As we forecast, the international community has lifted sanctions against Iran after the latter met all of its obligations outlined in the July 2015 nuclear deal. Our model states that Washington, in pursuit of its strategy to re-establish a balance of power in the Middle East, would reach an agreement with Tehran, which wants to return to the international fold. Today marks the culmination of both sides’ strategic decisions to reach a détente.
The International Atomic Energy Agency verified Jan. 16 that Iran had fulfilled all the steps outlined in the Joint Comprehensive Plan of Action agreed upon six months ago to end to the Iranian nuclear controversy. As a result, the United States and the European Union have announced the lifting of sanctions against Tehran, which will allow the clerical regime access to approximately $100 billion in frozen assets and pave the way for new energy and other investment opportunities. The announcement comes within hours of a prisoner exchange following meetings between U.S. Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif in Vienna.
Representatives of international energy supermajors such as Shell and Total arrived in Tehran ahead of the announcement and are expected to hold talks with Iranian officials on how to take advantage of the post-sanctions climate and increase oil and gas production. However, the end of the sanctions comes at a time when the price of oil has plunged below $29 dollars per barrel, seriously limiting Iran’s immediate benefits. In addition to the steep decline in crude prices, the level of investment needed in Iran after decades of sanctions means that any benefits will be long term.
That said, the access to frozen cash will still improve Iran’s financial situation, which will boost Iranian President Hassan Rouhani’s domestic public image only weeks away from critical parliamentary and Assembly of Experts elections. On the foreign policy front, Iran’s international rehabilitation comes as its relations with its principal adversary, Saudi Arabia, have sharply deteriorated. Riyadh recently cut diplomatic ties with Tehran over the burning of the Saudi embassy after the Saudis executed a key Shiite cleric. The close timing of this diplomatic break and the lifting of sanctions shows that the Saudis were preparing for Iran’s comeback on the international stage. Likewise, after today, Iran will also be in a better position to confront the kingdom, though it may take a more measured approach so as not to lose the gains made thus far. In any case, the geopolitical conflict in the Middle East is likely to further escalate.