Iran Pulse

Forget oil sanctions, end of nuclear cooperation waivers could quietly kill Iran deal

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Article Summary
While the United States' stepping up of oil sanctions has gotten more attention lately, a greater threat to the nuclear deal involves the waivers allowing cooperation with Iran on nonproliferation.

Much of the current debate on the Donald Trump administration’s “maximum pressure campaign" against Iran concerns its decision not to extend waivers allowing eight nations – including China, India and Turkey – to import limited amounts of Iranian oil. However, it is the possible revocation of waivers that allow the remaining parties to the deal signed in 2015 to engage in civil nuclear cooperation with Iran — with the aim of reducing the proliferation risks of the Iranian nuclear program — that poses the greatest threat to the future of the nuclear deal.

US national security adviser John Bolton and a group of hawkish lawmakers in Congress are agitating for the Trump administration to cancel three key waivers issued in November 2018, when the United States reimposed secondary sanctions on Iran. These waivers pertain to technical work on Iran’s civil nuclear program required under the terms of the Joint Comprehensive Plan of Action (JCPOA) and cover activities at three sites: Fordow, Arak and Bushehr. The aim of this cooperation is to jointly work toward significantly reducing proliferation risks.

In Arak, a waiver is necessary to enable Iran to redesign its heavy water research reactor in order to “support peaceful nuclear research and radioisotope production for medical and industrial purposes.” The proposed redesigned Arak reactor would vastly cut the potential for a plutonium path to the bomb. The underground uranium enrichment facility of Fordow is being converted into a “nuclear, physics and technology center.” The aim here is to keep uranium enrichment literally closer to the surface and thus more vulnerable in case of an Iranian dash for the bomb. At Bushehr, the site of a Russian-built nuclear power plant that became operational in 2011, the waiver is necessary to allow Iran to continue to purchase the fuel it needs to run the reactor and produce electricity.

A decision to revoke the waivers for civil nuclear cooperation would constitute perhaps the most direct US assault on the JCPOA to date. For this reason, Secretary of State Mike Pompeo and other figures in the Trump administration, worried about political blowback, have been arguing for their continuation, with European governments lobbying the United States aggressively on the issue. Note, however, that even with the present waivers in place, it is apparent that implementation of the nuclear cooperation has been faltering. Revocation of the waivers would have further and grave consequences for the future of the JCPOA.

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The matter of civil nuclear cooperation may seem distinct and dislodged from US extraterritorial sanctions and the feeble response from the remaining parties to the JCPOA. But as a practical matter, implementation of civil nuclear cooperation commitments under the JCPOA depends on engineering companies specialized in nuclear technology, meaning that these specific and fundamental commitments of signatories to the nuclear deal share the same vulnerability to US secondary sanctions as the more loosely defined economic commitments.

In 2017, the Atomic Energy Organization of Iran (AEOI) signed a contract with the China National Nuclear Corporation (CNNC) covering the initial phase of the Arak reactor's redesign. While French nuclear giant Areva undertook nuclear safety training in Iran and while Russia’s Rosatom has long had a role in the development of the Bushehr reactor, CNNC and its subsidiaries were entrusted to spearhead the key JCPOA-related redesigns.

Like most Chinese state enterprises, CNNC has global ambitions. Earlier this month, chairman Yu Jianfeng announced that the company intends to expand the role of nuclear energy cooperation within China’s Belt and Road Initiative. These ambitions have seen the company pursue new business across the Middle East, notably including Saudi Arabia, as well as new partnerships in France and the United Kingdom.

Such global ambitions may help explain why CNNC's work on the Arak reactor redesign has been slow. In January, AEOI head Ali Akbar Salehi complained publicly that sanctions fears were stymying progress of the reactor redesign. Of note, the Arak project is also jointly overseen by the United Kingdom, which stepped into the role when the Trump administration withdrew from the JCPOA in May 2018. China is responsible for the implementation of the revised designs. While the UK and China have signed off on the latest redesigns, Salehi cited little progress in actual construction, stating, “Ever since the US withdrew from the nuclear deal, China has slowed its cooperation with Iran for redesigning the Arak reactor.”

