Iran Stands to Lose the Most if the Nuclear Deal Isn’t Revived
The Iran nuclear deal recently marked its seventh anniversary—but it may well turn out to be its last. Despite a year of negotiations in Vienna, which nearly delivered an agreement on how the United States and Iran would return to full compliance with the nuclear deal, the process is now on the verge of collapse.
All parties to the deal share blame, and they all stand to lose. For the West, there will be a dramatic setback for nonproliferation efforts in the Middle East. The failure of the nuclear deal also risks military escalation in a region playing a crucial role during the global energy crisis triggered by Russia’s war in Ukraine. For Iran, the risks are even greater.
negotiators failed to break the deadlock over how to revive the 2015 agreement. According to Western powers, instead of closing outstanding issues, Iran attempted to reopen negotiations on terms that were settled in February. The consensus in Washington and European capitals is that Iran’s leaders are buying time. At best, Iranian negotiators need more time to forge a consensus in Tehran on whether it is worth rolling back the country’s nuclear program for a deal that may only last for the remainder of U.S. President Joe Biden’s term. At worst, Iran is delaying for the sake of advancing its nuclear activities.
Iran has wavered about restoring the nuclear deal in large part because the Biden administration cannot guarantee that the deal will outlast his term. Donald Trump showed how easily a U.S. administration can withdraw, tanking the agreement. Iranian concerns over the deal’s durability have been compounded by the fact that Biden has maintained Trump’s maximum pressure sanctions during the negotiations.
Biden has also been unwilling to show flexibility on concessions to Iran that could offset the lack of U.S. guarantees—such as the removal of the U.S. designation of Iran’s Islamic Revolutionary Guard Corps (IRGC) as a foreign terrorist organization (FTO). Making the optics even worse, Biden doubled down on a hawkish approach to Iran during his recent visit to Israel .
Another U.S. exit from the nuclear deal is possible—maybe even probable—given the chances a Republican president will be inaugurated in 2025. But only one scenario is certain: If the nuclear talks collapse now, the political, security, and economic consequences for Iran will be profoundly negative.
The economic benefits of a revived deal for Iran would be immediate. If U.S. secondary sanctions were lifted, Iran’s oil exports would be around 1 million barrels per day higher. Even if we assume the oil price falls to $80 in the face of supply increases and weakening demand, Iran would be earning an additional $80 million in oil revenue each day. Iran could export more petrochemical products, steel, and manufactured goods.
The country would be paying less for the goods it imports, including food and medicine. Crucially, Iran would regain access its foreign exchange reserves, using those resources to stabilize the national currency and help tame inflation over the remaining two-year period under Biden. Even if sanctions were removed for just a couple of years, it would allow local companies to make long-delayed investments and households to restore their depleted savings.
Iranian policymakers must also consider Iran’s long-term economic potential and how this will be squandered if secondary sanctions remain in place. Since 2012, Iran has experienced a slow decline in its economic power. The country’s physical infrastructure and fixed capital are aging.
The effects of underinvestment and the lack of technology transfer are becoming ever more visible in the old cars, buses, trains, and planes that move Iranians around the country and in the age of the machinery that pumps the oil, rolls the steel, generates the electricity, and ploughs the fields. Any new machinery, domestically produced, is based on old designs. Critical technologies such as wind turbines and CT scanners are in short supply. The Iranian economy is not yet crumbling, but the cracks are multiplying.
Still, Iranian officials insist that the country’s economy has resisted sanctions. This is true, and it is an achievement that has spared the Iranian people even worse privation. But resistance means that Iran is pushing back, not moving forward. Between 1990 and 2007, the average Iranian and the average Pole enjoyed the same level of wealth. Then, beginning in 2012, the fortunes of Iranians began to decline, while Poles continued to get wealthier. If the trends of the last decade continue, by 2030 GDP per capita in Poland will be around $50,000. In Iran, GDP per capita will be slightly lower than it is today, at around $15,000. Even if Iranians are not getting poorer, they are being left behind.
Politically, Iran will be increasingly isolated on the international stage if the nuclear negotiations fail. The United States and Europe will point their fingers at Iran as the sole party to blame. Unlike Trump, Biden will have backing across European capitals to increase the pressure against Iran. Emboldened by renewed trans-Atlantic coordination following the Russian invasion of Ukraine, the United States will have greater support in Europe to build a multilateral sanctions coalition against Iran.
Iran’s advanced nuclear activities have already been widely condemned. The recent resolution passed by the International Atomic Energy Agency’s Board of Governors censuring Iran for its lack of cooperation with the agency, which passed with an overwhelming 30 out of 35 countries voting in favor, provides a clear example of the trajectory ahead for Iran on the international stage. China and Russia opposed the resolution, and India abstained. Iran’s position now stands in sharp contrast to 2020, when the Trump administration attempted to snap back U.N. sanctions. At that time, the Security Council—including U.S. allies in Europe—delivered a humiliating blow to Washington.
