Security and Foreign Policy

Broken Deal: The Future Of Tehran’s Oil And Diplomatic Relations

The Iran Nuclear Deal hangs by a thread as the international community scrambles to find a way to keep it together. Marika Annunziata offers a look into the future of the deal with the European Union, Russia and China acting as power brokers.


The Middle East was on display again recently with markedly different responses to the move of the US embassy to Jerusalem and the violence that accompanied it in Gaza.

But it is President Trump’s abandonment of the Iran nuclear deal that really left America’s trans-Atlantic allies attempting to discern any sign of a strategy behind the decision.

Donald Trump has been strictly consistent during the last electoral campaign and his first year at the White House regarding his stance on the nuclear agreement that President Obama established. His most recent collaborators, Secretary of State Mike Pompeo and the National Security Advisor John Bolton, were also instrumental in paving the way toward a definitive and lasting US stance against Iran. President Trump’s agenda appears to deviate from the legacy that was passed on by his predecessor as he persists in presenting the United States as the vital transatlantic ally of Israel. It is no coincidence the inauguration of the new American Embassy in Jerusalem, in tune with Netanyahu’s deepest hopes who, in order to preserve Israel security, needs a strong allegiance with Washington.

Technically, the JCPOA does not contain an escape or termination clause. The European and American interpretations of the agreement differ on this viewpoint. The European Union, as well as China and Russia, claim that the UN Resolution 2231, which has transposed the agreement with Iran, give binding effect for all States which have signed the UN Charter. The United States, otherwise, reaffirms that the nuclear deal is a non-binding political commitment, and depends on the willingness of the parties to honour the obligations under the JCPOA. US delegates stated that halting compliance with JCPOA obligations and re-imposing the previous suspended sanctions are indeed the modalities of exercising the right of withdrawal.

As anticipated, the visits from Merkel and Macron to the USA didn’t affect President Trump’s resolve to back out of the JCPOA deal. The European Union along with Russia and China are now able to reach a new agreement with the Ayatollah’s regime. Thus, the United States backing out of the nuclear deal may have pleased their Israeli and Saudi allies, but it has left Moscow and Brussels room to play their own diplomatic cards.

Diplomats from Europe, China, and Russia are discussing a new deal to offer Iran financial aid to stem its ballistic missile development and meddling in the region with hopes of preserving the 2015 nuclear deal. The officials will probably meet in Vienna in the coming week under the leadership of senior European Union diplomat, Helga Schmid, to discuss the next steps.

Russian President Vladmir Putin is the only leader in the area who holds talks with all the political interlocutors. Russia seems to be trying a new approach to economic relations with Iran balanced on patience and a solid base for cooperation. When Iranian Foreign Minister Mohammad Javad Zarif visited Moscow on May 14, his main purpose was to discuss the future of the JCPOA with his Russian counterpart, Sergey Lavrov. The meeting was held also to talk over the wider agenda of their countries’ bilateral relations, but above all, Minister Zarif confirmed that Iran seriously intends to continue economic cooperation despite new US sanctions.

Nonetheless Russian-Iranian partnership is developing gradually, in keeping with Moscow’s cautious approach. Russian businesses are demonstrating solid interest in Iran’s oil and gas, agricultural, transport, and energy sectors and the Kremlin encourages contacts with Iranian enterprises of all sizes.

The high political and economic risks of doing business in Iran, a lack of transparency with regard to economic environments, absence of effective foreign business protection in Iran, anti-Iranian sanctions, Iran’s isolation from the international financial system, and Russia’s continued technological backwardness have caused some impairments in their relations with Iran.

To intensify Russian trade and investments with Tehran, Moscow central authorities are bent on coping with the lack of Iranian funds to pay for Russian equipment, Iran’s isolation from the international financial system, and the absence of legal support for Russian businesses in Iran. Currently, Russia and Iran are discussing the possibility of forming a free-trade zone between Iran and the Eurasian Economic Union. Moscow also intends to set direct links between Russian and Iranian banking systems and has suggested the idea of using the Moscow Arbitration Court, under the umbrella of the Russian Chamber of Commerce, to settle legal issues emerging between the two countries’ businesses.

