Iran Implementation Day: What It Means for Europe

by Ellie Geranmayeh

The Iran nuclear deal, agreed six months ago entered its most significant phase on 16 January: Implementation Day. The International Atomic Energy Agency (IAEA) confirmed that Iran has fulfilled its core nuclear related commitments as agreed under the Joint Comprehensive Plan of Action (JCPOA). In return, world powers have triggered into effect promised sanctions relief across the UN, EU and US. Reaching Implementation Day proved that diplomacy between Iran and the West could deliver real and constructive results for both. But the deal will undoubtedly face challenges that could threaten its lifeline. Going forward, Europe will have an instrumental role, both formally and politically, in safeguarding the JCPOA.

Iran and the E3+3 will no doubt face a series of hitches as well as more serious difficulties during the lifetime of the nuclear deal. The EU High Representative, who heads the Joint Commission formed under the JCPOA, will be tasked with safeguarding the deal against these challenges.The E3+3 are peeling away the most multi-layered sanctions framework against a target country and complications are likely to arise in the process of doing so.Europeans will need to be particularly alert to four problem areas related to sanctions.

Snap-Back Operating Fairly

Sanctions easing will be subject to snap-back – creating this mechanism has been a novel exercise for both the EU and the US sanctions system. Snap-back can operate when any party to the JCPOA argues there has been “significant non-performance” of a fundamental commitment, and if the dispute resolution process under the JCPOA has been exhausted.

The Joint Commission will need to differentiate between cases of technical/unintended problems and those where actual violations take place due to non-compliance. The EU3 together with the EU High Representative comprise the majority voice in the Joint Commission and place Europeans in a strong position to mediate disagreements over interpreting the JCPOA.

If a complainant is not satisfied with the final decision of the Joint Commission, it can still resort to the UN Security Council in order to snap-back UN sanctions without a power of veto by other JCPOA members. But before reaching this stage, Europeans within the Joint Commission should seek to prevent premature, rash or abusive application of snap-back particularly where these are chiefly motivated by domestic politics in the US or Iran.

Actual or Threatened Congressional Sanctions

So long as Iran sticks to the JCPOA, the EU has agreed not to re-introduce sanctions terminated under the deal. Meanwhile, given its constitutional limitations, the US administration has agreed to “refrain from policies” intended to “adversely affect normalization of economic relations with Iran”. There is ambiguity as to the extent which future US legislation, particularly under a new US President, would directly or indirectly target European trade and when such moves violate the JCPOA.

Within days of the JCPOA being announced in July, members of the US Congress began pushing for sanctions against Iran on the basis of human rights, terrorism and recent ballistic missiles tests. Iran’s Supreme Leader has stated that such moves constitute violation of the JCPOA. The US administration and Congress assert the opposite. These polar views are likely to clash at several points, and Europeans could play positive role in limiting damage to the deal.

So long as Iran is implementing the JCPOA, new US nuclear-related sanctions clearly breach the deal. But where the US imposes unilateral sanctions on non-nuclear issues, complaints from Iran are likely to be manageable so long as these sanctions are confined to US entities. Bigger problems arise if the sanctions have secondary impact on, or allow for extra-territorial enforcement against non-US persons. This would have direct impact on European entities and limit the scope of trade with Iran. In such instances, and where the EU and US policy on sanctions diverge, Europeans will need to lead a unified and active push to prevent US unilateral measures from undermining a multilateral nuclear agreement.

A more likely problem scenario for Europeans is where future US legislation restrains the ability of European companies doing business with Iran, or makes this option less appealing. For example, in December the US Congress introduced counterterrorism laws that, while not exclusively focused on Iran, exclude third party nationals from the US visa-waiver program if they travel to Iran. Under pressure from Iran, the EU and member statesthe US administration has promised to respect its JCPOA obligations by ensuring this measure does not adversely affect normalization of trade with Iran (for example, by issuing long-term US business visas for Europeans traveling to Iran). To avoid disunity on such issues, Europe and the US will need to better coordinate and communicate in future instances where legislation from either side impacts the JCPOA.

