Following the U.S. withdrawal from the Iran nuclear agreement formally known as the Joint Comprehensive Plan of Action (JCPOA), U.S. President Donald Trump has re-imposed unilateral sanctions on Iran, targeting the country’s core banking system, oil sales, and conduits to the global financial system. Perhaps, the most important of all is preventing Iranian banks from using the Belgian-based Society for Worldwide Interbank Financial Telecommunication (SWIFT), the largest global electronic payment network.
The harsh measures have set the stage for a revival of political infighting within Iran’s complex and opaque political structure, originated a heated debate among political elites and in Farsi media in Tehran over remaining a party to the nuclear agreement or to withdraw from the pact.
A careful review of Farsi media outlets indicates that moderate forces (President Hassan Rouhani and his followers) believe that Iran can still stick to the deal for the obvious reason that “the cost of leaving the deal and global sanctions that it would trigger are too high for the country.”
But at the same time, they are trying to convey the message that if blanketing Iran with sanctions will cost Iran dearly, it will not be costless for the West either. For instance, president Rouhani warned that sanctioning Iran will backfire and may lead to drugs, refugee, terrorism and bomb ‘deluge’ on the West if U.S. sanctions weaken Iran’s ability to contain them. The President also threatened to close the Strait of Hormuz if Iran isn’t able to export its oil.
Obviously, Rouhani and his moderate faction are under a severe pressure of the hardline camp because for the latter, exporting the country’s crude oil and ensuring that its revenue would come back is non-negotiable.
To help moderates to overcome the internal fight, the European countries embarked on an unprecedented effort to find a way to help Iran to get around the US sanctions. They offered a new payment mechanism known as the Special Purpose Vehicle (SPV), an autonomous payment system which would allow them to transact with Iran while avoiding U.S. secondary sanctions.
Rouhani government welcomed the initiative, regarded it as a notable step that not only helps Iran to repatriate its oil revenue but a step to move away from the dollar-dominated financial system, which would eventually undermine the effectiveness of U.S. sanctions.
But the initiative has not been well received by the rival hardline faction who called the mechanism a symbolic gesture that cannot help Iran to repatriate the oil revenues. From their perspective, the SPV is something like Iraq’s Oil for Food Program (OFP) in 1996 that only allowed Baghdad to sell oil to pay for food and the country’s other humanitarian needs.
Though not totally like OFP, the SPV trade mechanism is something akin to the “barter system”, which was used by the Soviet Union during the Cold War. In plain English, buyers of the Iranian oil are not going to pay Iran directly, but instead, they are going to create an accounting firm in one of the European countries and deposit Iranian oil revenues in that account. Any company that exports goods to Iran could claim back the credit from the SPV as payment.
Even with that, several hurdles remain to put the initiative into action, including the reluctance of member states to host the financial structure, due to the fear that crossing Washington will risk a political confrontation with the United States. France and Germany agreed to take the charge, but only if new goals of the trade mechanism could encompass less sensitive items such as humanitarian and food products rather than crude oil.
Sounding disappointed with EU initiative, the conservative camp in Tehran hinted that they are preparing to exit from the nuclear agreement because as they put it “expecting initiatives such as SPV to save Iran’s economy is only a wishful thinking.” For instance, Kayhan Newspaper, considered to be the mouthpiece of the Supreme Leader Ali Khamenei noted that as long as the European countries are ensured that Iran will remain committed to the JCPOA, they have no incentive to fulfill their JCPOA obligations. According to the editorial, the only way to force Europeans to resist the United States is a step-by-step withdrawal from the JCPOA. This way, the argument goes on, they will understand that “the delay in addressing Iran’s demands is costly and could risk destroying their 12-year efforts to stop a nuclear Iran.”
Another conservative newspaper, Etemad outlined a plan for a gradual exit from the accord. As a passage of the editorial read, “Iran should move in a direction that increases the costs for Europeans and presents them with two options; either Iran’s nuclear bomb or war with Iran.” According to the editorial, this will urge Europeans “to make it clear for Trump that if he does not stop pushing Iran, he may face a nuclear-armed Iran, or he has to pay the price of getting into a war with Iran.”
The so-called plan also outlined a possible scenario in which Iran can retaliate against the United States “in the Persian Gulf, Afghanistan, Syria, Iraq, and other regions,” or to present the Europeans with the influx of migrants, refugees, and growing terrorism within the EU soil.”
On the other hand, supporters of the deal in Tehran understand that leaving the nuclear agreement would cost Iran dearly. It would automatically bring UNSC resolutions back into force and snap back multilateral sanctions if Iran is found to be noncompliant, a situation that may also urge Russia and China – Iran’s close allies – to join the U.S. in sanctioning Iran.
Fararu, an outlet close to the Rouhani government warned that Iran will not be able to bear the costs of leaving the deal because the country will once again be identified as a threat to the global peace and security. According to the outlet, “Iran’s best bet is to find a joint solution with EU, Russia, and China to isolate the United States,” rather than dashing toward leaving the nuclear agreement.
The hardline faction has an upper hand within Iran’s political establishment and as the pace of events show, they would probably be able to weaken and sideline the Rouhani government in the coming days. For the hardline conservatives, Iran’s exporting its crude oil and ensuring that its revenue would come back seems to be a key factor in making the decision about leaving or sticking to the nuclear accord. Obviously, the European payment mechanism falls short of what conservatives wish.
Ayatollah Khamenei, himself essentially a hardliner, will also have to decide whether to side with the Rouhani government or the conservatives. In making this decision, the Supreme Leader will take into consideration the costs of leaving the deal and the possible reaction of the European countries and Iran’s regional rivals.
Header Image: Iranian Presidency Office via AP
Farhad Rezaei has Ph.D. in Defense and Strategic Studies. He is a member of the Association for the Study of the Middle East and Africa (ASMEA) at Washington DC, USA, and the co-author of Iran, Israel, and the United States: The Politics of Counter-Proliferation Intelligence, Rowman & Littlefield, NY. His writings have appeared in Harvard-Iran Matters, Atlantic Council, the National Interest, Middle East Policy, Journal of International Affairs among others.