Scenarios for an Unraveling Iran Nuclear Deal

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Iran’s decision last week to remove 27 monitoring cameras in response to a Western-backed resolution by the International Atomic Energy Agency (IAEA) criticizing its failure to cooperate was a major setback for stalled efforts to revive the 2015 nuclear deal. It came amid rising tensions with Israel and the US, stoked by the suspected assassination of Iranian scientists and senior military officials and tit-for-tat oil tanker seizures. The war in Ukraine and unprecedented Western sanctions pressures, meanwhile, are pushing Russia and Iran closer. Energy Intelligence weighs three possible scenarios.

  • Nuclear talks remain officially still alive, with neither side willing to kill them off but the prospect of a breakthrough greatly reduced.

This has been the case since the talks broke off without being formally suspended in March. Some expect it to remain the likeliest scenario for now (and several more months at least), given that the US administration, already battling the Ukraine crisis and sky-high oil prices, simply doesn't have the stomach for a conflagration in the Middle East.

Under this scenario, according to Behnam Ben Taleblu, with US think tank the Foundation for Defense of Democracies, officials from the administration of US President Joe Biden “never really say the talks collapsed, sporadically issue sanctions” and leave the door open. The approach, in his view, is accompanied by the conviction that more severe sanctions only encourage Iran to accelerate its nuclear activity.

Iran, for its part, has little to lose from repeating its interest in doing a good deal while blaming the US if talks fail, having found a way to keep its economy afloat under US sanctions, supported by high oil prices. Whether and for how long such a scenario is sustainable is a key question, which, for Iran’s adversaries, centers on its nuclear program.

Tehran has shown some restraint here lately, after ramping up production of uranium enriched to 20% and 60% earlier this year, although the accumulation of highly enriched material is a concern. Its Jun. 8 decision to limit the IAEA’s monitoring capability — the cameras were installed to ensure Iran abided by its commitments under the Joint Comprehensive Plan of Action (JCPOA) — was a clear departure from that policy of restraint.

Alongside other recent actions, notably Iran’s expansion of advanced centrifuge deployment and refusal to discuss undeclared nuclear material, it has undermined the idea that Tehran is genuinely interested in a deal, the Eurasia Group think tank noted on Wednesday.

Still, the blow to Iran’s economy from the formal collapse of talks could be severe. Just this week, the Iranian rial dropped to its lowest-ever value against the dollar.

  • Nuclear talks collapse, causing regional escalation after Israel takes unilateral action and Iran responds by stepping up its nuclear activity and hitting regional energy targets — further roiling oil markets.

The five reported assassinations in Iran that began on May 22, and the capture by Iranian forces of two Greek-flagged tankers carrying Iraqi oil a few days later, in retaliation for Greece’s seizure of a Russian-flagged Iranian crude cargo at the US government’s request, suggest this scenario is already unfolding. Israel may be suspected of orchestrating the assassinations. But the breakdown in negotiations, and resulting dangers, stem from what Iran analyst Esfandiyar Batmanghelidj calls a “reinforcing escalatory dynamic in Washington and Tehran."

With the negotiations stalled, pressure is building on Biden — not least from Israel and Saudi Arabia, both staunch JCPOA critics — to take the lead in containing Iran militarily when he visits the region in July. “In the face of Iranian belligerence ... what is needed is not just cooperation, but also a regional force buildup, with American leadership,” Reuters quoted Israeli Defense Minister Benny Gantz as saying on Tuesday. A foreign ministry spokesman confirmed that this did not refer to a new, formal joint military force.

Provoking Tehran risks a rerun of attacks on Saudi Arabia’s oil infrastructure, Israeli-owned ships, or tankers moored off Fujairah, and could choke off Iran’s flourishing trade with the United Arab Emirates. Spillover into Yemen and Iraq is also likely.  

But the calls for containment are driven by the perception of an increasingly assertive Iran. Israeli Foreign Minister Yair Lapid on Monday advised Israeli citizens to avoid Istanbul amid reports that Turkey had arrested several Revolutionary Guard “operatives” targeting Israeli tourists.

Iran has been emboldened by its relationship with Russia, whose surprise intervention in the Vienna talks three months ago knocked diplomatic efforts sideways at a pivotal moment. Russia’s Security Council chief, Nikolai Patrushev, stressed the need to finalize a long-term economic cooperation agreement with Tehran at a meeting in May with his Iranian counterpart. The development of the "north-south corridor" was, he said, a priority for the two countries in the face of massive Western sanctions pressure. How much it might offset even more pressure on Iran is an open question.

  • Negotiations collapse, but both sides show restraint, with the US in particular wanting to avoid further oil price spikes ahead of November midterm elections.

IAEA chief Rafael Grossi warned last week, after Tehran’s decision to remove the 27 cameras, that within three to four weeks the UN nuclear watchdog would lose all continuity of knowledge over the Iranian program, which would be a "fatal blow" to any hopes of reviving the 2015 deal. If those hopes are finally dashed, international scrutiny of Iran’s nuclear “breakout” time — the point at which it has enough fissile material to make a nuclear weapon — will intensify. US officials have said for months that it might be just weeks away.

But that is different from Iran’s ability to actually deliver a nuclear weapon. Some experts reckon it would need another 18 to 24 months, which takes some of the pressure off the US to act. Unclear is whether the US can or would stop unilateral attempts by Israel to sabotage Iran’s nuclear facilities, such as the one it was accused of at Natanz last year.

The recent US decisions to blacklist individuals and companies accused of facilitating oil and petrochemical sales that benefited the Revolutionary Guard and the National Iranian Oil Co. — and continued if sporadic US efforts to intercept Iranian oil shipments — hardly encourage the view that both sides will exercise restraint. Some oil traders argue that Washington may turn a blind eye to the flow of sanctioned Iranian oil in the coming months. Claims by Iranian officials that Greece has agreed to release the confiscated cargo could also, if confirmed, offer hope that the reciprocal tanker seizures are not the start of something more serious. If they are, market turbulence could be about to get a lot worse.

Sanctions, Military Conflict, Nuclear Policy, Trade, Opec/Opec-Plus, Security Risk
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