Date
May 01, 2018

Executive Summary

Iran is unlikely to alter its geopolitical behavior radically in the next few weeks in response to the US withdrawal from the nuclear accord. The Iranian government will continue to hold negotiations with the other signatories of the Joint Comprehensive Plan of Action (JCPOA) - China, France, Germany, Russia, and the UK - to maintain parts of the agreement. Despite the mounting tensions between Israel and Iran over the latter's military involvement in Syria, it is unlikely that large-scale conflict will erupt in the region. Iran is also unlikely to refrain from or roll back its engagements in Iraq, Syria, Yemen, and Lebanon. The reinstatement of sanctions is unlikely to cause major damage to the Iranian economy in the short term. It is possible that relations between the US and its European allies will suffer, as several major companies have formed trade ties with Tehran that could now be threatened by renewed US sanctions. However, European companies will eventually comply with US sanctions to avoid losing access to the much larger US market. Divisions within the Iranian political establishment will likely grow, and hardliners could force President Hassan Rouhani aside.

Key Judgments 

  • Hardliners will feel emboldened and play a larger role within Iranian politics.
  • The US withdrawal from the nuclear deal will not alter Iran's behavior in the region.
  • Tensions will continue to intensify between the US, Israel, and Iran, but are unlikely to lead to large-scale war.
  • Iran may target US security personnel in Iraq, Syria, Yemen, Afghanistan, and beyond through its network of proxies. 
  • Iranian hardliners are unlikely to allow any renegotiation of the nuclear deal with the US.

On May 8, US President Donald J. Trump pulled the US out of the nuclear deal that his predecessor's administration signed with Iran and five other countries in July 2015. Under the deal, Iran was required to restrict its nuclear program significantly and allow international inspectors wide access to its nuclear facilities in exchange for sanctions relief. Trump regularly criticized the agreement and complained that it did not address Iran's regional aggression or its ballistic missile program. Iranian President Hassan Rouhani stated May 8 that Iran would take a few weeks to respond and that it would continue negotiations with the remaining signatories. Rouhani said that Iran would begin "industrial-scale uranium enrichment," if the deal no longer guaranteed Iranian interests.

Trump's decision to withdraw from the JCPOA came after a presentation by Israeli Prime Minister Benjamin Netanyahu alleging that Mossad - the Israeli spy agency - had obtained thousands of documents and data discs from within Iran indicating that Tehran lied about its previous nuclear activities. However, the EU3 - as France, Germany, and the UK are otherwise known - and the International Atomic Energy Agency (IAEA) have said that these findings are not new and focus on the pre-2003 period when Iran was working toward making nuclear weapons. Trump, however, argued that Netanyahu's presentation showed "definitive proof" that Iran still held nuclear weapons ambitions. Trump's decision may have also been influenced by Saudi Arabia and its Gulf allies, who view Iran as their chief geopolitical rival in the Middle East.

Trump and his advisers argue that reinstating old sanctions and imposing new ones have the potential to bring Iran to the negotiating table, as they did in 2013. However, this assertion is a miscalculation for three reasons: First, the new sanctions will not affect Iran's oil exports, upon which the economy is heavily dependent; the 2012 sanctions nearly halved Iran's exports and cost the Iranian government billions of dollars. Second, when the original agreement was signed, the international community had unity of purpose in preventing the threat posed by a nuclear Iran, whereas now the EU3 and IAEA maintain that Tehran has been honoring its end of the deal and it is the US that stands in violation of the agreement. Third, Iran has lost trust in the US, and the recent move will likely embolden hardliners, including Supreme Leader Ayatollah Ali Khamenei and the other unelected bodies of the government, the Islamic Revolutionary Guard Corps (IRGC), the armed forces, and the judiciary. These elements have consistently mistrusted the US and never been satisfied with the terms of the nuclear agreement.

Rouhani came to power in 2013 vowing to usher in an era of economic prosperity but failed to deliver on his promises, and no longer has the widespread public support or legitimacy within the Iranian government to engage in any sort of negotiations with the US. The potential marginalization of the moderate voices within Iran, including the possible removal of Rouhani from power, could further destabilize the region in the long run and result in a more hardline government within Iran. Rouhani and other elected officials have received considerable blame for the social, political, and economic ills that have beset the country in recent years. Although a coup does not appear imminent, there is support among hardline politicians for a scenario in which a military commander - such as Qasem Soleimani, who commands the Quds Force and is more popular than Rouhani - takes over the country.

