broadly, in November, these extraterritorial sanctions give the Trump Administration a bargaining chip to use in other disputes with European and Asian importers of Iranian crude oil. Look for intended or unintended linkages across U.S. trade and foreign policy with waivers on the sanctions a diplomatic tool. South Korea’s adroit rejection of Iranian crude imports and expected increase in U.S. imports hints at at its evolving relationship with the U.S. over the military security of the Korean peninsula.