The European Commission’s press release on May 18th stated clearly that “Following the green light of EU leaders at the informal meeting in Sofia, the European Commission has today taken steps to preserve the interests of European companies investing in Iran and demonstrate the EU’s commitment to the Joint Comprehensive Plan of Action (JCPOA) – the Iran nuclear deal.” As long as Tehran will respect its own obligations, the European Union’s institutions are still fully involved in the effective implementation and enforcement of the nuclear agreement. As a result of reaffirming the mutual and unanimous commitment of the EU Heads of State or Government to the European perspective for the region, the European Commission launched four points on May 18th: the formal process to activate the Blocking Statute by updating the list of US sanctions on Iran falling within the scope; the formal process to remove obstacles for the European Investment Bank (EIB) to decide under the EU budget guarantee to finance activities outside the European Union, in Iran; as confidence building measures, the Commission will continue and strengthen the ongoing sectoral cooperation with, and assistance to, Iran; while at the same time the Commission is encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran.

Overall, the EU has shown many worries over the transatlantic relationship since Trump took office, but Tehran hardly seems to be the hill on which to die. The US market and access to US currency are simply too valuable for international businesses to abandon, especially in comparison to the relatively marginal and erratic economic prospects that Iran provides. However, there is still considerable uncertainty as to whether good judgement will supersede and it’s anyone’s guess as to whether or not Washington would commend a realistic settlement with the EU. The one potential exception is oil imports as Iran exports more than 2.5 million barrels per day.  US sanctions would likely enable realistic adjustment in favor of reduction, where complete stoppage is farfetched, of the Iranian oil supply, and the United States may be able to come to a mutually acceptable arrangement with its partners in the EU that avoids forcing a decision over sanctioning EU member state institutions or significant economic actors.

Alas the Iranian Foreign Minister Mohammad Javad Zarif said May 20th that the European Union’s endeavors to implement Iran’s JCPOA perks after the US withdrawal are not enough. Tehran has asked the EU to consider buying Iranian oil in euros and making transactions through its own central bank, which would enable the country to bypass the US financial system. Iran’s oil exports have increased by more than 1 million barrels per day since the lifting of sanctions. About 1 million bpd goes to Europe, while more than 1.5 million bpd is exported to China, India, South Korea and Japan.

The nuclear deal has a shot at survival, Tehran has said, as long as the EU is able to keep its companies and businesses committed to Iran and protect the Iranian oil sector from sanctions. Otherwise, the country’s atomic energy organization threatens to resume its uranium enrichment programme.

Earlier this month, China underlined its commitment to the Iran nuclear deal. In a statement by the Foreign Ministry Spokesperson, Hua Chunying, following Prime Minister Netanyahu’s “Iran Lied” presentation, China reiterated the importance of the role of the UN Security Council and the International Atomic Energy Agency (IAEA) in the agreement. Chunying rightly pointed out that the IAEA had verified Iran’s compliance within the nuclear deal, that the JCPOA put in place the strictest monitoring and verifications measures on the Iranian nuclear program, and that all parties should implement and protect the accord. Last year, the United States heightened sanctions on Chinese businesses for taking part in Iran’s ballistic program. Beijing countered these measures, complaining about their extraterritorial nature. When the IAEA deems  Iran to be in compliance with the accord, it will be unmanageable to convince China to be involved in another agreement in order to sanctions Iran.

The time showed the hazardous reality of Iran’s advancing nuclear enrichment programme, which led the US to find a diplomatic solution. But now,  it is imperative for the European Union to defend the JCPOA, with the aim of preserving the diplomatic structure where the United States decided to return to the path of vis-à-vis diplomacy.

If Europe has the ambition to become strategically autonomous, fighting for the JCPOA along with Russia and China is the starting point. The EU will only be able to negotiate effectively with the US over Iran if it develops its own strategy and demonstrates its ability to act based on its own interests.

Marika Annunziata holds a Master’s Degree in law from LUISS Guido Carli University in Rome with a main concentration in European and international law. Marika is currently a trainee attorney and is studying in order to further pursue diplomatic career in Italy.

Photo Credit: Daily Sabah

Please note that opinions expressed in this article are solely those of our contributors, not of Political Insights, which takes no institutional positions.

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