Operational Environment and Business Impact 

Iran's fragile political climate and uncertainty over the fallout from the nuclear deal will continue to serve as a disincentive for foreign businesses to invest in Iran. Months of social unrest in the country and uncertainty over whether the US will renege on its commitment to the nuclear deal have led to a sharp decline in the rial; the currency has lost one-third of its value since the end of 2017. A member of the Iranian Parliament revealed in April that as much as USD 30 billion fled the country near the end of 2017. Following the signing of the nuclear deal, several European and US corporations initiated trade deals with Iran worth billions of dollars. Major European banks halted their ties to Tehran weeks ago in anticipation of Trump's move. The US threat to impose sanctions on non-US companies doing business with Iran will likely compel those companies to withdraw from conducting business with Tehran altogether, especially if their governments do not institute sanctions blocking measures.

Trump's withdrawal from the nuclear has put the US at odds with its major European allies, who maintain significant trade ties with Tehran and are attempting to protect their commercial interests in the country. EU3 officials have been extremely vocal about their commitment to the nuclear deal and pledged to honor it, despite Trump's threats of imposing sanctions on foreign companies that trade with Tehran. Trans-Atlantic relations will be affected even more negatively if the US does not allow exemptions and delays for European companies that are already operating in Iran. China and India - both major importers of Iran's oil - and Russia are also extremely unlikely to defer to US demands to cut off Tehran as a trading partner.

Regional Tensions

Israel has been a major detractor of the JCPOA, which views a nuclear Iran as an existential threat. Since the civil war in Syria began in 2011, Iran has been working toward establishing a permanent footprint within Syria. The Israeli Air Force (IAF) has regularly conducted airstrikes against Iranian, Hizballah, and Syrian regime forces. In recent weeks, however, Israel has intensified its attacks on Iran's military positions within Syria, which has led to an escalation in tensions between Tel Aviv and Tehran. The IAF conducted an airstrike against the Tiyas Military Airbase in Homs Governorate, April 9, killing seven IRGC operatives, including a high-ranking military officer suspected of leading Iran's Unmanned Aerial Vehicle unit in Syria. On May 8, right after Trump's JCPOA withdrawal speech, the IAF targeted a number of missile batteries in Damascus supposedly aimed at Israel. Following that attack, Iran launched 20 rockets into the Israeli-controlled Golan Heights. Fearing reprisal from within Syria, the Israelis had already opened shelters in the Golan Heights, mitigating the impact of the rocket attacks. In retaliation to the strike on the Golan Heights, Israel conducted airstrikes on at least 50 Iranian targets in Syria, causing significant damage to military infrastructure.

Iran's strategic objective in Syria is to ensure it has the right resources in place in the event of a direct military confrontation with Israel. The recent airstrikes highlight Israel's anxiety over Iran's growing capabilities in Syria and the country's determination to avoid a scenario in which Iran is the dominant player in Syria. At this point, however, Israel's response to Iran's involvement will remain confined to bombings of key strategic assets and locations. Until it becomes clear whether Tehran can maintain the nuclear deal with the EU3, China, and Russia, Iran will continue to exercise caution and will not engage in behavior that would result in a direct conflict.

Conclusion

The US withdrawal from the JCPOA will neither alter Iran's behavior in the region nor result in the collapse of the Iranian economy in the short term. Trump's regular threats to withdraw from the deal have already wrought much of the anticipated economic damage. Tehran will continue to make every effort to maintain a version of the deal with the EU3, China, and Russia and court foreign businesses to invest in the country. Iranian hardliners will increasingly shape Iran's foreign policy narrative and will likely make attempts to further their influence within the Iranian government. Even if the US offers to start fresh negotiations with Tehran over its nuclear program, Rouhani is no position to participate due to pressure from Khamenei and other hardliners. Israel will continue its airstrikes against Iranian assets within Syria. Iran will strive to restrain itself from retaliation given that it is far from prepared to engage in a direct confrontation with Israel.

 

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