Author: Indira A. R. Lakshmanan
For Barack Obama, July 14, 2015 marked the greatest diplomatic triumph of his presidency: Amid flags and flashbulbs in Vienna, his secretary of State, John Kerry, announced a historic, UN-backed nuclear accord to defuse the global security threat of a nuclear-armed Iran.
For Mark Dubowitz, the day was a bitter setback. He and his hawkish policy shop, the Foundation for Defense of Democracies, had been fighting what they feared would be a bad deal since negotiations were announced. To blunt the sting, Dubowitz and his staff passed around a bottle of Laphroaig scotch. As they clinked glasses and discussed the next phase of their fight, Dubowitz’s eye landed on a souvenir collected by a colleague on a 1979 trip to Tehran: a commemorative plate bearing the face of Ayatollah Ruhollah Khomeini, first supreme leader of the Islamic Republic of Iran. It was a spine-stiffening reminder, Dubowitz recalled this week, of "how long Iran has been a sworn enemy of the United States.”
That was a year ago. Over the next two months, the Obama administration sold the deal to Congress and the American public, coordinating its message from a now-famous “war room” (or as some officials dubbed it, “anti-war room”) in a West Wing basement. Dubowitz and other opponents fought them fiercely on Capitol Hill, but lost: In the end, 58 senators opposed the Iran deal, and the White House rallied the remaining 42 to block a Congressional resolution rejecting the deal. The accord took effect six months ago: Iran agreed to restrict its nuclear activities and open itself up to intrusive U.N. inspections; in exchange, all U.S. and Iranian nuclear sanctions were lifted on January 16, and Iran was to begin re-entering the world economy.
A year after the celebration in Vienna, Mark Dubowitz hasn’t abandoned the fight. He and his allies—a constellation of pressure groups, analysts, lobbyists and lawmakers—are leading a less headline-grabbing but equally relentless challenge to Obama’s signature foreign policy legacy. Dubowitz, FDD’s executive director, still has hopes of dramatically altering the terms of the Iran deal, and he and his crew of some 20 sanctions experts, terrorism analysts, nuclear advisors, human rights researchers and Persian-speaking colleagues are working feverishly in their “wonk room,” as he calls it, in a gray office building above a Subway sandwich shop six blocks from the White House.
Though the motive is the same, the battlefront has changed. Last year’s arguments over centrifuges, uranium stockpiles and breakout time have given way to a disciplined push on the economic front, trying to prevent Iran’s regime from reaping the economic windfall that the easing of sanctions was expected to deliver. If the deal hinges on Iran re-entering the world economy, Dubowitz is bent on preventing that re-entry from happening.
This time, critics of the pact have made some real headway. And some defenders of the accord are starting to worry about its long-term prospects for survival. They accuse its opponents of pursuing a deeper agenda, trying to kill the deal altogether by removing incentives for Iran to comply with it. (Dubowitz insists he wants a stronger deal rather than none at all.) Only last week, alarmed by testimony from Dubowitz and others, House lawmakers passed measures to block U.S. aviation giant Boeing Co.’s planned sale of passenger aircraft to Iran, worth up to $25 billion—a deal explicitly permitted under the nuclear accord that is intended to shore up Iran’s ancient and accident-prone passenger fleet. The president has vowed to veto any legislation that threatens the deal, but it’s not a promising sign that one year out, Republicans and some Democrats are already casting voice votes that undermine the agreement.
Wednesday on the Hill, Rep. Jan Schakowsky, an Illinois Democrat and backer of the nuclear pact and improved relations with Iran, assured a group of deal supporters that the House measures to block the Boeing contract are “not going to go anywhere.” Republican leaders may be pushing the measures in part for political theater, she insisted, but new sanctions won’t make it through Congress.
That may be true, but during a presidential campaign, when the optics of appearing soft on Iran are especially bad, U.S. officials now find themselves on the defensive. Furious at the slow pace of investment and the failure so far of major business deals with European partners to come to fruition, supreme leader Ayatollah Ali Khamenei has accused the U.S. of purposely thwarting Iran and discouraging banks from taking its business. If the situation isn’t resolved, Iran has threatened formal protests, which could force Washington to defend itself before other the world powers who backed the deal. That leaves Secretary of State John Kerry in the awkward position of seeking to ensure that Iran benefits enough from the deal economically so that it has every incentive to hold up its end of the nuclear bargain.
