Accessibility links

Breaking News

Why Negotiations Between US And Iran Might Be More Likely Now

Iran's President Hassan Rouhani addressing the 73rd session of the UNGA

On the sidelines of the United Nations General Assembly (UNGA) in New York, French President Emmanuel Macron made substantial efforts to establish a dialogue between the Iranian President Hassan Rouhani and U.S. President Donald Trump.

A planned phone call never took place but it was based on a four-point document, in which the U.S. would remove sanctions imposed on Iran, and Iran would agree to negotiate on its regional role and never seek nuclear weapons.

Although macron’s efforts were not successful, it was an important initiative signaling a likely round of negotiations between the Islamic Republic of Iran and the U.S. in the framework of the Joint Comprehensive Plan of Action (JCPOA) was. Macron suggests that Iran needs more time to accept the principle of a meeting. The dynamics that moved the two countries into the current path are worth analyzing, which will also shed light on likely future outcomes.

Renegotiating a deal with Iran would be an important achievement for Trump in his reelection campaign. One of his major concerns in withdrawing from the nuclear deal was its sunset provisions which specify the expiration dates on several restrictions imposed on Iran’s nuclear program.

After Trump finally withdrew from the deal in May 2018, he reiterated several times that he is ready for negotiations. But with abiding by the JCPOA, Iran had hitherto no nuclear bargaining chips to accept negotiations with Trump. Thus, in a calibrated effort it decided in May 2019 to gradually reduce its commitments under the deal; exactly those that would expire soon by the sunset clauses.

In other words, Trump's withdrawal from the agreement and increasingly tighter sanctions led Iran to a decision made Trump's pessimistic assessments come true.

Iran's decision to reduce commitments would give it some leverage in future negotiations. Tehran has signaled that it will return to full compliance if the U.S. returns to JCPOA. This also shows how important the sunset clauses are. Once limitations end, the Islamic Republic can freely pursue its nuclear program.

Meanwhile, Iran’s regional arch rival Saudi Arabia is now demanding diplomacy and a new deal with Iran. After JCPOA was implemented in 2016, Saudi Arabia and Israel were unhappy. Barack Obama had decided to deal with Iran through direct diplomacy with Tehran, largely leaving its regional allies out of the process. His priority was to achieve a nuclear deal that could at least hinder Iran from acquiring nuclear weapons. Thus, less attention was paid to Iran’s regional hegemonic ambitions.

Giving sanctions relief to Iran did not appeal to Israel and Saudi Arabia. They lobbied successfully with Jared C. Kushner, Senior Advisor to the President , and a $100 billion arms deal during Donald Trump’s first trip to the region.

The campaign of ‘maximum pressure’ was then supported by these regional U.S. allies to counter Iran’s support for Shiite militia in Iraq, Lebanon, Syria, and Yemen. The escalating tensions between these two camps have led to military confrontations, last of which was a missile attack against oil infrastructure of Aramco.

Many sources including former Secretary of State John Kerry – who negotiated the JCPOA – have argued that one way or another, Iran was supporting these attacks.

We can draw a few conclusions from these regional confrontations. First, At least Iran managed to demonstrate its military capabilities. Second, Iran’s military confrontation with U.S. allies is asymmetric in the sense that it inflicts damage on U.S. allies and interests with its indigenous low-cost military equipment, while these countries invested enormously on highly advanced military equipment. Third, these recent events have even persuaded Crown Prince Mohammed bin Salman, the de facto ruler of the KSA, that the best solution for avoiding a regional war, that he claims would collapse the global economy, is through diplomacy and a new deal with Iran.

Fourth, Iran has again gained some bargaining chips for possible future negotiation with the U.S. But this advantage could benefit Iran only if it negotiates. A long-term objective for both the U.S. and Iran could be a strategic partnership with mutual benefits.

Rouhani went to New York to finish what he promised some years ago, a deal with the reeve of the world. But he was restricted by his Supreme Leader, the top authority in Iran's constitution. As Macron also noted, Iran’s foreign policy is not decided by its president.

Iran’s domestic politics makes the situation much more complicated. Since the beginning of the Islamic Republic its hardliner core has considered the United Sates as the number one enemy. They cannot ideologically imagine a friendship between Iran and the United States that they consider as the harbinger of capitalism and imperialism. Iran’s Supreme Leader supports this revolutionary ideology by prohibiting any path towards rapprochement. He has prohibited any talks with U.S. officials until Washington returns to the JCPOA.

It could be argued that Khamenei may never agree to negotiate over either Iran’s role in the region or its missile program. However, there is a general awareness in Tehran that a deal which does not encompass all issues are not acceptable by the U.S. administration. Therefore, this precondition of U.S. return to JCPOA may have been set to demonstrate the possibility of further talks on other issues if "lost trust" is revived. With a four-point document put forth by France’s Macron, it seemed that this precondition would be satisfied as all U.S. sanctions would be removed. But given pressure coming from Tehran, Rouhani hesitated. Khamenei was still not ready to allow any direct talks.

The economic situation in Iran, however, tells a different story. Recent data published by the Statistical Center of Iran shows that in 2016 (Persian calendar year 1395) Iran enjoyed a 12% growth rate. However, the new sanctions imposed by the U.S. resulted in 4.88% reduction in real GDP in the year ending in March 2019. Moreover, in its latest World Economic Outlook the International Monetary Fund (IMF) projects a 9.5% recession for Iran in 2019 largely due to oil revenue losses due to tougher US sanctions.

It is the worst recession since the midst of the Iran-Iraq war in 1986. Moreover, due to uncertainties around the political situation next year, neither a growth nor a recession is projected for 2020. Thus, this bad year will end in few months perhaps without intense social unrest or threat of an uprising against the Islamic Republic. While some can argue that the economy is far from collapse, a closer look at the components of Iran’s GDP indicate that Iran’s recession or growth is pretty much correlated with its external balance that is mostly equal to its total exports deducted from its total imports. Hostility with the U.S., the largest economy in the world has played a major role in depriving Iran from benefiting from external revenues, international trade and investment.

Iran under sanction has never managed to reach its real GDP per capita of 1976. Although the regime in Iran may not be on the verge of collapse, the living standard of its citizens has seriously declined, depriving them of socio-economic progress. Rouhani understood this and made great efforts to make peace with the West and particularly the U.S. While he managed to keep the inflation rate at its historic low until 2018 for the longest period since the Islamic Revolution, U.S. withdrawal from JCPOA and reimposed sanctions began impacting market sentiments causing high inflation, lower consumption, and lower investments.

As Iran experiences the pressures of a deteriorating economy, Trump is motivated to achieve a foreign policy success and Europe is willing to help, if the two antagonists can bridge the gap.

However, all sides should be warned that this deal should not be achieved in a rush. The problem with JCPOA is that it did not enjoy domestic consensus in the U.S.

Also, in the end it might be the case that there will not be a full détente between Tehran and Washington, but any reduction in the four-decade animosity will be a great achievement in itself. The path in the future may even look like a cold war without strong provocations from both sides, such as sanctions by the U.S.

  • 16x9 Image

    Mahdi Ghodsi

    Mahdi Ghodsi is an economist at The Vienna Institute for International Economic Studies (wiiw). His research focuses on international trade, International trade policy, non-tariff measures, industrial policy, foreign direct investment, global value chains, political economy of sanctions and the Iran economy. He holds a Ph.D. in economics from Università Cattolica del Sacro Cuore - Sede di Milano and a second Ph.D. in international economics from the Faculty of Economic Sciences, University of Warsaw.