PGI INSIGHT: Iran – December 2020

- Geopolitical Risk - Intelligence

09-12-2020


Tehran, Washington likely to renegotiate nuclear deal after Joe Biden takes office

In brief

  • US President-elect Joe Biden aims to restart talks with Tehran over a 2015 nuclear deal that outgoing President Donald Trump withdrew from in 2018.
  • Tehran is likely to promise to restrict its nuclear programme in return for relief from crippling economic sanctions.
  • There are several challenges to any renegotiation, including upcoming Iranian elections, which may see talks pushed back to 2022.
  • A return to the nuclear deal would revive the struggling Iranian economy and may resolve some socio-economic grievances underpinning anti-government unrest.

Washington’s withdrawal from the 2015 nuclear deal

President Donald Trump withdrew from the 2015 Joint Comprehensive Plan of Action (JCPoA) nuclear deal in May 2018, calling it “defective”. Under the accord, Tehran had agreed to limit its nuclear activities in exchange for the lifting of crippling international economic sanctions. Washington re-imposed sanctions on Iran soon after the withdrawal.

The re-imposed sanctions affected crucial sectors such as the oil, mining, metal and maritime industries, contributing to a severe economic downturn in Iran. The International Monetary Fund reported that the Iranian economy contracted by around 8 percent between March 2019 and March 2020. In response, Tehran gradually reduced its compliance with the deal, with its low-enriched uranium stockpile exceeding 12 times the 300 kg limit allowed under the accord.

Attempted renegotiation

US President-elect Joe Biden has said that he intends to return to the JCPoA and will attempt to renegotiate the deal. Tehran has also signalled its willingness to comply with the terms of the 2015 deal should the US re-join the accord, but it has repeatedly stated that it is not willing to renegotiate. Iran may explore new US demands under the continued pressure of sanctions.

A US return to the agreement may occur in stages. Biden has stated that if Tehran returns to its nuclear commitments under the deal, the US will partially lift sanctions in exchange. A Biden administration will then use the return to the deal as a baseline for renegotiations. However, Tehran is unlikely to make voluntary concessions on its nuclear programme. This may mean there is a gradual return to the 2015 deal, before later renegotiations.

Conditions of the deal

Washington and Tehran are unlikely to significantly change restrictions on Iran’s nuclear programme as set out in the 2015 JCPoA during renegotiations. Restrictions on Iran’s enriched uranium stockpile, enrichment purity level, use of centrifuges and ban on enrichment operations at its Fordow nuclear facility will also remain. The UN’s International Atomic Energy Agency (IAEA) will continue to monitor Iran’s commitment to the terms of the agreement.

It is unclear what additional concessions the Biden administration will ask of Iran. Biden may take a tougher line on human rights issues, such as detainment of dual nationals, rights activists and political prisoners. Days after Biden won the election, Tehran pardoned 157 people it had arrested during nationwide protests in November 2019, in a move to possibly signal its willingness to engage with the incoming US administration.

Washington may also seek to use negotiations to limit Iran’s support for militias in Iraq, Syria, and Yemen. However, Tehran is highly unlikely to voluntarily limit hard-won regional influence which serves as a guarantor of its security. While Tehran may promise to limit its support for regional militias, it is unlikely to adhere to any pledge.

Barriers to agreement

There is a possibility that renegotiations will not take place before 2022. The Biden administration has indicated it will prioritise domestic issues at the start of its four-year term. Meanwhile, incumbent President Hassan Rouhani may be preoccupied with challenging hard-line candidates in the June 2021 Iranian presidential elections, amid widespread anti-government sentiment. Thus, Washington may time talks to take advantage of any electoral result.

Several other challenges to the nuclear deal remain. The Republican-controlled US senate is unlikely to approve the removal of sanctions on Iran without substantial Iranian concessions. However, these efforts to gain concessions may be further complicated by potential Iranian demands for compensation from the US for Trump-era sanctions as well as legal guarantees on Washington’s commitment to the deal, to avoid another US withdrawal from the agreement.

Continued un claimed attacks on Iran’s nuclear infrastructure present an additional challenge. In November 2020, unknown assailants killed Iran’s top nuclear scientist. Tehran has accused US ally Israel of the assassination. The attack followed a fire at the Natanz nuclear facility in July, which Iranian authorities claim was an act of sabotage. As part of any agreement, Tehran may ask Washington to ensure constraints on Israel’s military action against Iran’s nuclear infrastructure.

Long term impact

A return to the JCPoA will have a positive impact on Iran’s business environment. US sanctions relief would lead to a strong increase in Iranian oil exports and gradual growth of foreign investment in the country. Iran will see an uptick in GDP growth immediately following the deal, similar to the 12.5 percent growth rate experienced in 2016 after the implementation of the JCPoA.

This growth rate is, however, unlikely to be sustained in the long-term. After a sharp uptick in 2016, GDP growth fell to 4 percent in 2017, half of Iran’s 8 percent target in the five years following the 2015 nuclear deal.

Returning to the nuclear deal may also reduce civil unrest in Iran. Falling living standards after the US withdrawal worsened social discontent, as evidenced by widespread protests triggered by fuel price increases in 2019, which Iranian authorities brutally repressed. Economic growth and increased living standards following a return to the JCPoA may mitigate further discontent over socioeconomic grievances. However, anti-government protests will continue, particularly in the lead-up to Iran’s 2021 presidential elections.

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