By Jacob L. Shapiro

On May 8, U.S. President Donald Trump will reveal his decision on whether to extend a waiver on sanctions against foreign financial institutions that have had transactions with the Central Bank of Iran. Refusal to do so would effectively terminate the 2015 nuclear deal, officially called the Joint Comprehensive Plan of Action. If he chooses this step, which would go into effect on May 12, the result in the short term will be strained U.S. relations with key allies in Europe and Asia, further deterioration of U.S.-Iran relations and higher oil prices. The most important consequence, however, will be the intense domestic pressure it will put on the Rouhani administration, for which nothing less than survival is at stake.

First Things First

The U.S. initially pursued the JCPOA because stopping Iran’s nuclear program by force would have been costly, if not impossible. Two things happened that made a diplomatic solution not just preferable but possible. First, the Islamic State emerged as a common enemy of the United States and Iran. The U.S. did not want to commit large numbers of its own troops to fighting IS and therefore needed all the help it could get in dislodging the fledgling caliphate. Second, the U.S.-led sanctions regime had finally begun to bite. Economic conditions in Iran were worsening, and the Rouhani administration was willing to trade centrifuges and uranium for opening the country up to foreign investment, selling oil to the world unencumbered and improving the quality of life in Iran.

Nonetheless, there was and still is significant domestic political opposition to the deal in both countries. In the U.S., many felt that Washington was getting far too little in return for waiving sanctions and convincing other countries to do the same. In Iran, hard-liners felt President Hassan Rouhani was betraying the spirit of the 1979 Iranian Revolution, which ousted the U.S.-backed shah. Despite the opposition, the deal went through. Iran’s economy, and its oil exports, soared, and the Islamic State was defeated (at least for the moment). The real threat to Iran, however, was not IS but the prospect of a unified anti-Iranian Sunni Arab bloc. That meant Iran had to solidify its positions in both Iraq and Syria. In addition, Iran continued to develop its missile program, which did not technically violate the JCPOA but didn’t instill much confidence in the West about Iran’s intentions.

Iran’s actions would have put pressure on any U.S. president to reconsider the terms of the JCPOA, but they placed enormous strain on a relatively new president who campaigned on tearing up the deal. The U.S. president has significant power over the agreement. The 2012 law that established the sanctions grants the president the power to review them every 120 days. Unlike NAFTA, where the president’s authority is ambiguous at best, or U.S. trade relations with China and other countries, where the president’s authority is somewhat limited by the law, the decision to scrap or extend the JCPOA is in the president’s hands.

If he does not renew the sanctions waiver on May 12, there will be immediate consequences. Countries will be expected to reduce imports of Iranian oil or face sanctions themselves, and although their compliance will not be assessed until Nov. 8, oil prices will likely immediately spike. U.S. allies that import significant amounts of Iranian crude, including France, Germany, South Korea and Japan, will all have to decide if they are willing to pay a premium for alternatives or risk U.S. sanctions. Other countries like China and India will face similar decisions. Russia, on the other hand, stands to benefit – the European Union now imports roughly 5 percent of its oil from Iran, and if Iranian oil is off the table, it will increase European dependence on Russian energy.

The United States’ Real Concern

U.S.-Iran relations will also suffer if Trump pulls the U.S. out of the JCPOA. For a time, the U.S. and Iran were indirectly coordinating in their fight against the Islamic State. But their briefly pragmatic relationship could not survive the loss of a shared enemy. Iran believes it has lived up to its end of the bargain by halting its nuclear program (and inspectors from the International Atomic Energy Agency have corroborated that). Iran is also frustrated that actions not expressly limited by the agreement – like solidifying power in Iraq or developing its missile program – are being used as evidence of Iranian duplicity. The U.S. is similarly perturbed that Iran is making a play for regional power and posing a direct threat to allies like Israel and Saudi Arabia. The U.S. aim, once IS was destroyed, was to create a balance of power in the region, not to tip the scale in Iran’s favor.

But the biggest impact of ending the deal will be felt within Iran itself. The Rouhani administration, which represents a political faction that wants to reduce state control of the economy and curtail the wide-ranging power of the Islamic Revolutionary Guard Corps, banked its future on the JCPOA. Rouhani believed the influx of foreign capital and the attendant economic benefits would legitimize his ambitious political reforms. Rouhani’s administration even moved to arrest key IRGC figures last September. Now, Rouhani’s grip appears to be loosening. Rouhani took to the airwaves over the weekend to criticize an Iranian ban on the messaging app Telegram, alluding to decisions made at the “highest level of the system” to which he had no recourse. Hard-liners in Iran suspected the U.S. would pull out of the deal as soon as it was no longer consistent with U.S. interests and will be vindicated at home if the deal fails.

It is not a foregone conclusion that Trump will renew sanctions. And even if he does, the mercurial president can waive them again just as easily as he reinstituted them if Iran makes further concessions, though its ability to do so will be limited. Trump could also symbolically refuse to renew the deal but use a legal loophole to provide exemptions from sanctions to importers of Iranian oil, which would mean in practice not much would change. In other words, the precise path ahead is unpredictable. But considering Iran’s need to secure its western front, this situation was bound to materialize sooner or later. Trump merely brought forward an inevitable reckoning.

The biggest defect of the JCPOA was that its main focus was preventing Iran from enriching uranium, even though the United States’ real concern was preventing Iran from establishing itself as a dominant regional power. Iran did not agree to curtail pursuit of its regional interests, nor did it stop work on developing the other elements necessary to launch a nuclear weapon such as longer-range missiles. Pulling out of the JCPOA will weaken Iran and cripple the Rouhani administration, which ironically means empowering the very hard-liners for whom the JCPOA was a betrayal in the first place. The U.S. and Iran have a history of distrust going back 65 years, but the bigger issue is that the U.S. is standing in Iran’s way. Without the JCPOA, politics will no doubt continue by other means.