Iran is coming in from the cold. The lifting of sanctions regarding that country’s clandestine nuclear weapons programme has implications for the Asia-Pacific as the Islamic Republic looks to revitalise its military.
On 16th January 2016, a Joint Comprehensive Plan of Action (JCPOA) that facilitated the relief of economic and financial sanctions previously placed on the Islamic Republic of Iran came into force. The JCPOA was signed by the government of Iran and representatives of the governments of France, Germany, the People’s Republic of China (PRC), Russia, the United Kingdom and the United States, and the European Union. Some six months in the making, the day marked the point at which Tehran could again begin to trade with a number of key world powers, after restrictions were placed on the country in 2006 as a result of its clandestine nuclear weapons programme.
Verified by the International Atomic Energy Agency (IAEA), the United Nations organisation which works to promote the peaceful uses of nuclear energy and to fight the proliferation of nuclear weapons technology, Iran had, at that point of the JCPOA’s signature, successfully implemented: “key nuclear-related measures described by the JCPOA,” according to a statement released by the US State Department. The achievement was backed by the US government and the EU, both of which agreed that Iran was no longer developing military-grade nuclear-related technology: “On this historic day, the International Atomic Energy Agency has verified that Iran has implemented its key nuclear-related measures described in the JCPOA, and the secretary of state has confirmed the IAEA’s verification,” the US government said in a statement confirming the implementation of the JCPOA in January 2016. “As a result of Iran verifiably meeting its nuclear commitments, the United States is today lifting nuclear-related sanctions on Iran, as described in the JCPOA.”
To some degree, economic sanctions date back to the start of the Iranian Revolution that began in 1979. These sanctions were imposed by the US administration of President Jimmy Carter. However, it would be in 2006 with the UN’s passing of Resolution 1696 which called upon the Iranian government to halt its enrichment of Uranium; a vital part of nuclear weapons production. At the point of the resolution’s signature, the IAEA could not be assured that Iran would cease its uranium enrichment programme to the extent that the agency required, so sanctions were implemented. Since Iran was largely excluded from economic and financial access to the world stage for ten years when the JCPOA came into effect, it almost immediately took advantage of its access to international trade in exchange for its greatest commodity: oil.
Despite ranking sixth according to the US Energy Information Administration in 2016 in terms of barrels-per-day production of Brent Crude, Iran was significantly impacted by the imposed sanctions which hampered the Islamic Republic’s ability to sell oil on the international market. Nevertheless, with the price of oil again on the rise, the Citigroup financial company announced in April that it expects Brent Crude to reach circa $65 per barrel by the end of the year.
Iran is going to want to partner with countries regionally and internationally for several strategic reasons: These include improved trade relationships, which includes direct investment into Iran, mainly via the sale of oil and gas produced in-country, that will help the economy, Dan Darling, senior military markets analyst for Europe and the Asia-Pacific Rim at Forecast International, told AMR. He continued that this would also help defer focus away from the pressure being laid on Tehran for political reform.
The so-called ‘siloed approach’ Iran had previously taken was both as a result of the sanctions and the political standpoint: Crucially the country is one of the few Muslim states in the Persian Gulf region which is not a monarchy, also the country follows the Shia branch of Islam as opposed to the Sunni branch which is the branch of Islam followed by many of Iran’s neighbours. Both of these factors have arguably differentiated Iran from other nations in the Middle East region. Arguably, the country may use its uniqueness in these socio-political aspects to develop a larger presence on the world stage. This may result in Iran targeting memberships of supranational organisations that will bolster its position both in the Middle East and beyond such as the Shanghai Cooperation Organisation, Mr. Darling says, which is an intergovernmental body made up of Kazakhstan, Kyrgyzstan, the PRC, Russia, Tajikistan, and Uzbekistan.
