It has been one year since Iran, the United States and five other world powers reached a landmark deal designed to limit Tehran’s nuclear program. In exchange for curbs on its nuclear program, the United Nations lifted all nuclear-related sanctions against Iran, and the EU lifted many bilateral sanctions on Iran’s banking and energy sectors.
But Iran’s economy continues to suffer. For Iran, the deal was the first step toward economic recovery after years of crippling sanctions. Instead, because of unilateral U.S. sanctions on the Iranian economy, Tehran finds itself in the awkward position of having to rely on the United States to lobby other countries and non-American financial institutions to conduct business with it.
Iran’s political elite have become anxious. Hardliners feel that President Hassan Rouhani’s reform-minded administration was duped into accepting concessions on Iran’s nuclear program while getting little back in return. Rouhani backers who believed the nuclear deal would usher a new era of economic prosperity have become despondent. With Iranian presidential elections looming next year, the wisdom of the nuclear deal and further dealings with the West will be front and center in the psyche of the Iranian electorate.
Aside from strides made in the energy sector, there are few signs that Iranians have received all of the economic benefits of the deal that they had expected. While Tehran has made grand pronouncements of billion dollar contracts signed with Boeing and Airbus, it is unclear how such transactions get financed. And therein lies the biggest hurdle of the nuclear deal: banking and finance. While the deal lifted EU and UN sanctions on Iran’s banking and energy sector, unilateral U.S. sanctions on the Iranian economy remain. These sanctions forbid U.S. citizens and companies from conducting most forms of business with Iran, but companies outside the United States are affected as well.
Iranian banks and foreign banks that are processing Iran-related transactions are not allowed to deal in U.S. dollars – the global reserve currency. European and Asian conglomerates that would otherwise invest in the Iranian market do not want to run afoul of existing U.S. sanctions, which extend to organizations and individuals with ties to the Iranian Revolutionary Guard Corps, who by some estimates, either directly or indirectly control over 40 percent of the Iranian economy.
These sanctions make foreign companies responsible for conducting extensive due diligence on their Iranian counterparties. Even if there is unsuspecting contact with entities or individuals on the U.S. Treasury sanctions list, heavy fines can ensue. Additionally, companies can be cut off from conducting business in the United States – the world’s largest economy. Such regulations remain a powerful reason for businesses to avoid expanding operations into Iran.
Without foreign direct investment and international banks willing to underwrite projects in Iran, the fruits of the nuclear deal will elude the Iranian public. Banking and finance are the arteries of global commerce and investment. U.S. Secretary of State John Kerry has tried to offer assurances that the United States will not interfere with legitimate commerce between Iran and the rest of the world, but his pledges ring hollow. European banks remain skittish. Over the past decade, BNP Paribas, HSBC, and Deutsche Bank have paid billions of dollars in fines for Iran-related activity.
From Iran’s perspective, unless the United States takes more concrete steps to make European banks feel confident about engaging in commerce with Iran, the Iranian people will begin to view the nuclear deal as one-sided. If such a narrative begins to take hold, their views of the United States and the nuclear deal will change and a broader rapprochement between Iran and the West will be all but impossible.
To be sure, not every aspect of the Iranian economy is suffering. Before the lifting of sanctions in January, Iran was struggling to sell its crude oil as traditional customers like the EU and Asia were either turning away or demanding deep discounts. Iran also had difficulty accessing proceeds of these sales, as Tehran was essentially locked out of the international banking system.
Since sanctions were lifted, however, Iran’s crude exports have soared. Tehran has doubled exports from a year ago. Iran’s old customers in Asia and Europe have slowly returned, and the country’s market share of global crude exports has returned to a pre-sanctions level.
At the one-year mark of the nuclear deal, much remains unclear. As the United States approaches a general election, the rhetoric surrounding Iran is bound to become more negative. Presidential candidate Hillary Clinton has been discussing ramping up pressure and sanctions for Iranian activity on its missile program and her Republican rival Donald Trump has been campaigning on scrapping the nuclear deal altogether. Such views have stirred up contempt in Tehran.
This is the most challenging aspect of the deal. Unless the Obama administration does more to see that Iran gets the benefit of the bargain it struck, the nuclear deal will end up doing more harm than good.
Amir Handjani is a fellow with the Truman National Security Project and Board Member of the Atlantic Council.