PHOTO: Shoppers in a traditional market in Tehran, January 2016
Frud Bezhan and Hannah Kaviani write for Radio Free Europe/Radio Liberty, with a contribution from EA:
One year ago, the inking of a historic nuclear deal with world powers led some euphoric Iranians to dream of an economic boom and the end of international isolation.
Despite the lifting of crippling sanctions that freed billions in assets and removed many obstacles to trade, there are few signs that Iranians have reaped the economic benefits that they had expected from the July 2015 agreement, known as the Joint Comprehensive Plan of Action.
Much of the optimism in Iran has given way to frustration, prompting accusations from Tehran of U.S. duplicity and threats of reneging on the nuclear deal. Here are some of the reasons Iranians have not taken greater advantage of what U.S. President Barack Obama said was an opportunity to “move in a new direction” in U.S.-Iranian ties and Iranian Foreign Minister Mohammad Javad Zarif said at the time was a “win-win solution.”
Sanctions Not Lifted Immediately
When the nuclear deal was implemented in January, the United Nations lifted all nuclear-related sanctions against Iran and the European Union lifted many bilateral sanctions on Iran’s banking and energy sectors in short order.
But removing U.S. nuclear-related sanctions took months because over a decade of restrictions had to be removed.
“You had a mix of congressional legislation and unilateral executive action in the United States,” says Scott Lucas, an Iran specialist at Birmingham University in Britain and editor of the EA WorldView website. “It takes months to remove some of those restrictions.”
Lucas says there was a “fundamental lack of clarity” over sanctions removal. Even after the signing of the deal, Iranian Supreme Leader Ayatollah Ali Khamenei was adamant that all international sanctions would be removed immediately after the implementation of the agreement in January, despite Washington’s assertions otherwise.
In recent months, Khamenei has sharpened his criticism. He has continued to emphasize a “resistance economy” aimed at boosting domestic production and warned against Western “infiltration” through the agreement. Meanwhile, President Hassan Rohani, who is up for reelection next year, stands accused by the deal’s domestic opponents of having oversold the deal.
Unilateral U.S. Sanctions Intact
Even though the United States has lifted many nuclear-related sanctions against Iran, Washington has maintained unilateral sanctions linked to Iran’s human rights record and controversial ballistic-missile program.
Those sanctions forbid U.S. citizens and companies from doing most forms of business with Tehran, but companies outside the United States are also affected. Iranian banks and foreign banks that are processing Iran-related transactions are not allowed to deal in U.S. dollars — the global reserve currency.
Existing U.S. sanctions also extend to organizations and individuals with ties to the Iran’s powerful Islamic Revolutionary Guards Corps (IRGC), which is estimated to control around 40% of the Iranian economy.
Foreign Companies Fear Punishment
The existing U.S. sanctions have left big banks and multinational companies worried they could still be prosecuted for doing business with Iran.
Tehran has thus found itself in the awkward position of having to rely on Washington to lobby other countries and non-U.S. financial institutions to conduct business with Iran.
U.S. Secretary of State John Kerry has told Europe’s top banks they have nothing to fear from resuming business with Iran as long as they make proper checks on trade partners. But many institutions have shown reluctance to resume trade ties until they get concrete reassurance that they will not be punished.
Over the past decade, some of the world’s top banks — including HSBC and Deutsche Bank — have paid billions of dollars in fines for Iran-related activities.
“People just don’t know what the rules of the game are,” says Steve Hanke, an economist teaching at Johns Hopkins University in Baltimore. “If there’s any question about transactions that they’re doing falling under the shadow of sanctions, the banks will take note and not engage in activity.”
Observers say the entity that has been toughest on the enforcement of sanctions has not been the State Department under Secretary Kerry but the U.S. Treasury Department.
“So Kerry can go to the Europeans and say you can go ahead and resume business as usual,” Lucas says. “But the European companies don’t know if the Treasury will come down on them. We’re talking about a whole variety of legal questions about whether or not they are exposed to the ongoing American sanctions.”
Lack Of Business
Wariness among foreign companies appears to have led to delays in contract renewals and uncertainty over investment.
Aside from a $441 million joint venture announced last month between France’s Peugeot-Citroen and its old partner, Iran Khodro, investments have been slow to materialize despite a rush of business delegations.
Tehran has made announcements of billion-dollar contracts signed with Boeing and Airbus. But the planned sales of hundreds of Airbus and Boeing planes have stalled because it is unclear how such transactions will be financed and transacted.
The only bright spot for the Iranian economy is that the country’s oil production has soared back almost to presanctions levels.
U.S. Opponents Undermining Deal
Every congressional Republican and a few Democrats publicly opposed the nuclear deal. And some of those legislative opponents have repeatedly introduced legislation that the Obama administration regards as part of an effort to undermine the international agreement.
As recently as July 13, the U.S. House of Representatives passed legislation to block the purchase of more of Iran’s “heavy water,” a key component in nuclear reactors whose sale internationally is allowed under the deal. The White House said removing the surplus heavy water denies Tehran access to a material that may be stored for potential nuclear-weapons production. Senate backing is uncertain and the White House has threatened to veto the bill, but two other bills targeting the nuclear pact will be considered later this week.
Separately, two Senate Republicans and two Democrats said on July 13 that they would introduce their own bill to expand sanctions in response to Iran’s ballistic-missile development, punish transfers of conventional weapons to or from Iran, and extend the Iran Sanctions Act. That act, which imposed sanctions over Iran’s missile development and alleged support for terrorism, expires at the end of the year. Lawmakers have been locked in talks for months over the best way to deal with its renewal.
U.S. Electoral Effect
There is also uncertainty over what the U.S. presidential election in November might mean for the nuclear deal.
Presumptive Democratic presidential candidate Hillary Clinton has pledged to uphold it.
“[Clinton] was instrumental in getting the diplomatic relationship that John Kerry and Javad Zarif have then deepened and furthered,” says Richard Nephew, who served as the State Department’s principal deputy coordinator for sanctions policy and as director for Iran at the National Security Council. “Anyone who’s going to be her secretary of state is going to have some relationship with Zarif and his successors.”
Clinton’s presumptive Republican rival, Donald Trump, has meanwhile been campaigning on scrapping the nuclear deal altogether, stoking anger in Tehran.
Chafing at Iran’s lingering difficulties in reintegrating into the global economy, Khamenei in June famously vowed to “stay faithful to a promise” but threatened to “set fire to the deal” if “the threat from the American presidential candidates to tear up the deal becomes operational”.