Iran’s hard-liners are gambling that their deepening relations with China and Russia can ring-fence them from intensified Western pressures. As Russian President Vladimir Putin’s recent visit to Tehran showcased, the marginalization of Moscow following its war in Ukraine has pushed Iran and Russia closer. China and Russia will not cut ties with Iran, nor are they likely to join the West in pressuring Iran on its nuclear program as they did in the lead-up to the 2015 nuclear deal.
But the experience of the last decade makes clear that the political and economic support they may offer will be both limited and conditional—falling far short of an alliance. In the recent past, Iran has been used as a bargaining chip by both Beijing and Moscow in their own relations with the West. Moreover, given Chinese and Russian interests in Israel and Saudi Arabia, their relations with Tehran are unlikely to translate into the type of deep security and economic cooperation that some among Iran’s leadership are banking on as the alternative to reviving the nuclear deal.
The collapse of the nuclear deal will also have a lasting impact on Iran’s security. Iran will forgo the opportunity provided by the nuclear deal to work with global powers on modernizing its civil nuclear program and boosting its safety—its nuclear program will be characterized as a weapons program by default.
An advisor to Iran’s supreme leader recently noted that while Iran has no intention to build a nuclear weapon, it has all the “technical” aspects necessary for doing so. There is a quiet but growing minority voice among Iran’s leadership that favors steps toward nuclear weaponization in order to transform how the rest of the world, especially the United States, relates to Iran. According to this view, Iran has already absorbed the greatest shock of U.S. sanctions and as such should become a nuclear power to create a regional balance with Israel (the Middle East’s only nuclear power) and protect itself from future U.S. and Israeli military attacks.
This is the strategy that Pakistan used to even the playing field with India in the 1990s despite the extensive pressures at the time from the West. Some in Iran argue that just like Pakistan, the West would eventually be forced to accept and respect it as a nuclear power.
A nuclear gambit will carry high risks for Iran. If Iran charges ahead with nuclear expansion, it is guaranteed that Israel will ramp up its operations inside Iran with the aim of hobbling Iran’s capabilities. The recent wave of attacks and assassinations inside Iran, widely attributed to Israel, demonstrate how extensively Israel has infiltrated Iran’s security apparatus. Such attacks are likely to increase and could drag Iran into a broader conflict with Israel. During Biden’s recent visit to Israel, he declared that he would resort to force to prevent Iran from obtaining nuclear weapons. Even if the United States remains hesitant to get drawn into a new war in the Middle East, Israel will enjoy even greater latitude to attack Iran’s nuclear program and other military sites.
The collapse of the nuclear deal is also likely to severely restrict Iran’s regional ties—something that President Ebrahim Raisi’s government boasts about having expanded. While Saudi Arabia, the United Arab Emirates, and Iraq may look to continue de-escalation talks with Tehran, they will come under increasing pressure by the United States to isolate Iran, cutting off the economic incentives that have helped underpin renewed diplomacy. In 2019, Iran is widely believed to have responded to efforts to cut off its oil exports by coordinating attacks on Saudi and Emirati oil infrastructure. Regional diplomacy intensified soon after the attacks. Recent assessments make clear that even Saudi Arabia and the UAE—unlike Israel—do not favor a military response to the Iranian nuclear threat and fear that a collapse of nuclear diplomacy could result in regional escalation like in 2019.
Iran’s leaders need to decide swiftly if they want to revive the nuclear deal or expose themselves to the high risks associated with its failure. It may appear sensible for Iran to press Biden to sweeten the current offer, but as the delay caused over the IRGC’s FTO designation removal showed, the consensus on the value of the nuclear deal is as shaky in Washington as it is in Tehran.
Developing an ability to resist sanctions—at least in the short term—was a smart tactic that put Iran in the best possible position to negotiate a fair deal with the United States. A fair deal is now on the table. Iranian policymakers must not confuse their tactics with strategy.
There is nothing strategic about closing critical paths to development and inviting isolation by the international community. Similarly, the Biden administration needs to be more courageous and flexible in its approach to diplomacy with Iran. Instead of focusing on short-term tactical goals ahead of upcoming U.S. midterm elections (which has dissuaded the administration from providing Iran with even symbolic concessions), the White House should consider the long-term strategic benefits of rejoining the nuclear deal.
Iran’s leaders also need to keep in mind the strategic picture. Some believe that even if the nuclear talks collapse, Iran can endure the political, security, and economic pains just as it did under the Trump administration. But endurance is pointless if diplomatic opportunities are squandered. There are just a few weeks during which the restoration of the deal remains possible. In this brief window, Iran can still finalize the nuclear negotiations from a position of strength. Given the economic and military risks associated with the failure of the nuclear deal, it may not be able to do so in the future.