One significant post-sanction relief deal that Iran entered into came in December 2016, when Boeing signed an agreement with Iran Air for the provision of 80 aircraft worth some $16.6 billion. This was made up of 50 B737-MAX-8, 15 B777-300ER and 15 B777-9 airliners, and will replace an antiquated mixed fleet of Boeing, Airbus and Fokker airliners, some of which date back to the 1980s. The Boeing deal was followed in early April with a deal worth $3 billion with Iran’s Aseman Airlines for 30 B737-MAX-8 airliners, with options for a further 30 aircraft. A boost in technology transfer between Iran and Europe has also followed the lifting of sanctions with a contract in December for 100 Airbus commercial airliners (A320 family, A330 family and A350 family) worth a reported $18 million. This deal was subject to the US government’s Office of Foreign Assets Control (OFAC) which requires a granting export licences for sales containing 10 percent or more US technology, these licences being achieved in September 2016 and November 2016: “Airbus coordinated closely with regulators in the EU, US and elsewhere to ensure understanding and full compliance with the JCPOA,” Airbus said in a December 2016 statement: “Airbus will continue to act in full compliance with the conditions of the OFAC licences.” Notably, the required OFAC authorisation demonstrates that while sanctions were lifted by the US government, there are still certain restrictions on trade. Essentially, the US government will have to approve all trade deals with Iran, but in terms of defence exports, this is often the case with any international sale.
While Europe and the US were notably vocal in their support of the JCPOA being adhered to, and have since made trade deals with Iran as a result of it, the effect the JCPOA’s lifting will have on Iran’s trade with the Asia-Pacific remains speculative, although it is expected to be significant: “While commercial trade ties may (likely will) improve with Europe provided Tehran does not violate its treaty obligations, the tectonic shift in global power, demographically, economically and militarily, favours (the Asia-Pacific) over regions such as Latin America, Africa and Europe,” Mr. Darling said.
Trade between the Middle East and Asia in general is already strong and growing, he continued, and this should continue as global wealth shifts as it is doing from the developed West to the still-developing East, regardless of Iranian sanctions being lifted. A report entitled The World in 2050: Will the Shift in Global Economic Power Continue? published in February 2015 by the professional services firm PriceWaterhouseCoopers stated that: “The global economic power shift away from the established advanced economies in North America, Western Europe and Japan will continue over the next 35 years. China has already overtaken the US in 2014 to become the largest economy in purchasing power parity.”
Although the Asia-Pacific is generally more of an arms-importing region that an exporting one, the continent is still be a key export market for Iranian trade, Mr. Darling said, noting that the PRC in particular will be an opportune seller: “China is a willing arms seller that places few, if any, political conditions on a buyer,” he noted: “In this respect, it is attempting to sweep in and steal some of Russia’s longstanding market share: “Other arms-exporting Asia-Pacific nations such as the Republic of Korea, Singapore and now Japan are less likely to provide Iran with weaponry at the risk of upsetting the United States.” He continued that: “Iran will still seek European investment, energy trade and diplomatic support…but in terms of a more like-minded approach to geopolitics provided Iran remains under control of the clerical regime it will tilt towards the Asia-Pacific,” Mr. Darling said, noting that on 15th November 2016 Iran and the PRC agreed to enhance bilateral military cooperation, having shared interests in gaining strength over the US: “Both consider the United States meddlesome (hostile from Iran’s view) and an impediment to attaining their own respective regional hegemony,” he added.
Following the 1979 Revolution and subsequent restrictions laid on military and technology exports into Iran as a result of sanctions, Tehran began to rely upon materiel from the Democratic People’s Republic of Korea, Russia and the PRC for military technology. That said, it has notably become more independent during the intervening years as it sought to present an image of reliability on its own military capabilities. For example, in February 2013, the Iranian government announced the development of a fifth-generation fighter aircraft with a low radar cross section dubbed the Iran Aviation Industries Organisation Qaher-313. At the time, the Iranian government characterised the jet as “one of the most sophisticated fighter jets in the world.” Nevertheless, the claims Iran makes about its indigenous systems are often hyperbolic, and “these claims nearly always outpace reality,” Mr. Darling observed.
