The Future of the JCPOA in Asia

Despite the final text inching over 150 pages, the 2015 agreement between Iran and the group of world powers known as the P5+1 or the E3+3 – the United States, Russia, China, Germany, France, and the United Kingdom – was, at its core, quite simple. The Joint Comprehensive Plan of Action (JCPOA), as the deal was formally called, had a fundamental bargain: Iran would submit to intrusive verification of limits on its civil nuclear complex in exchange for the lifting of nuclear-related sanctions on its economy by the United States, the European Union, and the United Nations Security Council.

On August 7, 2018, that fundamental bargain was shattered with the United States’ decision to unilaterally reimpose some nuclear-related sanctions that had been lifted as part of the implementation of the JCPOA. The move wasn’t a surprise, of course. It was months in the making; perhaps even more than a year coming, depending on one’s faith that U.S. President Donald J. Trump, who had vocally criticized the JCPOA during his campaign for the presidency, would tolerate the agreement and certify Iran’s ongoing compliance as required by the U.S. Congress. (The odds of that were never good.)

On May 8, Trump announced his intention to place the United States in violation of the JCPOA. This was widely reported as the United States deciding to “withdraw” from the agreement, but it was nothing of the sort. Even without being able to claim that Iran was not meeting its obligations under the 2015 agreement, Trump said that the United States would reimpose sanctions on Iran. The U.S. decision came after a frenzied attempt by European leaders, including French President Emmanuel Macron and German Chancellor Angela Merkel, to convince Trump to certify the agreement, allowing it to persist.

The sanctions reimposed in August will have a profound effect on the JCPOA, effectively marking the start of what will be a swift collapse of the agreement. The White House announced that, starting August 7, U.S. sanctions would go into effect on Iran’s purchase of U.S. treasury bills, trade in gold and precious metals, import of replacement parts for automobiles and aircraft, and on Iranian rial-denominated transactions on the international marketplace. The new sanctions were publicly announced in a White House release officially titled “President Donald J. Trump is Reimposing Sanctions Lifted Under the Horrible Iran Deal,” underlining the administration’s feelings about the agreement.

August’s sanctions are the first in what will be two rounds of U.S. sanctions reimposition. The second round of sanctions, designed to more fully assail Iran’s economy, will take effect in early November, after the conclusion of what the administration has called a second 90-day “wind-down” period, allowing international businesses to roll back any post-JCPOA activities in Iran that would suffer from the reimposed U.S. sanctions. The November sanctions will focus on Iran’s ability to sell oil, natural gas, and petrochemical products on the international market.

The administration’s approach toward requests for exemptions has been uncompromising, as has its approach to requests by its European allies to allow the JCPOA to persist. The European Union prepared for sanctions reimposition by preparing measures of its own – measures that would, in theory, offer Iran a sign that the now-remaining P4+1 could hold up their end of the JCPOA without the United States and buttress the agreement’s core compromise. Accordingly, the European Union introduced a so-called “Blocking Statue” while noting that it “deeply regret[s] the reimposition of sanctions by the U.S.”

“The Blocking Statute allows EU operators to recover damages arising from U.S. extraterritorial sanctions from the persons causing them and nullifies the effect in the EU of any foreign court rulings based on them,” an EU release explained. “It also forbids EU persons from complying with those sanctions, unless exceptionally authorized to do so by the Commission in case non-compliance seriously damages their interests or the interests of the Union.” The costs of reimbursing European firms for damages incurred as a result of violating U.S. sanctions will likely be prohibitive enough that this statute won’t give Iran what it needs. As a result, the JCPOA’s slow collapse will continue uninhibited.

For various Asian states, many of which welcomed the 2015 JCPOA enthusiastically, sanctions reimposition by the United States has been deeply disappointing. For a country like India, the world's third-largest oil consumer, the second round of sanctions will offer a challenge. India has dealt with U.S. sanctions on Iran before and has its ways of managing, for example, by offering Tehran Indian rupee-denominated payment for oil imports. But the broader sanctions regime will serve to undermine Indian efforts to foster connectivity through Iran and on to Afghanistan – for example, through the Chabahar port project.

China, similarly, has expressed regret over the U.S. decision to impose sanctions, seizing on the Trump administration’s move as yet another opportunity to showcase its bona fides as a stabilizing power on the world stage, in line with Chinese President Xi Jinping’s broader efforts to cast China as a global power. Analysts have expressed curiosity about the possibility of China benefitting tremendously from the U.S. decision; the new sanctions may backfire and allow Beijing an opportunity to further internationalize the role of the renminbi, demanding that Iran price its oil exports to China in yuan. Meanwhile, Beijing will keep up its efforts to pursue cooperation with Iran, which is growing in its importance to China's Belt and Road Initiative.

Japan, the United States’ ally and partner in pursuing a “free and open Indo-Pacific,” supported the JCPOA, but did not especially vocalize this support. Tokyo was a beneficiary of Iran's opening up following the agreement’s implementation, but it broadly hedged its reliance on Iranian oil exports. In 2017, Iran was Japan’s sixth-largest supplier of crude oil, but Tokyo will likely absorb the effect of the impending oil and petrochemical sanctions in November quite well, shifting its reliance further to Saudi Arabia, Qatar, and the United Arab Emirates. Elsewhere in Asia, the new sanctions will spur discouragement regarding U.S. leadership generally. In Southeast Asia, where Iranian President Hassan Rouhani spent considerable energy on trade and investment outreach in 2016, following the implementation of the JCPOA, the sanctions will be disappointing too.

Above all, the Trump administration’s maneuvering on the Iran deal will undermine regional trust in the United States’ commitment to a rules-based and institutionalized global order. The JCPOA, for all the partisan criticism it endured in the United States, was unique in the history of arms control agreements for its remarkable verification provisions and technical specificity. The worst case scenario now – with the JCPOA's unraveling apparent – isn't just that reimposed sanctions disincentivize Iranian compliance with the agreement, but that Iranian hardliners seize the reins domestically and Iran resumes work that it had ceased in the early-2000s toward a nuclear bomb.