Trying to Kill the Iran Deal Could End Up Saving It

By Kathy Gilsinan

March 18, 2019

The Trump administration has made a priority of punishing and pressuring Iran. But the same administration that withdrew from the nuclear deal that President Donald Trump dubbed “a great embarrassment” may actually end up preserving it.

Iran and all the other signatories are still observing the deal’s terms for now. The U.S. reimposed sanctions on the Islamic Republic last fall, driving down its oil exports and further stressing its weak economy. But even as the administration pursues what it calls a “maximum pressure” campaign against the country, it has also made exceptions through sanctions waivers that have helped keep Iranian oil flowing and even preserved some international nuclear cooperation with the country.

Now, ahead of a key deadline in May, the administration is sending conflicting signals about just how far it plans to go to confront the regime. At issue, in part, is the stated intent to choke off Iran’s oil exports entirely and throttle its oil-dependent economy. Following through could mean fights with allies that import Iranian oil, or even a higher risk that Iran ditches the deal altogether and starts racing to a nuclear weapon. Backing off the promise could leave the deal limping along for a potential new president to reenter it, as the Democratic Party has called for.

While Trump-administration officials are all singing from the same hawkish hymnal about the march to zero exports, cracks are beginning to show. State Department officials say they are not “looking to grant” new waivers when the current round expires around May 4, but won’t comment on renewing existing ones; they hedge about getting to zero “as soon as possible” and the need to avoid disrupting oil markets. Representatives from the Department of Energy and the National Security Council (NSC) have meanwhile pointed to data showing that oil markets are well supplied enough to keep prices stable, even with the loss of Iranian crude. “We’re not very worried about it,” a Department of Energy spokesperson told me. “We think the market will balance itself out.”

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Hawks in Congress seem to agree. “If our policy objective is zero, our policy should be doing its damnedest to get to zero,” one Republican congressional staffer familiar with the interagency discussions told me. “My sense is we’re not. There is hedging.” This person and another source familiar with the discussions said the disconnect is fueling an interagency argument between members of the State Department and the NSC as the deadline approaches. Asked for comment on the purported disagreement, a spokesperson for the NSC said, “The National Security Council coordinates closely across the interagency to apply maximum economic pressure against Iran.” A State Department spokesman also did not comment directly on the interagency disconnect, but offered a statement from Brian Hook, the U.S. special envoy for Iran, reiterating the policy to get to zero and noting that “we have already achieved significant reductions in Iran’s exports.”

There’s public unity, at any rate, about forcing change in Iran. Trump has directly threatened Iranian President Hassan Rouhani via tweet, vowing “CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE” should Rouhani threaten the United States. Secretary of State Mike Pompeo has vowed “unprecedented financial pressure on the Iranian regime.” National Security Adviser John Bolton has dubbed Iran the “central banker of terrorism” and noted, “That’s not behavior we should tolerate.” Hook said in his statement to The Atlantic that sanctions on Iran are “draining their resources to fund terrorism.”

Yet there’s also discord beneath the surface. Hook spent months negotiating with the Europeans to preserve a version of a deal that Trump would accept, only to have the president announce his withdrawal last May. At a recent conference in Warsaw, Vice President Mike Pence publicly demanded that the Europeans leave the deal, reportedly infuriating Pompeo, who has made no such demands.

Hook has consistently reiterated the zero-exports goal, but he also told a conference this week that Trump “doesn’t want to shock oil markets,” even as he acknowledged market surpluses. In a sign of the interagency disconnect, Richard Goldberg, director for countering Iranian weapons of mass destruction at the NSC, said, “The oil market is well supplied and can absorb the loss of Iranian crude,” speaking at the Foundation for Defense of Democracies last month. Projections from the Energy Information Administration released this week show the same thing, even accounting for losses of Venezuelan oil exports due to additional U.S. sanctions.

Trump’s exit from the Iran deal last year came with some caveats. The basic framework of the Joint Comprehensive Plan of Action (JCPOA), as the pact is formally known, was an exchange of economic incentives, including a suspension of past sanctions, for Iranian nuclear restraint. Ahead of reimposing sanctions on Iranian oil exports, though, Trump gave Iran’s trading partners about six months to make other arrangements, and bargained with Saudi Arabia to increase oil production to keep prices stable. But the idea was that any country still importing Iranian oil by that November would be sanctioned.

Iran’s exports began declining even before then, as countries fled the possibility of financial punishment. And even as Trump worried about prices, Energy Secretary Rick Perry was sanguine about the issue on the op-ed page of The Wall Street Journal: “The U.S. Energy Information Administration expects global oil supply to meet demand in 2019 even without Iranian oil.” So it was a surprise that the deadline came and Trump handed out some sanctions exceptions, including to China, Taiwan, India, and South Korea, granting them access to Iranian oil for another six months without penalty. The markets didn’t see it coming; oversupply resulted; prices dropped.