“We’re not in Iran’s corner fighting for them. What we’re fighting for is a good deal that gives us what we need in terms of verification and transparency,” said one State Department official who spoke on condition he not be named. The U.S. isn’t going to drum up any business for Iran, he insisted, but “a ‘deal’ means both sides get something … We have to make sure all sanctions relief elements we promised have come into effect, and that we’re not standing in the way” of legal deals.
The fight underway now is all just a prelude to the real battle royal. In the final months of the presidential campaign, the Iran nuclear pact will likely get hammered by presumptive GOP nominee Donald Trump, who has repeatedly called it “horrible” and “disastrous.” His Democratic opponent Hillary Clinton—who unlike Kerry had no part in its negotiation—may be constrained politically from offering up more than a tepid defense. In six months, when a new occupant moves into the White House—whether it’s Clinton or Trump—critics of the deal hope the new president will insist on tougher terms. They’re looking for the president either to demand “a better deal,” as Trump has promised, or to pressure Iran to accept tougher conditions in exchange for better access to the global financial system.
They also expect the next president to more aggressively enforce remaining sanctions, punishing Iran for illicit conduct that’s not covered by the nuclear deal. In all, it leaves Obama and Kerry’s achievement on more tenuous ground than anyone would have expected a year ago.
Mark Dubowitz feels very good about all this. In the last year, he and his FDD colleagues have made at least 20 trips to Europe, the Middle East and the Persian Gulf to talk with government officials, bankers, financial regulators and businesspeople about the risks of restarting business with Iran. They’ve briefed hundreds of members of Congress and their staffers, Treasury and State Department officials and journalists on their research suggesting Iran is actively engaged in illicit procurement of ballistic missiles and intelligence that they believe shows Iran Air flew secret resupply flights to help Bashar al-Assad’s forces in Syria’s war.
Dubowitz has testified before the House and Senate 10 times since the deal was reached, warning that Iran’s regime is trying to extract greater financial benefits, and accusing the Obama administration of being ready to give away economic concessions. Wiry, single-minded and always on message, the 47-year-old lawyer and former venture capitalist who favors neatly tailored French suits has built relationships in the last decade with Republicans and Democrats in Congress, as well as with Treasury Department officials and advisors to Hillary Clinton. He is constantly thinking up—and promoting—new ways to squeeze the regime that he views as the greatest threat to the U.S., Israel and Iran’s own people.
His allies in the opposition are an array of groups in the U.S., Europe and Israel that share a belief that the West is being too easy on what they still see as an extremist Islamist state. The pressure group United Against Nuclear Iran (UANI) has placed ads in major European newspapers, including a full-page spread in London’s Financial Times in March. UANI is another privately funded advocacy group, this one founded by leading Republican and Democrat national security officials, including former CIA chief James Woolsey, who is also FDD’s chairman, and Dennis Ross, who later advised Obama on Iran. Since the deal was approved, it has expanded resources warning of reputational and legal risks to doing business with a leading state sponsor of terrorism, and it’s naming and shaming companies that do. The Israel Project, a non-partisan education and advocacy group that is often aligned with the policies of Israeli Prime Minister Benjamin Netanyahu’s Likud Party, has aggressively policed the deal, blasting out media alerts claiming the administration oversold the deal and underplayed U.S. concessions, and spreading the word of suspected Iran cheating or U.S. backsliding on enforcement. Members of Congress—advised by FDD, the American Israel Public Affairs Committee, UANI and others—are considering more than 30 pieces of fresh sanctions legislation to pressure Iran anew.
Deal opponents say their focus now is to expose Iran’s bad behavior and risks for business, and to minimize Iran’s economic gains so the regime can’t use new trade and investment to spend more money on terrorist activities, ballistic missiles, wars in Syria and Yemen and repression at home. Once a new U.S. administration is inaugurated, getting a better and broader deal is still possible, they insist: if Iran wants access to the U.S. financial system, for example, it should agree to end financing for terror groups like Hezbollah, Dubowitz says.
