As US President-elect Joe Biden readies to enter the White House next month, one topic he will need to address is the tough economic sanctions imposed on Iran by the Trump administration, which have crippled the Middle Eastern state’s economy.
In 2015, Iranian officials agreed to dismantle the country’s nuclear programme, paving the way for the Joint Comprehensive Plan of Action (JCPOA), an agreement between Iran and China, France, Russia, the UK, the US, Germany and the EU, to enter into force in 2016. At the same time, based on Iran’s completion of the agreement’s measures, tough UN sanctions on the country were officially lifted.
However, in 2018 and under the leadership of Donald Trump, the US withdrew from the JCPOA and reimposed economic sanctions against Iran. The US’ secondary sanctions programme, which aims to restrict non-US companies from trading with Iran, was reinstated and made legitimate trade with Iran near impossible.
Iran’s government formally announced it too was abandoning the JCPOA when Qasem Soleimani – commander of Iran’s elite Quds Force – was killed in a US air strike earlier this year.
GTR speaks to Jason Wilcox, special counsel in the international trade practice at law firm Baker Botts, about how Biden could approach the use of sanctions and how the US’ relationship with the Middle Eastern state may change under the new administration.
GTR: The Trump administration has used economic sanctions as a foreign policy tool, do you expect any immediate changes to this regime next year when Biden enters office?
Wilcox: In the immediate term, I would not necessarily expect many changes. The US has rarely seen successive presidents with such disparate political agendas as presidents Obama and Trump, but one of the few areas of consistency has been the use of sanctions to advance US national security and foreign policy interests. I would expect that President-elect Biden will also see how vital sanctions policy is to promote those interests.
Over time, I suspect that Biden will make use of sanctions in line with Obama’s philosophy. By that I mean taking a bit more of a surgical approach to ensure that the level of sanctions is commensurate with the overriding objective. The OFAC website says that the goal of US sanctions is not to punish, but rather to bring about a positive change in behaviour – that was apparent in terms of President Obama’s use of sanctions.
GTR: Will the US’ stance towards Iranian sanctions change under the new administration?
Wilcox: While I would expect that President-elect Biden will roll back some of Trump’s policies on Iran, how far he can do so and how long it will take is going to depend significantly on what President Trump does in relation to Iran between now and inauguration day. Even before election day, the Trump administration imposed blocking sanctions on Iranian persons and entities on counterterrorism and other non-nuclear related authorities, including some that were already on the specially designated nationals (SDN) list.
Why do this? Because if the new administration wants to remove these sanctions, it is going to have to show that those persons and entities are no longer supporting malign activities of the Iranian government. As you can imagine, that could be a painful exercise politically for the Biden administration.
Biden has indicated during his campaign that his approach with Iran will be to get it to rejoin the JCPOA, using that as a jumping off point to work with Iran to tackle other issues of concern: its ballistic missiles programme, assistance to terror organisations and human rights violations. Biden wants to take a ‘one step at a time’ approach, whereas the Trump administration’s maximum pressure campaign philosophy aimed to strongarm Tehran into agreeing to address all of these issues in one fell swoop.
GTR: How are the US’ secondary sanctions affecting Iran? How damaging have they been?
Wilcox: In addition to the US’ primary sanctions regime that applies mainly to US persons, the US also maintains a secondary sanctions programme, which aims to deter non-US companies that are not otherwise subject to US jurisdiction from acting against US foreign policy and national security interests by, in some instances, imposing various sanctions on them for engaging in certain significant or material conduct with sanctioned entities. The sanctions that can be imposed range from prohibitions on export assistance from US Exim to an SDN designation.
Where you see the dramatic impact of the sanctions on the Iranian economy is those that apply to the energy sector. The main strategy behind the secondary sanctions regime has always been to stop the government of Iran from using revenues from petroleum, petroleum products and petrochemicals for illicit purposes by preventing it from finding counterparties to purchase petroleum. The Iranian economy has severely dropped off in the last few years, with sanctions targeting the energy sector a key reason for this.
An issue here has been, at least from the perspective of non-US companies, that interpretation of what type of transaction constitutes as significant or material conduct remains entirely within OFAC’s discretion.
GTR: How could the US approach sanctions over the next four years?
Wilcox: I think President-elect Biden will make use of sanctions in much the same way as Obama did, which is seeing it as one tool in the toolbox and employing it more as a last resort when engagement with adversaries does not or will not work. Obviously, Biden had a front row seat to Obama’s roll back of the Iranian and Cuban sanctions programmes, and those were based on the idea that the US could better promote its values and interests through engagement.
Knowing just how quickly and radically US sanctions policy can change under a different administration means it will be interesting to see how readily the Iranian and Cuban governments, for example, are willing to re-engage if Biden takes a similar approach to Obama.