TSG IntelBrief: The Ramifications of an Iran Nuclear Deal
June 30, 2015

The Ramifications of an Iran Nuclear Deal 

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Bottom Line Up Front: 

• Tuesday, June 30 is the stated deadline for finalizing a nuclear agreement between Iran and the “P5+1” countries (United States, Britain, France, Russia, China, and Germany) that has the potential to reshape the Middle East

• The P5+1 and Iran have resolved most of the core issues and the prospects for a deal are high, though all sides now say the June 30 deadline will likely slip slightly as Iran’s Supreme Leader appears to harden Iran’s terms

• A finalized agreement would preclude Iran from becoming a nuclear-armed state for at least ten years, but also provide sanctions relief with which Iran could expand its regional influence

• An agreement could also give Iran incentive to act cautiously in the region in order not to jeopardize its reintegration into the international community.

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It is highly likely that the P5+1 and Iran will finalize a nuclear agreement shortly after the stipulated June 30, 2015 self-imposed deadline to do so. U.S. Secretary of State John Kerry, recovered from a leg injury, joined the talks in Vienna on June 26. On Sunday, June 28, Iran’s Foreign Minister and chief negotiator, Mohammad Javad Zarif, left Vienna headed for Tehran—possibly to seek guidance from Iranian leaders on last-minute stumbling blocks. Most of the core nuclear issues were largely agreed upon in the April 2, 2015 framework accord and the remaining issues, while contentious, are potentially resolvable:

Sanctions relief: The P5+1 are attempting to satisfy Supreme Leader Grand Ayatollah Ali Khamenei’s insistence on immediate, comprehensive sanctions relief by front-loading most of the sanctions relief as soon as Iran completes major nuclear tasks. The P5+1 are instead focusing on establishing “snap back” provisions under which neither Russia nor China would be able to veto a re-imposition of UN sanctions should Iran violate the deal.

Monitoring and Verification: The issue of monitoring Iran’s compliance with the agreement—a task that will be delegated to the International Atomic Energy Agency (IAEA)—is still a significant sticking point. Iran says it will agree to provide “managed access” to some military facilities, but Ayatollah Khamenei has ruled out giving the IAEA the ability to interview Iran’s nuclear scientists.

Alleged Past Research on a Nuclear Explosive Device: This issue is referred to as “possible military dimensions” (PMD) of Iran’s nuclear program. It appears that the P5+1 will not require Iran to immediately clear up the IAEA’s outstanding questions on Iran’s alleged past research on a nuclear explosive device. However, U.S. officials deny that Secretary of State Kerry will agree to sidestep this issue entirely in a final deal.

It is difficult to assess whether and how a nuclear deal might alter the geopolitical architecture of the region. Iran is certain to reap a significant economic windfall from an agreement, for example by gaining access to about $150 billion in hard currency locked up in foreign banks, mainly in South Korea and Japan. A deal will remove the 1 million barrel per day cap on Iran’s crude oil exports, likely enabling Iran to double its oil exports within six months. Iran will be able to fully revive its auto production industry—the largest aside from its energy sector. And Iranian banks will likely regain access to the international financial industry, including electronic payment transfer systems such as SWIFT.

For the region, the key unknown is how Iran might use the additional revenue it will earn from sanctions relief. Sanctions shrank Iran’s economy by nearly 10% from 2012-14, and Iran will likely use much of its additional revenue to restore economic growth and increase employment. However, key U.S. allies such as Israel and the Gulf Cooperation Council states (Saudi Arabia, Kuwait, United Arab Emirates, Bahrain, Qatar, and Oman) warn that Iran will use its extra financial resources to empower its aggressive regional policy. Iran’s finances have been stretched thin by its efforts to support several pro-Iranian governments and movements in the region: the embattled regime of Bashar al-Assad in Syria; the Iraqi government fighting the so-called Islamic State; the Houthi rebellion in Yemen; and Lebanese Hizballah, fighting on Assad’s behalf in Syria. Iran has also sought to heal a rift with the Palestinian Islamist group Hamas, a Sunni group that has criticized Assad, by delivering rockets and other weaponry to the group.

On all of these fronts except for Iraq, Iran is engaged in a proxy war against factions supported by the wealthy GCC states. Additional revenues—as well as reintegration into the international community—will enhance Iran’s ability to compete with the GCC and its proxies. The GCC states are also concerned that a more financially-empowered Iran will be able to revive long-dormant efforts to destabilize the Gulf states themselves, particularly Bahrain, where an uprising by the island’s majority Shi’a population continues to simmer.

It is also possible that the Israeli and Gulf states’ fears might not materialize. A nuclear deal will give Iran an international legitimacy, and a channel to communicate with the United States, that Iran has not had since its 1979 Islamic Revolution. Sanctions relief could enable some long stalled regional energy projects to proceed, including natural gas pipeline projects separately linking Kuwait, Bahrain, and Oman with Iran. It is possible that Iran will use a nuclear deal to earn a “seat at the table” in international discussions on Middle East security issues, from Syria to Iraq to Yemen.

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

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