The Iran Nuclear Deal: As Seen From Asia

We have a deal.

In a deal of historic proportions over the weekend, the so-called P5+1, consisting of the United States, Russia, China, France, Germany, and the United Kingdom, reached an interim deal with the Islamic Republic of Iran over the latter’s nuclear program. Iran agreed to major concessions, effectively rendering the interim deal a success for the P5+1.

Tit-For-Tat: What Each Side Conceded in the Deal

According to the joint plan of action released by both sides following the talks, for the next six months (and longer if renewed) Iran has agreed to:

1. Stop enriching uranium to 20 percent levels, dilute half of its current 20 percent stockpile to below 5 percent, and convert the other half of the stockpile to oxide for fuel fabrication at the Tehran Research Reactor. The text also says “no reconversion line,” which appears to imply that Iran has agreed not to reconvert the 20 percent oxide back into uranium hexafluoride (UF6) where it could be further enriched to weapons grade levels.
2. Not install any new centrifuges at either of its enrichment facilities, start feeding UF6 into centrifuges that are currently installed but not being operated, or increase its stockpile of non-installed centrifuges.
3. Halt construction on the Arak Heavy Water Reactor and not engage in reprocessing or construction of a reprocessing facility.
4. Allow IAEA inspectors daily access to its enrichment facilities, up from the current weekly visits they enjoy. Additionally, IAEA inspectors will be allowed to inspect parts of the enrichment program that they have not had access to before.
5. Submit to the IAEA an updated Design Information Questionnaire (DIQ) for the Arak heavy water reactor. Work with the IAEA to complete a safeguard agreement for the site.
6. Work with the P5+1 and the IAEA to clear up any past and present concerns regarding its nuclear program. This most notably implies working out conditions for the IAEA to inspect the Parchin military complex that the agency hasn’t been allowed to visit since it toured facilities there twice in 2005.

In return, over the next six months the P5+1 has agreed to:

1. Unfreeze what the White House later clarified was US$4.2 billion in Iran’s frozen funds in oversea bank accounts. In other words, Iran will be given access to some of its own money. This will occur on a rolling basis over the the next six months as Iran complies with its end of the bargain. The funds will begin being released to Iran starting next month, France announced on Monday.
2. Suspend EU and U.S. sanctions on Iran’s petrochemical, gold, and precious metal exports. The White House estimates this will provide Iran with US$1.5 billion over the next six months.
3. Suspend U.S. sanctions on Iran’s auto industry and agree to sell it spare parts for its Boeing civilian aircraft, which hopefully will reduce the unacceptable number of civilian plane crashes Iran experiences due to faulty and outdated equipment.
4. Allow Iran to continue selling oil at current levels, and not sanction shipping companies for carrying these legitimate oil shipments.
5. Not impose any new UN Security Council or EU nuclear-related sanctions on Iran. Additionally, the Obama administration will, to the extent that it is “consistent with the respective roles of the President and the Congress,” refrain from imposing new U.S. nuclear-related sanctions on Iran.
6. Set up a financial channel to better facilitate Iran’s purchase of humanitarian goods, many of which are not sanctioned and may even be explicitly exempt from sanctions but which have nonetheless been denied to Iran by international banks concerned about violating sanctions.

Altogether, the White House estimates that this amounts to between US$6 billion and US$7 billion in sanctions relief for Iran over the six month period, although the higher figure appears to incorporate the humanitarian aid and the spare parts for Iran’s civilian aircraft. Under the current sanctions regime, Iran loses about US$5 billion each month in oil sales alone, with an unknown additional loss from financial and other sanctions. Based on a 30 day month, this means Iran will be receiving at most about 36 days of relief from oil sanctions, despite freezing and in some cases rolling back its nuclear program for a period of 182.5 days.

Political and Geopolitical Outcomes

Despite the breakthrough, John Kerry is right when he says that the “next phase… will be even more difficult.” The harder part of the P5+1-Iran talks was always going to be reaching a lasting comprehensive solution. The lopsided nature of the interim agreement may have further complicated this process.

Specifically, since Iran has made the bulk of its necessary concessions during the interim agreement, it will have few additional concessions to offer to reach a comprehensive solution. The only obvious concessions it could offer, besides extending all the concessions from the interim deal, would be to dismantle some of its existing centrifuges, close down one of its enrichment facilities, and reduce its stockpile of 5 percent enriched uranium. By contrast, by offering so few concessions in this round of talks, the P5+1 will have to make the bulk of its concessions on sanctions and Iran’s right to enrich uranium during the final deal. Opponents of diplomacy in the U.S. and allied capitals will seize upon the ostensibly lopsidedness of the comprehensive deal to try and derail its implementation. This is particularly problematic because the Obama administration is likely to require Congressional approval for removing many of the sanctions. If reaching the agreement does take a year, some of this will depend on the outcome of the U.S. midterm elections in 2014.

The geopolitical ramifications of this deal across the Indo-Pacific region are expected to be overwhelmingly positive for several net importers of energy who have found themselves constrained by the severity of U.S. sanctions. China, India, South Korea, Japan, Turkey and Taiwan — the only existing buyers of Iranian oil — are expected to benefit greatly.

India is expected to be one of the biggest economic benefactors from the interim deal. On Monday, Iranian Deputy Foreign Minister Ebrahim Rahimpour traveled to New Delhi to brief Foreign Secretary Sujata Singh on the deal. India and Iran have a burgeoning strategic partnership. Iran is one of India’s most significant suppliers of crude oil and the deal will open the door to smoother trade. India is expected to revert to purchasing Iranian crude with rupees, which will boost India’s foreign exchange markets. India’s Economic Times reported that Indian stock markets rose on Monday at the news of the deal.

For China, the Iran deal was the product of a careful balancing and brokering process. According to Hua Liming, a former Chinese ambassador to Iran, China helped foster understanding between Iran and the remainder of the P5+1 when the going got tough in Geneva. Many argue that China sees Iran as a long-term partner and as a major source of oil and gas, and Iran benefits from Beijing being its largest oil customer. The China-Iran relationship was put under some strain when China — traditionally opposed to sanctions — agreed to join the U.S.-led international sanctions regime against Iran over its nuclear program. China’s role in the comprehensive final deal will be closely observed.

South Korean and Japanese refiners, according to a report by Bloomberg, “have no immediate plans to boost crude purchases from Iran.” The two northeast Asian countries are expected to benefit in the long-run from the P5+1 concessions. China, South Korea, and Japan, between them, averaged about 783,000 barrels a day of Iranian crude imports in 2012. Bloomberg writes that “the three nations imported about 761,000 barrels a day during the first nine months of this year.” For Japan, the yen weakened as the price of oil fell after the deal. Both South Korea and Japan have had senior diplomatic officials in Tehran recently for talks with the Iranian government.

Pakistan welcomed the deal seeing it as a development that could set the Iran-Pakistan gas pipeline project back on track.

Ultimately, while this interim Iran deal isn’t a geopolitical panacea by any means, it is an overwhelmingly positive development for stability and security in the Indo-Asia-Pacific region, and for establishing a modicum of trust between Iran and the West. The threat of additional sanctions originating in the U.S. Congress does loom over the diplomatic process, but now that a detente has been initiated, any congressional obstructionism would raise the ire of the many Asian countries that stand to benefit from Iran’s normalization.