Today’s debate over an interim nuclear deal with Iran is rightly focused on the size and scope of sanctions relief Tehran will receive in exchange for temporarily halting its nuclear activities. One widely circulated argument against such a deal is that the attraction of Iran’s market, rendered largely off-limits due to sanctions, is such that companies will attempt to secure privileged positions by reentering at the first sign that the U.S. Treasury Department is tapping the brakes, leading to the dissolution of the current sanctions regime.
Chief among those asserting that any relief of sanctions pressure will trigger an international rush back into the Iranian market is Israeli prime minister Benjamin Netanyahu. Appearing on CNN’s State of the Union, Netanyahu warned that “if all of a sudden you take off the pressure, everybody will understand that you are heading south. You’re really going to be in danger of crumbling the sanctions regime.” However, the idea that firms would deliberately violate existing U.S. and EU sanctions, under the assumption that enforcement actions would not be forthcoming, stretches the bounds of credulity. Companies would need to unlearn the recent and painful lessons taught to them by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and state regulators such as the New York Department of Financial Services.
Under the terms of the purported interim deal, the U.S. would offer Iran under $10 billion in sanctions relief, including approximately $3 billion in Iranian oil proceeds held in escrow accounts as mandated by the Iran Threat Reduction and Syria Human Rights Act of 2012. Sanctions on auto sales, petrochemicals, aircraft parts, and precious metals like gold would also be relaxed. The most devastating banking and oil sanctions, which have effectively cut Iran off from the global financial system, would remain in place pending a final deal.
Unintentionally, opponents of the interim deal do an excellent job of articulating why today’s sanctions will not dissolve in the event of a six-month pause. Skeptics warn that given the questions surrounding Iran’s past nuclear activities, Tehran is merely playing for time and that any interim deal will in fact be as far as Iran is willing to go. But executives and the compliance staff of any company considering a reentry into the Iranian market also know this history and will be forced to consider the possibility that even following an interim deal, talks may break down, Iran may renege on its commitments, and sanctions may be reimposed. Any firm that rushed back into the Iranian market beyond the scope of existing sanctions would then be left with significant regulatory exposure, having to explain itself in a political atmosphere poisoned by the failure of the P5+1 talks. Newer, tougher sanctions would surely follow, along with calls to redouble efforts to identify and punish violators.