The Obama administration and other backers of the pact dismiss such talk of an idealized “better deal” as akin to searching for a proverbial unicorn. There isn’t a perfect deal out there, Kerry has said many times, asserting that his team met its bottom lines, ensuring Iran lost all paths to a nuclear weapon—and did so with the backing of the UN, Russia, China and Europe to enforce the deal. In any negotiation short of a military defeat, his defenders say, both sides make concessions and the U.S. can’t expect to get everything it wanted. “There was no better deal to be had,” Stephen Mull, the State Department coordinator for Iran Deal implementation, insisted this week. “If Iran continues to meet its obligation and we walk away, we walk away alone,” he warned.
There are opponents of the deal in Washington who disagree—“who genuinely believe you could try to move the goalposts to strengthen the deal so the next U.S. president can exact more concessions,” said Liz Rosenberg, a former senior advisor to the Undersecretary of Treasury for terrorism and financial intelligence who was involved in Iran negotiations. But do critics want “to kill the deal, or to call for technical assistance and support for Iran to become a more responsible financial actor?” asked Rosenberg, now a fellow at the Center for a New American Security. “I’m afraid there are more people in the former camp, trying to sink the deal.”
Officially known as the Joint Comprehensive Plan of Action or JCPOA, the 159-page accord Iran signed with the U.S., the European Union, Britain, France, Germany, China and Russia, Iran accepted verified limits on its nuclear program in exchange for relief from an array of sanctions that had slashed its oil exports by more than half and crippled its banking and trade across nearly every sector of the economy, triggering runaway inflation and a plunging currency.
Critics complain that the deal didn’t address Iran’s other bad behavior and that most of the nuclear restrictions expire over time. Kerry argues there’s no sunset on the most important one: Iran’s commitment, enshrined in the deal and the Non-Proliferation Treaty, never to pursue nuclear weapons—and the UN’s and international community’s right to verify that promise.
Deal defenders like Daryl Kimball of the Arms Control Association point out that other arms control agreements, like the 1991 accord to eliminate excess Soviet nuclear and chemical weapons, didn’t change Russian bad behavior either. That deal faced many of the same criticisms from lawmakers worried Russia could now spend more on newer weapons. Like most arms control agreements the U.S. made with the Russians, that accord has expired, says Larry Korb, a former senior Defense Department official in the Reagan administration. But he and Kimball maintain it did what it was designed to do.
Today the Obama administration says Iran is in full compliance with its nuclear obligations and that a draft UN report has reached the same conclusion—proof the deal is working. Deal opponents focus on Iran’s potential to cheat or seek nuclear weapons in the future, and more broadly on Iran’s bad behavior: its continued missile development, support for the murderous Assad regime in Syria and other unsavory activities. U.S. officials say that since the deal was made, they’ve blacklisted some 20 entities linked to Iranian missile procurement or Mahan Air, which has been linked to the Islamic Revolutionary Guard Corps. Their actions, while deplorable and punishable, officials say, don’t violate the nuclear deal or justify denying Iran limited economic relief it was promised for nuclear compliance. Anti-dealers accuse the administration of holding back to avoid angering the Iranians, pointing out that in the 18 months before the deal was signed, the U.S. blacklisted more than 100 entities for similar violations. The administration denies it’s pulling punches, saying it needs more time to research and target new entities involved in illicit behavior, because so many have already been blacklisted.
There’s a real risk for Washington and its allies including Israel, several State Department and Treasury officials warned, if Iran blames the U.S. for blocking trade and investment and wins sympathy from the international community—or walks away from the deal.
“Stigmatizing all business with Iran is the new sanction,” says Trita Parsi, president of the National Iranian-American Council and an ardent champion of the agreement and of improved relations with Iran. So far, he says, efforts by the anti-deal camp are “paper cuts,” but he worries that with every new obstruction, “the foundation for the deal is weakening” and could be eroded. He and other Persian-speaking analysts who read news from Tehran warn that if Iran’s people see scant economic upside from the deal, the relative moderates who negotiated it at great political risk will lose influence with the supreme leader. If Iranian President Hassan Rouhani is seen as having made too many nuclear concessions without delivering promised economic growth, he could lose the 2017 election, Parsi warns, and the accord that the Iranian hardliners opposed could be left very much in limbo.
In this uncertain environment—one in which Iran says it is not getting economic relief fast enough, while the anti-deal crowd in Washington thinks Iran is getting too much—European banks and companies are leery of jumping in too quickly and confused about what’s legal and what’s not. Some U.S. businesses are annoyed that with very few exceptions, they have no shot at the potentially lucrative profits their foreign counterparts might rake up in Iran’s oil and gas sector, automobiles, infrastructure, mining and other sectors.
