The fourth annual Europe-Iran Forum meets in Zurich tomorrow and Wednesday amidst growing uncertainty over the future of Tehran’s nuclear deal with the West. With US President Donald Trump threatening to torpedo the agreement, reversing sanctions relief, this week’s conference has an alternative goal of fortifying foreign trade and investment with Iran.
With political risks surrounding the 2015 deal spiralling, October could be a defining few weeks which reveal if it ultimately survives, or not. For Trump will reveal by mid-month whether or not he has certified — for the third time since he entered the White House — Iran as complying with the terms of the agreement he has called the “worst deal ever”.
While another Trump U-turn certainly cannot be ruled out, odds are growing that — either in October or later in his presidency — he will refuse continued certification. He appears deeply unhappy with the treaty, and has already put Tehran “on notice”, after its ballistic missile tests, by signing into law in August new sanctions legislation in response to those actions. If Trump decertifies the deal, Congress would have 60 days to consider re-imposing US sanctions phased out since 2015.
With geopolitical gaps growing over this issue, Iranian Foreign Minister Mohammad Javad Zarif has said that Tehran might not itself pull out of the agreement — if Trump decides to decertify — if the other signatories (China, Russia, the United Kingdom, France, and Germany) remain committed to its terms. For Europe’s part, EU Foreign Policy Chief Federica Mogherini has asserted that she will do her utmost to keep the agreement alive which could lead to deep transatlantic tensions with Washington.
EU countries tend to profoundly disagree with the Trump team on this issue, asserting that there is no clear evidence that Tehran is in breach of its obligations. And, unless such incontrovertible information comes to light, they believe that for mer president Barack Obama was right when he said in 2015 that the deal offers the West and Iran the best opportunity “in decades”, specifically since the revolution in 1979, to move relations forward.
Deep US-EU discord over Tehran is not unprecedented as in the 1990s significant disagreements surfaced when Washington adopted legislation — including the Iran and Libya Sanctions Act — which punished European firms for doing business in those countries. In response, Brussels agreed reciprocal steps to protect European businesses and adopt counter-measures against the US where restrictions were imposed by Washington.
It is in this volatile context that this week’s fourth Europe-Iran Forum of business and political leaders meets after similar sessions in London in 2014, Geneva in 2015 and Zurich in 2016. Following sanctions relief under the nuclear deal, Iranian President Hassan Rouhani and his allies want to attract potentially hundreds of billions dollars in foreign investment to modernise oil and gas, transportation, and telecoms sectors.
In the face of this huge need, the Iranian Chambers of Commerce estimated the country attracted $13 billion (Dh47.7 billion) in foreign investment last year. While this is a big uplift from the $3 billion in 2015, Rouhani has been criticised by some opponents for failure to see more international capital materialising after the concessions the West secured from Tehran under the nuclear agreement.
This underlines that, while Rouhani was only officially inaugurated for a second term a few weeks ago after a big re-election victory, his political position in Tehran is far from impregnable. Indeed, potential failure of his signature accomplishment of his first term — the nuclear deal with the West — leaves him vulnerable on at least two fronts.
Firstly, if the agreement dies, this could gravely undermine his vision of intensified economic and political re-engagement with western powers. Secondly, he also faces the possibility of a domestic public backlash if the economy doesn’t tick up. Despite the lifting of international sanctions, many Iranians still don’t feel as big an improvement in their standards of living as they had hoped under Rouhani’s reforms.
To be sure, the economy grew at nearly 9 per cent in the last quarter of 2016 and growth is estimated to be robust in 2017 too. Moreover, inflation has dropped to single digits.
Yet, key industrial sectors, including construction, are in the doldrums. And some of the positive economic dividends emanating from the lifting of sanctions have been overshadowed by the hit in oil prices which have fallen from over $100 a barrel to just over half that price. Aside from the economy, failure of the nuclear deal would also complicate Rouhani’s vision for greater global engagement and closer ties with the West. The reformist-minded Iranian president hopes here that more conciliatory policies will improve foreign investment, commercial links, and diplomatic ties.
Yet, Rouhani also faces opposition at home as conservatives in Tehran are digging in their heels against any fundamental changes in foreign policy principles which have been generally consistent since 1979. This includes broad-based opposition to the Middle Eastern policies of the US and its key allies.
Taken overall, transatlantic tensions over Tehran will rise if Trump seeks in October to decertify and, ultimately, jettison the agreement. Such failure of the signature accomplishment of Rouhani’s presidency would leave his reformist economic and foreign policy vision floundering, with his political position highly exposed as he begins his second term.
Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.
