The unilateral withdrawal of the US from the Joint Comprehensive Plan of Action last week was not entirely unexpected, but is no less shocking for having actually happened.
President Trump criticised the deal a number of times, both before and since assuming office, leading to speculation over past deadlines for the JCPOA renewal. However, with the appointment of John Bolton, a noted hawk on all things Iran, and the previous week’s presentation by Israeli Prime Minister Benjamin Netanyahu on Iran’s past nuclear activities, made the continuation of the agreement extremely unlikely.
What is the JCPOA?
Signed in 2015 by Iran, the P5+1 nations and the European Union, the Iran nuclear deal created a framework to curb the possibility of Iranian nuclear material being diverted for military purposes, implementing a robust compliance regime and significantly reducing the extent to which Iran was able to enrich uranium. In return, relief from nuclear-related economic sanctions would be implemented, and Iran would be able to access previously frozen overseas assets.
The diplomatic reaction to the agreement was largely positive, with the notable exception of Israel, and Republicans in the US, who argued the deal was insufficient to prevent Iran from obtaining a nuclear weapon.
Economic impact of the US withdrawal
According to a statement from the US Treasury on the day of the decision, the US will reimpose sanctions “subject to certain 90 days and 180-day wind-down periods”. When these periods have concluded, the previous sanctions regime will then come back into full effect.
The sanctions expected to return within the 90 day period on August 6th include Iran buying US currency, trading in gold or other precious metals, those on aluminium, steel, graphite and coal, and software relating to industrial processes, sales of Iranian rials and on the issuing of Iranian debt.
The sanctions expected to come into force again by November 4th are those relating to Iran’s ports, shipping sectors, petroleum and petrochemical products, sanctions on financial transactions with Iranian banks and financial institutions, sanctions on financial messaging services relating to the aforementioned banks and institutions, sanctions on the provision of underwriting, insurance and reinsurance services and on the Iranian energy sector.
More important, however, is that the US will be reimposing “secondary sanctions”, meaning any entity found to be conducting transactions with proscribed sectors of the Iranian economy will also find themselves blacklisted by the US authorities. Naturally, this hits a large number of firms who have invested in Iran in recent years, who would rather maintain access to the US market.
Sanctions and the oil market
With Iran’s position as the world’s fifth-largest oil exporter, the reimposition of sanctions will undoubtedly impact on the global oil markets. While western companies have had difficulties investing in the Russian and Chinese dominated Iranian oil industry, with the increase in output Europe has become a significant destination for oil and gas, especially Italy, France and Greece.
It is most likely that Iran will seek to increase its exports to Asian markets, while Saudi Arabia and especially Iraq would look to gain market share at Iran’s expense in Europe. South Korea is seeking waivers from the US to continue purchasing, but the currently uncompromising tone from the White House makes this avenue of action look unlikely to succeed.
Marc Simms is an occasional blogger for Proelium Law LLP. Marc holds a MLitt in Terrorism Studies and a Masters in International Relations, both from St Andrews. His particular interests are in emerging international security issues, unconventional warfare and terrorism.
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