Expectation Or Hope? In Tehran, Borrell Battles With Iran Nuclear Impasse

This relatively strong economic growth can partially explain Tehran’s current stonewalling of nuclear negotiations with the Biden administration, as Supreme Leader Ali Khamenei likely does not feel massive pressure to secure sanctions relief by striking a deal. If Washington were to reinvigorate its sanctions enforcement, however, it could reverse the Islamic Republic’s economic fortunes, stoke political instability within Iran, and pressure Khamenei to surrender.

According to Iran’s Statistics Center, the country’s GDP grew by 4.3 percent during the Persian calendar year 1400 (April 2021 to March 2022). The growth rate in the previous year was one percent. Almost all major sectors of the economy grew. Oil and gas saw the fastest growth rate, at 9.7 percent. The service sector, the largest sector of Iran’s economy, grew by 4.5 percent after having shrunk by 1.3 percent the previous year. This growth, however, does not mean that the economy is doing well. The real GDP is still below its March 2018 level, the point-to-point inflation was 52.5 percent in June, and the country faces daily protests and strikes over low wages and high inflation.

Several factors explain this higher growth. First, since taking office in January 2021, President Joe Biden has abandoned his predecessor’s policy of “maximum pressure” against Iran, leading to loose enforcement of U.S. sanctions against the Islamic Republic. Iran exported $48 billion worth of non-oil goods during the Persian year of 1400, the most in the country’s history. This trend has continued throughout the first two months of 1401 (April and May 2022), during which time Tehran exported 40 percent more oil year-over-year.

100%

Meanwhile, Iran’s economy has benefited from higher prices of commodities, particularly oil and oil-based goods such as petrochemicals. The Islamic Republic also managed to replace some imported goods by expanding domestic production, in turn boosting Iran’s manufacturing and mining sectors. Finally, the removal of pandemic-related restrictions, combined with public optimism about reaching a deal with the United States to end sanctions, contributed to the growth in the service sector.

Iran’s renewed economic growth likely helps explain why Khamenei is in no rush to reach a nuclear deal with Biden. Loose U.S. sanctions enforcement has allowed Khamenei to reap economic benefits while expanding his nuclear program and eroding Washington’s leverage over Tehran.

Fortunately for the United States, however, Iran’s economy — and thus Khamenei’s negotiating position — remains fragile. If oil prices remain high and U.S. sanctions enforcement remains lackluster, the Islamic Republic could probably achieve 3to 5 percent growth this year. But a U.S. return to “maximum pressure” would likely see Iran’s economy return to meager or negative growth rates.

One sign of this fragility is that Iranian economic growth decelerated toward the end of the year, with GDP growing by just 2.3 percent during the last quarter (spring of 2022) compared to 6.9 percent during the first quarter (winter of 2021). That trend held true across most economic sectors. For example, whereas the oil and gas sector grew by 27.4 percent in the first quarter, its growth rate dropped to 0.5 percent in the fourth quarter. Likewise, the real estate sector grew 15.3 percent in the first quarter but shrank by 3.4 percent in the last quarter.

100%

Moreover, the Islamic Republic has suffered from high inflation since late 2018, reducing purchasing power. This means that domestic consumption and demand are fragile. If the Biden administration tightens sanctions enforcement, consumer and investor pessimism will push down investment and consumption. The result will be a slowdown in economic activity and lower or negative GDP growth.

That economic downturn could exacerbate Iran’s ongoing socio-political instability, toppling his regime or increasing Khamenei’s incentive to reach a deal with Washington. Since 2017, the country has faced two waves of massive protests. In November 2019, the regime killed at least 1,500 protesters in less than a week to survive the most widespread protests of its history. Government restrictions and self-imposed isolation during COVID-19 slowed down the protests, but as those impediments faded, protests and worker strikes began again in 2021 and gained momentum in 2022. The protests and strikes now occurring daily across Iran reflect deep societal discontent, which can both signal and create economic troubles.

If the Biden administration continues with the status quo, it can expect Tehran to continue stonewalling, eliminating any chance of reaching an acceptable nuclear deal. Conversely, reviving maximum pressure could force Khamenei to play ball. With the Islamic Republic edging closer and closer toward a nuclear weapon, Biden doesn’t have any time

Saeed Ghasseminejad, who contributed this opinion article is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). Follow Saeed on Twitter @SGhasseminejad. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.

The opinions expressed by the author are not necessarily the views of Iran International.

Kurdish human rights group Hengaw said on Friday that Jamal Abdollahi, who is accused of helping the perpetrators in the assassination in November 2020 to flee Iran, was "temporarily" released on Thursday after 14 months of imprisonment in one of the security detention centers of the Revolutionary Guard in Tehran.

He was arrested along with his brother in April 2021 and was denied access to a lawyer during the past 14 months. His brother Kamal is still behind bars. 

They are accused of helping some of the perpetrators escape through the border near the city of Baneh in Kurdistan province, but they were never tried over the charges. 

His release comes as the chief of IRGC’s intelligence Hossein Ta’eb was replaced by Mohammad Kazemi, another figure in the outfit, reportedly due to long-simmering opposition by other top security figures.

