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Geopolitics

How US, Iran Could Re-Enter Nuclear Deal

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If an Iran nuclear deal is to be reached, it’s likely to happen in the coming weeks, with US and European officials reconvening in Vienna for talks warning that time is running out. Below, Energy Intelligence looks at how sanctions relief and Iran’s nuclear rollback could work under a return to the 2015 Joint Comprehensive Plan of Action (JCPOA) — as well as possible sticking points to a deal.

  • Iran’s push to verify US sanctions relief could see a phased restart of some oil exports in exchange for enacting some limits on its nuclear program.

The issue of sequencing is crucial to current negotiations and the reimplementation period of the deal if an agreement is reached. In 2015, the nonproliferation issues were largely dealt with first, and then the US waived sanctions.

But with mistrust high after a four-year breakdown in the deal, there could be a phased restart of Iran's oil exports. Iran wants “at least a few weeks” to test — via oil sales — whether sanctions have been effectively lifted on its oil exports before beginning to implement curbs on its nuclear program.

But experts argue that it is unrealistic for Iran to expect sanctions relief absent any taking steps to halt or roll back its nuclear program. In return for any initial sanctions relief on its oil sales during a possible “verification” period, requirements on Iran might include quickly implemented steps such as freezing uranium enrichment above 3%, halting installation of advanced centrifuges and restoring compliance with the Additional Protocol.

  • The terms and timing of a fuller reimplementation period will also need to be agreed.

While in 2015 it took six months after the agreement was reached in July for the US to lift key oil sector sanctions, from January 2016, the same wouldn’t necessarily be true today. "There needs to be a reimplementation plan because both sides ... have work to do," a senior US official said. "The structure of that period is a topic of negotiations."
Additional US sanctions relief could be granted in return for more intensive work, such as Iran shipping out its uranium stockpiles and dismantling centrifuges. Shipping out the stockpiles is merely a logistical matter. “I don’t think that’s going to be a bottleneck,” says an expert in Vienna. Dismantling centrifuges would take longer but it would take place under the eyes of International Atomic Energy Agency (IAEA) inspectors, he says.

Any deal can be expected to eventually green light Iran’s oil exports without the need for case-by-case waivers. Iranian officials say Iran could raise its oil output to as much as 3.5 million-3.8 million barrels per day within six months, from around 2.5 million b/d now. This could free up an additional 1 million-1.3 million b/d for export, on top of the estimated 500,000-700,000 b/d exported in 2021, the bulk of which went to China.

But it’s unclear whether European buyers will be as quick to sign term supply deals with Iran as they did six years ago, especially since Tehran was blacklisted by the Financial Action Task Force in 2020. Tehran may be prepared for this. “I think the Europeans are [too] conservative to come to us,” a senior Iranian oil official told Energy Intelligence, adding that “the Chinese would be the main customer even when sanctions are lifted.” But state trading sources in China sound somewhat cautious: “We will wait until the banks are OK,” said one trader with a national oil company.

  • Sanctions relief will have its limits.

Tehran complained bitterly in the wake of the 2015 agreement that sanctions relief didn’t live up to expectations. European companies and Iranian officials alike argued at the time that US officials should do more to assure companies that their prospective business transactions with Iran, allowed for under the terms of the nuclear agreement, didn’t contravene US sanctions.

But those kinds of reassurances aren’t likely to come for non-US firms, said Erich Ferrari, whose firm specializes in sanctions law. “[The Office of Foreign Assets Control] does not have legal authority to issue licenses for transactions occurring completely outside of the US jurisdictions,” he explained.

Further, in any revived JCPOA, the US would maintain its non-nuclear sanctions on Iran, which bar US companies from doing business with Iran and include so-called blocking sanctions that prevent Iran from dealing in the US financial system. Because of the US’ outsized role in the global economy, many transactions are routed briefly through the US. These so-called U-turn transactions complicate even non-US firms’ plans to invest in Iran.

  • US politics mean a renewed JCPOA might not last beyond 2024.

US officials have been clear from the outset that they cannot offer guarantees that a future US president would not walk away from the deal, as former President Donald Trump did in 2018, but Congress is very unlikely to be able to block any deal in the interim. Similarly, Iran could restart its nuclear program.

  • A deal could still be tough to reach.

A key point of concern for nonproliferation experts was always that the constraints on Iran’s nuclear program would roll off. Given the time that has elapsed since 2015, some of those expiration clauses are now very near. Without an agreement that adjusts the JCPOA’s original terms, the UN would lift missile restrictions in October 2023, while some of the tighter restrictions on advanced centrifuges will expire in 2024.

Given this, some of the original deal’s critics cast doubt on whether it’s worthwhile. “At this point, we seriously have to ask what exactly are we trying to salvage?” Democratic Sen. Bob Menendez, a key author of the initial oversight legislation, said last week.

But the expert in Vienna says that Iran’s government could agree to put many of its centrifuges into storage under IAEA monitoring. “It’s useful for confidence building,” he says, and “provides early warning of violations and undeclared activities."

Iran's now dramatically reduced breakout period — how long it would take the country to obtain enough fissile material for a weapon — is also a US concern. But while holding Iran's breakout period to a year was the larger aim of the 2015 deal, it's not part of the terms.

No deal likely means escalation, through more sanctions actions, including multilateral sanctions, or even possibly military action. “If diplomacy fails, then it puts you in the box of ‘are you willing to do whatever it takes?’” says Behnam Ben Taleblu at the Foundation for Defense of Democracies.

Topics:
Sanctions, Nuclear Policy
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