Like other Chinese companies, such as the state-owned Bank of Kunlun, CNNC may have concluded that the waiver issued by the US Department of Treasury in November is too vague to provide comfort regarding continued activities related to the Arak reactor. Much of the sanctions guidance provided by the Trump administration since its withdrawal from the nuclear deal has been deliberately ambiguous so as to heighten the sense of jeopardy among companies, even those operating in sanctions-exempt sectors. In this vein, it is unlikely that the waivers for civil nuclear cooperation with Iran included specific reference to companies nor useful reference to activities, leaving an enterprise like CNNC with the task of interpreting whether the full scope of activities required by its contract with AEOI is indeed covered by the waiver.

This conundrum comes against the backdrop of the Trump administration’s targeting of companies such as Chinese telecommunications giant Huawei or Russian aluminum producer Rusal, demonstrating an increasing US readiness to target commercial enterprises, often with a truncated legal process, in order to advance larger political goals. Given that present tensions between China and the United States extend beyond the JCPOA to the higher-profile issue of the roiling trade war between the two economic powerhouses, it is understandable that CNNC would prefer to avoid the line of fire.

Mindful that implementation of the Arak reactor redesign has slowed even with a sanctions waiver in place, it is likely that should the Trump administration decide not to renew the waivers, the remaining parties to the JCPOA would face the end of effective implementation of key civil nuclear cooperation commitments, and therefore the probable end of the nuclear deal at large. The civil nuclear activities detailed in Annex III of the JCPOA, which extend to construction, supply, training and financing, cannot be conducted by government agencies alone.

The notion that US secondary sanctions confound business activities in Europe and Asia has been a point of ample political discussion over the past year. While some steps have been taken to encourage commercial actors to continue to engage with Iran, such as the revival of the European Blocking Statute or the creation of the INSTEX special purpose vehicle, by way of explaining the limited nature of their response, European leaders have repeatedly stated that they cannot compel their companies to engage in business in Iran, leaning on the notion that it is untenable for governments to instruct companies to conduct certain kinds of business in market economies. While Chinese officials have been less forthcoming about the political limitations of their own economic model, which is dominated to a far greater extent by state-owned enterprises, it is clear that Chinese state firms maintain the prerogative to devise strategy in a manner that privileges commercial goals over state obligations.

Having said that, it is important to remember that the JCPOA’s provisions pertaining to civil nuclear cooperation with Iran cannot be principally understood as commercial undertakings — even if they require the engagement of commercial actors. Indeed, while Iranian expectations of the JCPOA were dominated by the expected economic dividends, the pursuit of “peaceful nuclear technology” was enshrined in the multilateral accord because of its bearing on the status of Iranian sovereignty. Iran’s leadership, and to a large extent its public, have consistently conceived of a nuclear energy program as an inalienable right that Iran maintains as a sovereign state.

In this sense, the waiver dilemma demonstrates that the parties to the JCPOA — including, unwittingly, Iran itself — left a critical area of implementation, one related to the maintenance of sovereign rights, dependent on commercial enterprises, which are inherently vulnerable to secondary sanctions. For this reason, those in the Trump administration calling for the revocation of the waivers know that they have likely found the JCPOA’s fatal flaw. The remaining parties to the JCPOA have been proven unable to effectively withstand America’s extraterritorial sanctions for the sake of their own economic sovereignty. But with the nuclear waivers in the crosshairs, the urgency of withstanding US pressure is about far more than just protecting business interests — it is about preventing a possible proliferation crisis.

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Esfandyar Batmanghelidj has spent the last five years working on business diplomacy projects between the West and Iran. He is the founder of the Europe-Iran Forum, the leading annual gathering for business, government and civil society leaders committed to Iran's economic development. He is a graduate of Columbia University. 

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