TSG IntelBrief: Lingering Concerns Over Iran’s Nuclear Program
December 3, 2015

Lingering Concerns Over Iran’s Nuclear Program

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Bottom Line Up Front:

• The UN-backed International Atomic Energy Agency (IAEA) final report on Iran’s past nuclear weapons research, released yesterday, is unlikely to derail the nuclear deal, but could delay its implementation

• The report provides some ammunition to the deal’s critics, who argue that Iran cannot be trusted to uphold the terms of the deal or to become a responsible member of the regional or international community

• Iran will use the report’s finding that its past nuclear weapons research was relatively limited to argue that the IAEA Board of Governors should close the file on this issue at its December 15, 2015 meeting

• The IAEA report will cause some international companies to doubt the sustainability of the deal, and possibly cause some companies to hesitate to resume their investments in Iran’s markets, particularly its oil and gas sectors.

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The July 14, 2015 Joint Comprehensive Plan of Action (JCPOA) between Iran and the P5+1 countries (United States, Britain, France, Russia, China, and Germany) laid out a series of requirements for Iran to receive comprehensive sanctions relief. One of those requirements was for Iran to answer the IAEA’s longstanding questions about its alleged past research on a nuclear explosive device, and for the IAEA to complete a ‘final report’ on the issue by December 15, 2015. The JCPOA does not explicitly condition sanctions relief on a final conclusion that Iran has resolved all remaining questions or that the allegations of the past nuclear weapons research were false. The report, released well in advance of the December 15 deadline (the same date that the IAEA Board of Governors will meet on the issue) in no way absolved Iran or even praised it for proactive or extensive cooperation. However, the report’s conclusion that Iran’s work on a nuclear explosive device ‘did not advance beyond feasibility and scientific studies…’ and ended completely by 2009, are sufficiently positive to enable the P5+1 governments to rebut domestic and international critics who seek to derail the nuclear deal.

Still, Iran has demanded that the IAEA Board’s December 15 meeting ‘close the file’ on this issue. Supreme Leader Grand Ayatollah Ali Khamenei asserts that the United States will use evidence of Iran’s past nuclear weapons work to renege on implementing its sanctions relief commitments, and has ordered Iranian officials not to comply on other JCPOA requirements until the IAEA investigation is terminated. Therefore, Iran’s work on dismantling most of its centrifuges—the central feature of Iran’s nuclear requirements under the JCPOA—has been minimal thus far, likely delaying sanctions relief until at least February 2016. The report presents the IAEA Board with a policy dilemma—whether to close the investigation in deference to Iran’s demands, or continue the probe and risk derailing the JCPOA entirely. Most likely, the IAEA Board meeting will try to find a middle ground—terminating the existing investigation but indicating that some questions remain unresolved and should continue to be subjected to IAEA research. Such a stance would probably be sufficient to assuage the concerns of the Supreme Leader and enable him to authorize work on the remaining JCPOA requirements.

Even though the IAEA final report will not likely derail the JCPOA, its criticisms cast some doubt on the sustainability of the agreement. U.S. domestic opponents of the JCPOA, as well as key regional ally Israel, argue that the report was sufficiently critical that the United States cannot be assured of Iran’s full compliance with the JCPOA. These critics say that unless all aspects of Iran’s illicit nuclear weapons work are known, it is not possible to verify Iranian adherence to the JCPOA, and that sanctions relief should be withheld until all IAEA questions are resolved. However, these arguments are unlikely to win the day, because the IAEA report was positive enough to enable the Obama Administration to retain the support it needs within Congress and the American public to implement the deal.

The Gulf states, which do not want to see Iran become an accepted diplomatic actor in the region, are likely to argue that the report’s negative aspects affirm Iran’s untrustworthiness and that the United States must take additional steps to limit Iran’s destabilizing regional activities. The Gulf states will argue that the United States should exclude Iran from future meetings of the international contact group that is attempting to resolve the civil conflict in Syria and step up support to opponents of President Bashar al-Assad, a key Iranian ally. The Gulf states also seek increased U.S. aid to the Saudi Arabia-led Arab coalition fighting the Iran-backed Zaydi Shi’a Houthi rebels in Yemen. The Gulf states further maintain that the United States should not cooperate, even tacitly, with Iran-backed Iraqi Shi’a militia forces to combat the so-called Islamic State in Iraq.

The report could have a chilling effect on international business interactions with Iran. Major multinational corporations, particularly the large European energy firms, are awaiting the return of Iran and its 80 million people to the international economic mainstream. The negative aspects of the IAEA final report could cause some companies to assess that the JCPOA will not outlast the Obama Administration, and some companies might delay any substantial return to the Iranian market until the deal survives at least one U.S. presidential transition. Of particular interest to the region and the international community are long-term implications for the energy market, which has based its price forecasts on the likelihood that global energy majors will soon resume their investments in Iran’s oil and gas fields. A delay or cancellation of such investment could necessitate recalculation of those estimates.

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For tailored research and analysis, please contact: info@soufangroup.com

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