Timed to the May 8 anniversary of the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) nuclear deal in 2018, Iranian President Hassan Rouhani announced that Iran would suspend two of its commitments made under the deal. First, it would no longer limit low-enriched uranium stockpiles to 300 kilograms or limit heavy water stockpiles to 130 metric tonnes. Second, Rouhani said Iran would give the remaining parties in the JCPOA (Germany, France, the United Kingdom, the European Union, Russia and China) 60 days to fulfill their commitments to the oil sector and banking sector cooperation that Iran understands to be integral to the deal's implementation. If they fail, Iran will increase its nuclear program development efforts.
Iran's incremental withdrawals from the JCPOA are a calculated response to unprecedented sanctions pressure, allowing Iran to resolutely reciprocate while creating some leverage for potential future negotiations. Iran's government is betting that it can withstand a weakened economy and the increasing likelihood of a military conflict, but that depends on whether the European Union, Russia and China can offer economic and security lifelines that they are not currently positioned to provide.
Why the U.S. Is Honing Its Anti-Iran Campaign
In recent weeks, the United States has intensified its sanctions-heavy campaign against Iran. In April, it designated the Islamic Revolutionary Guard Corps as a foreign terrorist organization, and then in May, it declined to extend waivers for Iran's oil customers to continue purchases. Last week, Washington also extended most of the waivers related to Iran's civilian nuclear program, but it did not extend two critical waivers: one that allowed Iran to export heavy water surpluses to Oman and one that allowed Iran to swap low-enriched uranium that exceeded 300 kg for yellowcake uranium.
The U.S. intent is to increase Iran's economic pain to the point of stoking a domestic uprising that weakens the Iranian government's sovereignty and draws Tehran back to the negotiating table. An economic crisis is not guaranteed to prompt a domestic uprising, let alone new negotiations, but the unprecedented severity of the U.S. sanctions campaign is forcing Iran to consider new responses.
How Iran Found Itself Backed Into a Corner
Over the past year, Iran has been reacting to Washington's strategy, and as Stratfor noted last summer, "the question of Iran's changing its response to the United States' withdrawal from the nuclear deal is no longer whether but when." The material economic benefits of Iran remaining fully in the JCPOA declined to nearly nothing once the United States removed all waivers for Iran's oil customers last week. To some degree, all parties expected a breach.
Iran's leadership has assessed that, over the next few years, it must respond to the U.S. provocations against the JCPOA, not only to ensure its own negotiating credibility but to gain leverage if future talks materialize.
But the way Iran has reacted — at least initially — displays restraint. The two waivers that the United States removed for its civilian nuclear program meant Iran had a choice: either eventually shut off heavy water production and nuclear enrichment entirely, or eventually violate the JCPOA itself. Iran continues to produce heavy water and low-enriched uranium, but it needs outlets to move them outside its borders so it can remain under JCPOA-mandated stockpile levels. By announcing that it is suspending these two obligations, Iran is directly trying to connect the issue to the waivers that the United States chose not to extend.
Iran's leadership has assessed that, over the next few years, it must respond to the U.S. provocations against the JCPOA, not only to ensure its own negotiating credibility but to gain leverage if future talks materialize. Today's moves may not cross the threshold into those that cause the European Union to immediately reapply sanctions or the United States to conduct a limited military strike on Iranian nuclear facilities. However, those actions could come 60 days from now, if Iran follows through on threats to enrich uranium above the 3.67 percent level enshrined in the JCPOA and start modernization work on the Arak heavy water reactor. Both of these directly shorten the breakout timeline for Iran to produce a nuclear weapon.
How the U.S. Will Respond
Washington's initial response is likely to be threefold. First, the United States will continue to expand and maintain the position of its military force in the Middle East to counter Iran's regional allies.
Second, it will increase economic sanctions on Iran and its regional allies, as well as ramp up enforcement of existing sanctions. Washington can do this by casting a wider net of secondary sanctions on Iran's exports and imports that go beyond the current ones, which just prohibit business deals with Iranian entities on the U.S. Treasury Department's sanctions lists. U.S. President Donald Trump has already started this process by announcing sanctions on steel, aluminum, iron and copper.
As the JCPOA grows weaker, the chances of a military conflict grow higher.
Finally, the United States could also try to further delay Iran's nuclear program's development using cyber activity. This option, or any other covert activity, would not escalate the situation as dramatically as would a military strike, but it could have the desired effect of preventing Iran's nuclear development progress.
Why the EU Is in Such a Tough Spot
The U.S. pressure campaign and Iran's reaction puts the European Union in an increasingly difficult position. If Brussels possessed any sort of silver bullet to assuage Iran's concerns — like the ability to set up a payment mechanism for oil exports that the United States could not sanction — it would have likely already used it. However, the instrument in support of trade exchanges (INSTEX) that the European Union has developed isn't currently processing any transactions, and if the bloc uses it to help facilitate non-humanitarian-related transactions with Iran, then the United States will almost certainly sanction the Europeans involved. One of the few ways for the Continent to creatively help Iran avoid an economic or food crisis would be organizing an oil-for-food program akin to the one it has for Iraq.
How New Developments Increase the Chances of Conflict
As the JCPOA grows weaker, the chances of a military conflict grow higher. Any Iranian nuclear-related activity is increasingly within the crosshairs of the United States and allies like Israel, even if the Iranian activity is measured or within the bounds of the nuclear deal. Washington is also increasingly likely to view any activity by Iranian-backed militant forces against the United States or U.S. allies across the Middle East and North Africa as justification for a possible limited U.S. military strike against Iran and Iranian-allied targets. Even though neither the United States nor Iran wants to instigate an all-out conflict, escalating messages of resolve, such as the deployment of a U.S. carrier group and bombers to the Persian Gulf, communicate Washington's willingness to act on credible threats to U.S. security. And Iran will find itself increasingly obligated to reciprocate in some way.