With this in mind, it is likely that Iran would: “seek as much localised workshare and technology transfer as it may finagle under any (defence) equipment deal related to high-end capabilities,” Mr. Darling said: “Though Iran has worked at developing and manufacturing unmanned aerial vehicles, artillery systems and combat boats, it remains dependent upon legacy US, China- and Russian-sourced hardware ranging from combat aircraft to submarines, to air-defence systems.” Among the technology imported from the PRC was the China was the T-59 Main Battle Tank (MBT) which formed the basis for the Defence Industries Corporation of Iran’s T-72Z Safir-74 MBT and Shenyang F-6 fighter. Of particular interest to Iran would be fixed- and rotary-wing aircraft, including fighters, transports, and a whole range of rotorcraft, as well as “force multipliers” such as airborne early warning aircraft, armed High-Altitude, Long-Endurance (HALE) or Medium-Altitude, Long-Endurance (MALE) Unmanned Aerial Vehicles (UAVs), and warships, Mr. Darling added.
Under the terms of the JCPOA and the US’ lifting of its sanctions, if a UAV contains more than 10 percent of American technology, it cannot be sold to Iran. A high proportion of MALE and HALE UAVs are US-manufactured, such as the General Atomics MQ-9 Reaper and Northrop Grumman RQ-4B Global Hawk respectively, with the next big supplier of these categories of systems being Israel which, among other aircraft, produces the Israel Aerospace Industries Eitan/Heron-TP MALE UAV, will not trade with Iran, although covert weapons supplies are thought to have occurred from Israel to Iran during the 1980s. Therefore, the PRC is one of the most promising vendors for this type of technology for Tehran. Current Chinese offerings in this regard include the Chengdu Wing Loong/Pterodactyl-1 MALE UAV.
The Road Ahead
While progressive for Iran’s international relations, the sanctions relief is facing a number of challenges. Firstly, it only offers relief on some of the restrictions that were in place, the rest of which will be lifted in 2020 if Iran continues to adhere to the JPCOA terms. Until that point, all deals that will be made over coming years will be scrutinised by the UN Security Council on a case-by-case basis, so the volumes of trade expected between Iran and the rest of the world will vary in terms of scale, size and technology sophistication, Mr. Darling argued: “Beyond 2020, there is also the question over whether Iran may initially be able to afford more expensive hardware (such as advanced missile systems and combat aircraft) without being advanced a line of credit by the provider,” he added. “Russia, for instance, often extends a line of credit to interested buyers … Furthermore, the question of how much pressure a willing seller receives from the US, Europe, and Middle Eastern nations like Israel and Saudi Arabia over a potential deal and whether that effectively alters the variables in an agreement or final transfer also comes into play.”
Another challenge to trading with Iran comes from any inclusion of an individual or company that is categorised on the US government’s Specially Designated Nationals (SDN) list. The SDN contains names of people, organisations and vessels with whom US citizens and permanent residents are prohibited from doing business. Additionally, the terms of the JCOPA also state that the EU and US can reverse sanctions relief at any time if it seems that Iran is not adhering to the measures that it ensured it would follow when the process to lift the sanctions began.
Despite a number of challenges, and a less than clear path in which Iran will trade with the US, Europe and Asia, the lifting of sanctions on a nation that has previously demonstrated hostility towards these regions, particularly the US which has been referred to as “The Great Satan” in some official Iranian government statements since 1979, is progressive to say the least. A way to further the success of the Iran nuclear deal would be use it as a template to conclude agreements with other ‘countries of concern’ such as the DPRK which is pursuing a clandestine nuclear weapons programme.
It would appear that the new freedoms beheld to Iran have not been wasted, as indicated by the trade deals that the nation has concluded, and the previously hostile nation has taken advantage of the olive branch it has been offered by the international community via the JCOPA to increase its reengagement on the international stage. Nevertheless, where this will go remains to be seen, and Iran has to stay on track with its JCPOA commitments in order to retain the privileges it was granted some twelve months ago. The situation in 2020 will be a key indicator of how successful the cessation of decade-long sanctions can be, and many players are hopeful that it can be applied to states that are equally, if not more, antagonistic than Iran, such as the DPRK in the future. More discussion of Iran’s emerging relationship with actors in the Asia-Pacific can be found in Dr. Aniseh Bassiri Tabrizi’s article Chabahar Project Haltingly Moves Forward.