By and large, observers say, the campaign to discourage business with Iran is working—though some current and former officials say Iran’s regime has done more damage to its own reputation with investors and financial institutions through corruption and illicit conduct over the years than its critics have by highlighting those failings.
It would be wrong to say that Iran hasn’t benefited from the lifting of sanctions. In the six months since the deal was implemented, Iran has restored its crude oil production and exports to levels it enjoyed before the U.S. and European Union slapped on oil sanctions in 2012. It has opened more than 300 new bank accounts with foreign banks, negotiated billions of dollars of new lines of credit, and has seen planned foreign direct investment increase by more than $3 billion, the Treasury Department says. Iran’s GDP may grow by 4 percent this year, according to Patrick Clawson, director of research at the Washington Institute for Near East Policy, though low global oil prices mean its export revenue is likely to be just a quarter of what it was in 2011.
But Iran’s oil and gas sectors haven’t seen any major investment yet, said Sara Vakhshouri, an energy analyst in Washington who previously worked in Iran’s public and private energy sectors. Vakshouri lays the blame more on Iran’s shoulders than on its opponents here. Six months since sanctions were removed, Iran still hasn’t finalized its upstream investment regulations under a new petroleum contract. She blames rivalries among Iranian political groups and a lack of leadership over economic and industrial policy.
Indeed, aside from recouping lost oil sales, the post-sanctions gold rush that many in Iran expected to flow from the nuclear deal hasn’t materialized. Despite a parade of European and Asian trade and investment delegations and dozens of prospective deals written up in the press, it’s hard to find a major non-oil deal that has yet come to fruition.
That’s in part because although Iran has reestablished relationships with second- and third-tier banks, the global financial giants needed to bankroll multi-billion dollar deals are reluctant to re-engage with Iran, fearful of the overhang of remaining non-nuclear U.S. sanctions, including an embargo on almost any commerce between Americans and Iranians. French Bank BNP Paribas was ordered to pay $8.9 billion in a settlement with the U.S. last year over evading Iran sanctions, a judgment that remains a powerful reminder not to run afoul of American banking regulations.
The governor of Iran’s central bank, Valiollah Seif, warned Americans in April that if implementation of the deal doesn’t facilitate Iran’s business activities, the deal “breaks up on its own terms.” Iran’s foreign minister, Mohammad Javad Zarif, who negotiated the deal, is frustrated Iran hasn’t seen the expected payoff from the easing of sanctions, and has pressed Kerry for help.
On a trip to London in May that State Department officials say came at the request of the U.K. government and European financial institutions, Kerry met with banking executives to clarify that the U.S. won’t penalize foreign institutions for doing legal business with Iran. Kerry was immediately blasted back in Washington by anti-deal groups, who branded him the “new trade promotion officer for the Islamic Republic of Iran.”
Former Undersecretary of Treasury Stuart Levey, a driving force behind the increase in U.S. sanctions on Iran between 2006-2011, penned an outraged op-ed in the Wall Street Journal following the meeting, criticizing Kerry for supposedly encouraging non-U.S. banks to do business with Iran. “No one has claimed that Iran has ceased to engage in much of the same conduct for which it was sanctioned, including actively supporting terrorism and building and testing ballistic missiles. But now Washington is pushing non-U.S. banks to do what it is still illegal for American banks to do,” wrote Levey, now chief legal officer of London-based HSBC Holdings. “HSBC has no intention of doing any new business involving Iran. Governments can lift sanctions, but the private sector is still responsible for managing its own risk.”
Richard Nephew, a former senior Iran sanctions official at the State Department who was involved in nuclear negotiations, dismisses as absurd the accusation that Kerry is giving Iran any additional concessions or advantage. “What Kerry says is you can do whatever the JCPOA says—but not more. If that’s trade promotion, then he’s the worst trade promotion officer in the world,” said Nephew.
The Obama administration also denies that Kerry was shilling for Iran or that he made the trip at the insistence of Iranians. Dozens of foreign banks have sought clarification of the new rules, and Kerry and a host of lower-level officials tried to answer questions from governments and businesspeople to clarify the rules, according to State Department and Treasury officials. Deal defenders like Tyler Cullis, a lawyer and sanctions expert at the National Iranian-American Council, say U.S. officials are and should be doing “road shows” to undo the message they sent in 2010 when they made trips to Europe urging banks not to finance Iran business.