Over the period since Trump announced he was leaving the Iran deal, though, Iran’s oil exports have fallen by more than half, from more than 2.5 million barrels per day to about a million barrels per day. But neither Hook nor Pompeo will specify over what time period they hope to get to zero. Asked at an energy conference this week whether it was even possible to get there, Pompeo would only say, “I’m not going to get ahead of myself or ahead of the president, but make no mistake about it, that’s the direction of travel.”

Meanwhile, Reuters has reported that the United States is leaving the door open for waivers, even if at a reduced number. Japanese and South Korean officials have stated publicly that they’re seeking them; outside analysts have also suggested that China is a likely candidate, given how much Iranian oil it currently imports and its ongoing trade negotiations with the United States. Sources in India have told reporters that that country, too, is engaged in waiver negotiations with the U.S.

Hook is adamant that “maximum pressure” means just that. “The United States is not looking to grant any exceptions or waivers to our campaign of maximum economic pressure on the Iranian regime,” his statement said. “Our policy is to get to zero imports of Iranian crude as quickly as possible.”

But Hook’s comments about oil markets leave room for maneuver, and they echo concerns that Trump raised before granting oil-sanctions waivers last time. Leaving aside possible geopolitical or diplomatic reasons to grant waivers—say, to avoid having to sanction an ally such as South Korea, or to sweeten trade negotiations with China—the oil-prices rationale conflicts with the analyses of other agencies. Energy Department projections say the market has 2 million barrels per day of spare production capacity—more than enough to replace a million lost barrels of Iranian oil per day if needed. The price spike feared last fall has not come to pass. When the Energy Information Administration published its latest projections this past week, the price of oil was $64 a barrel—right about where it was this time last year, though oil prices fluctuate.  

If you know the oil markets right now, you know that price is not a factor,” said Amos Hochstein, President Barack Obama’s international-energy special envoy, who managed Iran sanctions. By contrast, in the first two years of Iranian oil sanctions under Obama, he said oil prices were more than $100 a barrel.

Still, technical problems will complicate the push to zero Iranian exports. China, for example, is still importing roughly half a million barrels of Iranian oil per day. “It is difficult to sanction China on this issue,” Hochstein said. “They have financial institutions that can facilitate the oil trade that are not engaged in the U.S. financial market, and therefore [are] immune to sanctions.”

Separately, however, the administration has used sanctions waivers in other ways. At a conference in December, Christopher Ford, the assistant secretary of state for international security and nonproliferation, noted that even as the administration sought to sanction Iran to drive it to negotiate a better deal, they were seeking to preserve some international cooperation with Iran on things such as civil nuclear research and energy projects. The waivers basically prevent the Europeans from facing sanctions for participating in projects allowed under the deal. There, too, the effect, if not the intent, of the waivers could be to keep in place parts of the basic framework of the deal Trump vowed to eliminate.

We don’t agree that we should have maximum pressure right now, considering that we want the Iranians to stay in the nuclear deal,” said a Democratic congressional aide. “But if you’re going to have maximum pressure, then waivers don’t work.”

Even if a Democrat won the White House in 2020, though, he or she might not think it wise to reenter the JCPOA as it currently stands. Robert Einhorn, who helped negotiate the nuclear deal in the Obama administration, noted that some key provisions would expire not long after a hypothetical Democrat took office in 2021. Besides, Iran is, according to the public assessment of the U.S. intelligence community, still abiding by the terms of the deal under current U.S. sanctions—what’s the political benefit of giving up sanctions leverage right off the bat?

Richard Nephew, who was the sanctions expert for Obama’s negotiating team with Iran, told me that even if a Democrat made a tactical decision to reenter the deal, “we’ve got to figure out a way to deal with the lost time.” The current terms of the JCPOA, he said, are “rapidly becoming not worth it.”

Administration officials have repeatedly said that they seek not regime change but behavior change, and that their goal is to drive the Iranians to the table to strike a better deal. But critics of the “maximum pressure” policy I spoke to, whether or not they supported the Iran deal initially, all agree on one thing: Iran is prepared to wait out the next two years of the Trump administration. “Absent an unforeseen U.S. sweetener, I believe Iran is willing to wait,” Hochstein said. “They’re willing to take the pain. They’ve demonstrated that. They’ve had bad times before.”


By Kathy Gilsinan // Kathy Gilsinan is a staff writer at The Atlantic, covering national security and global affairs.

March 18, 2019

https://www.defenseone.com/politics/2019/03/trying-kill-iran-deal-could-end-saving-it/155621/