We remain committed to the continued full and effective implementation of the Joint Comprehensive Plan of Action” (‘JCPOA’) – European Union, 8 May 2018

I am ready, willing and able” to renegotiate the JCPOA – Donald Trump, 8 May 2018

From this moment, the JCPOA is now composed of five countries” rather than 5+ 1 – President Hassan Rouhani, 8 May 2018

Well it has finally happened. The long expected withdrawal by the United States President of the JCPOA – delivered dramatically by president Donal Trump. The Trexit. The US is officially in breach of the JCPOA. President Trump is also talking about reinstating ‘crippling’ sanctions. What they are we do not know.

If you are an academic, then you would have studied the intricate details of the JCPOA and considered the fact that it is an international agreement and it cannot be unilaterally voided. The US therefore is immediately in breach of the JCPOA.

If you are more politically astute, you would say that in practice it does not matter at all if a single party walks away from it because if that party is the USA, they can, through sanctions, levy enough pressure for all parties to leave. Iran has indicated it’s willingness to continue with the JCPOA.

Trump’s Other Promises

Trump kept his promise; as he did with the Mexican Border Wall and the Paris Accord. There will be turbulence and a period of uncertainty. During this time it is important to see the effects Donal Trump’s other fulfilled promises have had: nothing. The US withdrawing from the JCPOA is irrelevant as long as they don’t impose crippling sanctions – he has mentioned that he will impose them, but what he will impose is critical. Trump can say that he kept his promise and tore up the agreement, but as long as the EU can keep it at that and ringfence their investments – and there is a possibility they can – there will be absolutely no effect felt on the ground. Indeed, many argue that the JCPOA was defective for the Iranians and this is covered further below. It is important to remember, last time there were sanctions imposed pre-JCPOA, the EU was pro-sanctions due to, mostly, Iran’s rhetoric. Now, with

Iran’s compliance, EU is against sanctions. There is no precedent for this and those immediately reacting should know that there is no precedent for the current scenario.

Let’s See What Happens

When we started working with Iran, it was about interpreting sanctions and what can and can’t be done; the former being very limited. Once the JCPOA was signed, there was almost two immediate schools of thought divided into a minority of enthusiastic and ‘can-do’ businesses ready to trade and the majority “Let’s See What Happens” businesses. The Let’s See What Happens approach has meant waiting to see:

  1. If Iran actually complies with the JCPOA;
  2.  If the IAEA confirms Iran is complying;
  3.  If Donald Trump wins the election;
  4.  If Brexit will happen; and
  5. If the conservatives in the UK win the election.

They do, of course, also wait to see if the deal is validated by the President – now they don’t need to.

Whilst the Let’s See What Happens crowd have been very carefully considering the various “if’s” above – through advisors and academics – China, Russia Germany, Italy and France (and a number of Europeans countries) have had a field day with Iran business. Whether it was seeing the launch Snap – Iran’s answer to Uber and largest tech company in the Middle East; or other deals such as one with Volkswagen – a return to the country after an absence of nearly 17 years.

The Defective Deal

In the international circuits, those with major interests in the US have been reluctant to do business with a post-sanctions Iran – this makes complete logical sense. The JCPOA from the Iranian side is defective as it does not properly deal with banking and financial services and that is itself a natural and viable risk – we have no doubt that if the deal survives the US withdrawal this will be corrected. This, however, has opened a rare and unique opportunity for the multinational businesses with no or limited US interests to enter a market filled with immense opportunities.

The above is not a unique business phenomena linked only to Iran. Take for example, the UK property market. Some businesses or individuals buy land and property in turbulent times, some don’t. Those that don’t are naturally part of the Let’s See What Happens crowd (Brexit, elections, oil prices etc). Those that do use the unique leverage turbulent times offer to devastating effect in the negotiation tables; obtaining bargains unheard of in other markets.

What Happens Next

With Donal Trump having delivered his campaign promise it is essential now to see what the EU will do as a reaction. For that we must look at facts as they stand today.

The most pertinent facts are as follows:

  1. The IAEA, the only independent body responsible for monitoring Iran’s actions, has verified Iran’s compliance over ten times;
  2. The rise of companies like Snap show categorically that Iran is a fantastic place to invest in, especially as Snap has nothing to do with oil;
  3. EU supports the JCPOA as per their announcement on 8 May 2018 and is benefitting from doing business from Iran – and it wants to continue doing so;
  4. Britain will need to do business with Iran post-Brexit to start trying to make the same a success; and
  5. The world is a safer place with the JCPOA, or an agreement like it, in place. Even if it is removed, something must inherently replace it.

In fact, one could argue that today could just end all business with Iran. The answer is, actually, no. The worst case scenario that will come out of this is another “Let’s See What Happens”. Take this for example: first of all the unwinding of the agreement on the US side will take at least 180 days to six months and if president Trump reimposes sanctions, provided they are not as devastating as he claims, there will be a six-month period before any are reinstated. There could, potentially, be a separate deal made during this intervening period which will categorically revitalise the agreement – we know Trump is, as he claims: “ready, willing and able”. We can then “see what happens” thereafter.

The USA being part of JCPOA is largely irrelevant as primary sanctions significantly limit US investment and trade in Iran. A replacement agreement could be in place without US participation. It is highly unlikely that the US will alienate it’s European allies and impose sanctions where such countries do not see Iran as a threat if Iran is complying with a replacement JCPOA.

The truth of the matter is simple: Iran is only a good place to do business whilst this turbulence is in place. Once that is removed, the market will be immediately saturated as no viable business will turn it’s back on the largest economy to open up in recent memory.

Indeed, looking at this logically, the more options an Iranian institution has, the less likely one would get a good deal – – and it is those times that those in the minority – bold businesses – will likely turn the table on the Let’s See What Happens crowd with a minimal: “I told you so”.

Berkeley Rowe