Fear Factor over Sanctions

There is great interest in Europe and Iran in expanding economic relations after the lifting of sanctions. But risks of snap-back and new unilateral US sanctions, raises both legitimate and overhyped fears for European companies. The banking and financial sectors are particularly risk averse when it comes to Iran, given years of aggressive enforcement of US sanctions by OFAC. The burden falls on policy makers in the EU and member states to provide greater comfort and protection to Europe’s business sector regarding permissible trade with Iran.

One immediate practical way to provide this assurance is for the EU and OFAC to designate and actively promote several mid-range European banks to accommodate trade with Iran. These institutions will not be able to provide the type of financing required by industry heavyweights to make large investments in Iran, particularly in the oil and gas sector. But they will make it easier for small and medium-sized European companies to test the prospects of Iran’s post-sanctions economy.

A more medium-term step could be for the EU and member states to restart negotiations for a trade and energy cooperation pact with Iran. Such talks were sidelined in 2004 after the dispute over the nuclear file halted all other tracks between Europe and Iran. With sanctions easing, the EU Commission can now begin consulting relevant stakeholders on whether and how a more formalized relationship with Iran could better protect European business and energy demands.

Can Rouhani Deliver

Iran surpassed expectations on how early it was able to reach Implementation Date (which the West had originally predicted would come later in 2016). For President Hassan Rouhani, it is a significant victory to claim that his administration provided Iran with the promised remedy to lift sanctions and inject prosperity into the economy – and the sooner the better. This is particularly so in advance of upcoming elections next month for Iran’s parliament and the Assembly of Experts. The outcome of these elections could shape Iran’s domestic and foreign policies in the longer term.

Although sanctions will now ease, determining the impact on Iran’s economy will take time. But Rouhani’s domestic opposition are likely to contest whether the deal, and diplomacy with the West in general, yields positive results for Iran. They will have greater ammunition to attack Rouhani with if, towards the end of his term in 2017, he has been unable to attract major international investment and trade with Iran.

Besides sanctions, Iran’s economy is plagued by prolonged internal mismanagement. In response, Rouhani has proposed ideas for liberalizing the economy, increasing privatization and creating more attractive opportunities for foreign investment across a range of sectors. These policies broadly serve the interests of European companies eager to do business with Iran. A low-cost but useful way for European member states to support such economic reform initiatives is by backing Iran’s renewed bid for full membership of the World Trade Organization.

Beyond the Nuclear File

The JCPOA must primarily be judged through the lens of non-proliferation and not whether it transforms Iran’s domestic or regional policies. But since the JCPOA, new political space has opened for both the West and Iran to pursue diplomacy on other contentious matters of global security, such as the Syria crisis. Despite domestic pressures against any détente, the US has also used this space and its unprecedented direct high-level channels of communication with Tehran to resolve bilateral disputes. This contributed towards the speedy release of US naval forces held by Iran’s Islamic Revolutionary Guard Corp and the long-awaited release of imprisoned US nationals by Iran as part of a prisoner swap with the US.

For Europe, the nuclear deal has resulted in a budding rapprochement with Iran. Since signing the interim nuclear deal in 2013, reportedly more than 200 European trade delegations and 23 EU foreign ministers have visited Tehran. Within weeks of the JCPOA, as recommended by an ECFR policy brief, the EU established a new Iran Task Force to assist the European External Action Service in overseeing the implementation of the deal and widening engagement with Iran. Member states have also fostered improved political relations with Tehran. Iran’s leadership has largely welcomed such steps and, unlike the US, Iran’s mandate for negotiating with Europe is unrestricted.

Europeans are in a unique position to use the political momentum created by the JCPOA’s swift and successful implementation to broaden its relations with Iran. This is not to say Europe should form an alliance with Tehran, but rather to allow itself the chance to cooperate and compete with Iran as necessary. This will enhance Europe’s options and leverage to better fulfill its objectives across a range of issues, such as trade, human rights and regional security, on which it has both conflicting and overlapping interests with Iran.

Republished, with permission, from the European Council on Foreign Relations blog. Photo of German Foreign Minister Frank-Walter Steinmeier, High Representative of the European Union for Foreign Affairs and Security Policy Federica Mogherini, and Iranian Foreign Minister Javad Zarif.

Ellie Geranmayeh

Ellie Geranmayeh is a policy fellow at the European Council on Foreign Relations based in London since October 2013. She focuses on European foreign policy in relation to Iran on the nuclear talks and wider regional issues.