Iran blames Israel for the assassination of Fakhrizadeh, said to had been Iran’s top nuclear man, in a highly complicated operation east of the capital Tehran involving a remote-controlled one-ton automated weapon that had been smuggled into the country in pieces.

Iran has also accused Israel of sabotage operations against its nuclear facilities including an explosion in April 2021 that inflicted major damage to the Natanz uranium enrichment site.

Israel has never officially taken responsibility for any of these assassinations and sabotage operations but also has never denied involvement.

The EU announced the two-day trip of Josep Borrell as part of his role as “co-ordinator of the JCPOA,” referring to the 2015 deal in his official title as the Joint Comprehensive Plan of Action. Year-long talks in Vienna over reviving the JCPOA paused without success in March, reportedly due to disagreement between the United States and Iran, including over Washington listing Iran’s Revolutionary Guards as a ‘foreign terrorist organization.’

“Diplomacy is the only way to go back to full implementation of the deal and to reverse current tensions,” Borrell tweeted.

The EU foreign policy chief is due to meet Iranian foreign minister, Hossein Amir-Abdollahian, who has just hosted Russian foreign minister Sergei Lavrov in Tehran. “Bilateral relations, regional and international issues, as well as the latest status of sanctions lifting will be discussed during the visit, which is part of the ongoing consultations between Iran and the European Union,” Iranian Foreign Ministry Spokesperson Saeed Khatibzadeh said.

European officials have expressed impatience over the impasse in the Vienna talks, while Russia, which has always voiced support for the JCPOA, may want to avert another crisis as it copes with the consequences of the Ukraine war.

While US President Joe Biden came into office committed to restore the JCPOA, from which his predecessor Donald Trump withdrew the US in 2018, he has kept in place Trump’s ‘maximum pressure’ sanctions and his officials have rejected Iran’s request to remove all sanctions introduced by Trump, including the IRGC listing.

Biden has also, partly in an effort to persuade Saudi Arabia to pump more oil and ease upward pressure on US gasoline prices, softened his previously critical approach to Riyadh, especially over human rights and the Yemen war. Both JCPOA opponents, Saudi Arabia and Israel want US support for great military co-operation, including air defense, against Iran and its regional allies.

Welcoming Borrell’s visit, Iran’s official news agency IRNA quoted Peter Stano, the EU’s lead spokesperson on foreign affairs, that the trip was part of continuing efforts to achieve “full implementation” of the JCPOA.

There has been a raft of speculation – briefing and counter-briefing– that Iran is ready to soften its stance over the IRGC listing in order to ease sanctions through restoring the JCPOA. While Iran has not let up on efforts to expand trade with Russia and Asia, and is benefiting from the rising price of oil, the Iranian rial Friday hovered around 320,000 to the dollar, showing no market optimism over JCPOA revival.

Al-Arabiya Al-Jadeed, a London-based publication owned by a Qatari company, quoting “well-informed Iranian sources” tweeted late Thursday that Borrell plans to discuss the revival of Iran nuclear talks stalled since March during his reported trip to Tehran.

Iranian government media and officials have not yet reacted to the report. Some Iranian news websites simply carried the Al-Arabiya Al-Jadeed’s report.

Diplomats were claiming that a draft agreement to return to the 2015 nuclear agreement was almost ready when talks broke up in March on Iranian demands that the US lift terrorism related sanctions imposed on its Revolutionary Guard. The United States has called the demand “extraneous” to the nuclear issue.

Meanwhile, Enrique Mora, Borrell’s deputy, tweeted a photo Thursday of having dinner in Brussels with US Special Envoy for Iran Rob Malley and Borrell.

Mora said in the tweet that the three had “in-depth conversation about JCPOA & regional perspectives in wider Mideast. Malley reiterated firm US commitment to come back to the deal.”

Iran’s ambassador to China, Mohammad Keshavarzzadeh, said on Thursday that Wang made the remarks in a phone talk with Iranian Foreign Minister Hossein Amir-Abdollahian.

He said the BRICS summit – a conference attended by the heads of state of the five member states Brazil, Russia, India, China and South Africa -- the issue of Afghanistan as well as the latest developments in Iran nuclear talks were among the topics of the conversation. 

While China supports pushing forward the Vienna negotiations to restore the 2015 nuclear deal, Beijing has kept close communication with Tehran since the talks stalled in March, reportedly because of Iran’s insistence for the removal of its Revolutionary Guard (IRGC) from the US list of Foreign Terrorist Organization (FTO).

Earlier in the week, Tehran again blamed Washington for lack of progress in talks, saying it is ready to resume negotiations to achieve a “good deal”. But a good deal for Iran means something very different from what the US says is possible.

The Biden Administration that came to office with a promise to restore the Obama-era Joint Comprehensive Plan of Action or JCPOA, says that it is ready to lift nuclear-related sanctions imposed by its predecessor but does not want to discuss “extraneous issues,” meaning sanctions imposed by the Trump administration over support for terrorism or other violations by Iran and Iranian entities.