Europe will try to keep the Iran deal alive. It can't.
When national security adviser John Bolton stood before the White House press corps on Tuesday detailing President Trump’s decision to walk away from the multilateral nuclear agreement to constrain Iran’s nuclear program, it reminded some observers of events 15 years ago, when Bolton was a cheerleader in the Bush administration for the invasion of Iraq, intended to dismantle Saddam Hussein’s stockpile of weapons of mass destruction — which turned out not to exist.
While technically the Joint Comprehensive Plan of Action, the agreement among Iran, the United States and five other major powers, can remain in effect even after Washington pulls out, Bolton’s history suggests that the administration may have a more ambitious goal to implode the agreement altogether. The sanctions Trump is reimposing aren’t just on Iran but on other entities that do business there, such as banks.
Despite pleas by the leaders of Britain, Germany and France, the Trump administration has given no indication that it will exempt their banks and businesses from new sanctions, which could make it impossible for European countries to stay in the agreement.
In a statement issued by French President Emmanuel Macron, German Chancellor Angela Merkel, and British Prime Minister Theresa May, the European leaders expressed regret over Trump’s action, stated that “This agreement remains important for our shared security,” and pledged their continued commitment to it. Meanwhile, even while Bolton was announcing new sanctions, Iranian President Hassan Rouhani insisted that his government is also still committed to the nuclear deal. “If in the short term, we conclude we can achieve what we want” from the agreement, it will survive, he said in a televised address.
To understand why the Trump administration’s unilateral action could scuttle a multilateral agreement negotiated by all the permanent members of the U.N. Security Council (the United States, Britain, France, China and Russia), plus Germany, it’s important to recall why the economic sanctions placed on Iran proved so effective in the first place. As part of the post-9/11 war on terror, Treasury Department officials discovered that U.S. sanctions targeting terrorists and weapons proliferators created such risks for international banks and lenders that depended on dollars for transactions that they voluntarily refused to do business with targeted entities. Iran was essentially denied access to the international banking and global financing systems.
In his remarks Tuesday, Bolton left little doubt that the administration was reinstituting those crippling financial sanctions, and he gave no indication that the administration would offer exemptions to banks and corporations from allied countries.
“Well, the decision that the president signed today puts sanctions back in place that existed at the time of the deal; it puts them in place immediately,” Bolton told reporters. “Now, what that means is that within the zone of economics covered by the sanctions, no new contracts are permitted. Treasury will be announcing … what they call ‘wind-down’ provisions that will deal with existing contracts. And there will be varying periods within these contracts to be wound down. Some will extend up to six months; some might be 90 days.”
As a former senior Treasury Department official, Juan Zarate helped design the sanctions regime that proved so effective in isolating Iran. If the Trump administration reinstates it, he doubts that Britain, France or Germany will be able to maintain the economic engagement at the core of the Iran nuclear agreement.
“The reason the Iran sanctions worked so much better than three decades of sanctions that came before was that the Treasury Department demonstrated that the risk of doing business with Iran was simply too high for legitimate businesses,” he told Yahoo News in a recent interview. “Even if the Trump administration was willing to exempt some allied companies from the new sanctions, an environment in which the United States is imposing sanctions again will make it very uncomfortable for any legitimate company to continue doing business with Tehran. A sanctioned Iran will just inherently have trouble continuing to reintegrate into the global financial system.”
Philip Gordon of the Council on Foreign Relations (CFR) helped negotiate the Iran agreement for the Obama administration. He also believes the lifting of U.S. sanctions was such a core part of the deal that it’s not likely to survive a new sanctions regime. “Iran and other countries could continue to implement the deal even if the United States is out, but it’s hard to imagine that scenario lasting for long, as it would effectively deny Iran the main benefits it was promised in exchange for freezing its nuclear program,” he said in a recent written interview on the CFR website.
Given the blunt force power of U.S. sanctions on an international financial system that relies on dollars to conduct transactions, the most likely scenario is a flight from economic engagement with Iran that eventually topples the foundations of the nuclear agreement. The consequences of such a collapse are unknowable, but they could include a return by Iran to its uranium enrichment program, a nuclear arms race in the region as its archrival, Saudi Arabia, follows suit, and the beating of a familiar drum heralding yet another war in the Middle East. At the very least, one unavoidable consequence will be the further erosion of European confidence in the quality of U.S. leadership, with potentially dangerous political — and economic — repercussions.
“The Trump administration’s walking away from the Iran nuclear deal is likely to accelerate the search for other currencies than the dollar as the primary holding currency, because even our allies believe the United States is being very heavy-handed in imposing these ‘secondary sanctions,’” said Kori Schake, deputy director-general for the International Institute for Strategic Studies in London. “By walking away, Trump is also dramatically strengthening Iran’s geopolitical leverage in terms of driving a wedge between the United States and its chief European allies, a longtime goal. So the Trump administration is rapidly burning through goodwill towards the United States that accrued over half a century, and it will be very costly to get it back.”
James Kitfield is senior fellow at the Center for the Study of the Presidency & Congress and the author of the recent book “Twilight Warriors: The Soldiers, Spies and Special Agents Who Are Revolutionizing the American Way of War” (Basic Books).
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