A major reason leading non-U.S. banks aren’t leaping at the opportunity to do business in Iran is because of Iran’s own conduct. Despite the clarifications, one reason non-U.S. banks are not leaping at the opportunity to do business in Iran is because of Iran’s own conduct. Rampant corruption, scant transparency or judicial recourse, and major sectors of the economy under the control of the sanctioned Islamic Revolutionary Guards Corps, make Iran a legal and compliance nightmare, several current and former Treasury officials said.
Matthew Levitt, a former Treasury official and now a counterterrorism program director at the Washington Institute for Near East Policy, said until such behavior that made Iran “a pariah state” changes, “banks are likely to continue to see prohibitive reputational, regulatory, and other risks to doing business there. The only country that can do anything about that is Iran.”
A perhaps insurmountable barrier to that kind of change in Iran is that “the pragmatic wing of the government that welcomes capital is far less powerful than the supreme leader and the Islamic Revolutionary Guard Corps, who fear economic integration as a threat to their interest,” said Karim Sadjadpour, an Iran specialist at the Carnegie Endowment of International Peace. “When Iran is truly ready to attract rather than repel foreign investment, it will cease taking foreign nationals hostage and drop the official slogan of ‘Death to America.’”
In fact, those in Washington who want to undermine the deal have surprising allies among hardliners in Tehran, who also want the U.S. to abandon the accord unilaterally, leaving the deal intact between Iran and the rest of the world—and the U.S., not Iran, isolated.
Alex Vatanka, an Iran analyst at the Middle East Institute, says hardliners in Tehran aren’t interested in any kind of rapprochement with Washington; ever since the Iranian revolution in 1979, ideological enmity toward the “Great Satan” has helped to justify the Islamic Republic’s existence. What the supreme leader Ayatollah Ali Khamenei “wants is to have the anti-deal crowd take the U.S. out of the equation, force the U.S. to unilaterally walk away from a deal they signed. In Khamenei’s mind, the rest of the world will then stay with the deal, which would be perfect for him. He would break the back of international isolation and take the U.S. out of the game.”
Will the Iran deal see its second anniversary as well as its first? A longtime observer and practitioner of U.S. foreign policy, Aaron David Miller, can foresee an unhappy ending for the deal sparked both by Iran’s behavior and the drive in Washington to cut off Iran.
“Uncertainty is intensified by the reality that we're less than six months away from a change in administrations and the politically inconvenient fact that regardless of who the next president will be, those who produced the accord and invested mightily in it will be gone,” he said. “You can't underestimate that Kerry's absence will mean no high-level cheerleader for the accord, and no personal ties with [Iranian foreign minister] Zarif.”
With Trump as president, “the deal could enter a death spiral” spurred by Iran's destabilizing behavior in the Middle East, and a “paucity of economic benefits seeding its demise,” said Miller, vice president at the Wilson Center and a former State Department advisor in both Republican and Democrat administrations. He suggests that Hillary Clinton would work to keep the deal alive, but could still put it at risk by taking a more hawkish line on the rest of the Islamic Republic’s illicit activities.
On the deal’s anniversary Thursday morning, Mark Dubowitz was back on Capitol Hill testifying for 90 minutes before the Senate Foreign Relations Committee alongside Richard Nephew, the former Obama administration sanctions negotiator. Nephew stressed that Iran has partially dismantled and significantly restricted its nuclear activities as promised – in other words, the deal is working. Dubowitz focused on Iran’s long-term pathway to a nuclear weapon after the deal expires, and he and Nephew agreed that Iran is engaged in ongoing terrorism and missile development.
Obama’s threat to veto any measures that undermine the deal leaves Dubowitz and his allies undaunted. In a report out Thursday, he made 16 recommendations on how to wield non-nuclear sanctions against Iran, presenting them to Senate and House committees. Back in his office near Dupont Circle after leaving the Senate, he was sketching out suggestions for bipartisan legislation on a white board and adding notes to two black ring binders dedicated to the deal. His group is giving advice, he says, to both presidential candidates’ campaigns. Dubowitz himself has spent many hours over the last eight years making his case in person, by phone and by email to advisors close to Hillary Clinton. Whoever is elected, he’s banking on them taking a fresh look at the deal—and trying to get a better one.