Simmering Dissatisfaction on Both Sides of Nuclear Deal

Secretary of State John Kerry and Iranian Foreign Minister Javad Zarif met in New York on April 19 amid dissatisfaction on both sides about the implementation of the nuclear agreement.  Iran has voiced frustration with the slow pace of financial sanctions relief promised by the agreement, and Mr. Zarif said the meeting focused on how to “make sure that we will draw the benefits Iran is entitled to from implementation of the agreement.”[1]  The United States, meanwhile, is concerned about an increase in Iranian ballistic missile tests – an activity not directly addressed in the agreement but relevant to nuclear weapons.

Since the deal was implemented in January, Iranian banks reportedly have had difficulty processing international financial transactions and repatriating billions of dollars in previously frozen oil revenue from overseas accounts.  Speaking in Washington on April 15, Iran’s central bank governor, Valiollah Seif, said the Obama administration risks jeopardizing the nuclear deal unless it does more to facilitate Iran’s international financial transactions.  “They need to do whatever is needed to honor their commitments.  Otherwise, the [deal] breaks up under its own terms,” Mr. Seif said.  Specifically, Mr. Seif said that Iran should be permitted to access the U.S. financial system and dollar-denominated transactions through U.S. banks.[2]  U.S. law still prohibits Iran from accessing U.S. banks and the dollar, and U.S. officials have said they would not relent on either demand.

European rules about doing business with Iran are far less restrictive, but European banks have been reluctant to deal with Iran for fear of running afoul of U.S. Treasury regulations.[3]  As a result, the economic “windfall” that the Iranian government hoped to enjoy reportedly has not materialized.   At a dinner hosted by the J Street group on April 18, Secretary Kerry said that Iran, to date, has only recouped about $3 billion of its frozen assets—not the $55 billion to a $155 billion figure often cited. Secretary Kerry’s estimate, for which he did not provide an explanation, seemed to support the Iran’s complaint that it remains largely cut off from the financial system.[4]  The Obama administration reportedly has been exploring ways of facilitating Iranian trade by providing access to dollar-denominated trade without directly touching U.S. financial institutions located in the United States .

Meanwhile, U.S. officials are concerned about Iran’s renewed ballistic missile testing, which had been paused during negotiations.  Since October 2015, Iran has conducted at least three tests of variants of its single-stage, liquid-fueled Shahab-3 missile, which is nuclear-capable.  The most recent test occurred in March, when the Islamic Revolutionary Guard Corps conducted two days of large-scale ballistic missile exercises.[5]  The U.S. intelligence community has long judged that Iran “would choose ballistic missiles as its preferred method of delivering nuclear weapons, if it builds them”—a judgment it renewed in February.[6]

Yet neither the nuclear agreement nor the new U.N. Security Council resolution 2231 allows for sanctions to punish Iran’s missile tests.  The United States and its European allies have called Iran’s recent ballistic missile tests “inconsistent with” and “in defiance of” U.N. resolution 2231.  Yet Western diplomats admit that because of the weakness and ambiguity of the U.N. language, the resolution’s exhortation against Iranian ballistic missile activity is not legally binding and would not trigger new U.N. sanctions.[7]  Neither is there recourse under the terms of the nuclear agreement.  As Secretary Kerry has made clear, neither the conventional arms nor the missile restrictions in resolution 2231 are tied to the JCPOA’s “snapback” sanctions provisions.

The Obama administration has come under increasing pressure, not least from Congress, to take unilateral action in response to these tests, but thus far it  has only issued relatively minor sanctions against a few entities linked to Iran’s missile program.  Speaking on April 7 at a meeting with the foreign ministers of the Gulf Cooperation Council, Secretary Kerry, said that the U.S. and its Gulf allies were “prepared to work on a new arrangement to find a peaceful solution to these issues.”  Secretary Kerry said that the Iranians must first “make it clear to everybody that they are prepared to cease these kinds of activities that raise questions about credibility and questions about intentions.”[8]

This argument appears unlikely to change Iran’s behavior.  Mr. Zarif, speaking at a press conference in Tehran on April 10, rejected Secretary Kerry’s calls for a “new arrangement,” stating: “It is crystal clear that the Islamic Republic of Iran’s missile and defense capabilities are not negotiable, and if the US is serious about defense issues, it should decrease the amount of weapons sold to the regional countries.”[9]