With the US Out, How Can Iran Benefit from the JCPOA?

In Iran, the only surprise regarding President Donald Trump’s May 8 announcement to leave the Joint Comprehensive Plan of Action (JCPOA) was that it was four days early. The decision was anticipated, and most Iranians believed that the deal was not doing much anyway.

What did surprise them was the response of their own leaders. Despite their earlier rhetoric to leave the JCPOA as soon as the United States did, Iranian leaders decided to stay in the nuclear deal, at least until they found out if Europe could help Iran get the deal’s benefits. This was a big concession on Iran’s part, which has been very critical of the three European powers—France, Germany, and the United Kingdom (E3)—for attempting to placate the U.S. at the expense of Iran.

Perhaps it was fear of further economic instability that persuaded Iran’s Supreme Leader Ayatollah Ali Khamenei to eschew drastic action, such as resuming enrichment or even exiting the Non Proliferation Treaty, as some have been advocating in Tehran. Disappointing his hardline supporters, he offered his blessings for further negotiations with Europe, albeit noting his deep skepticism.  The country’s moderates, led by President Hassan Rouhani, who seems happy to take a deal without the U.S. over no deal at all, were apparently able to win another chance at rapprochement with the West. They may succeed because compromising with Europe is less noxious for Iran than compromising with the “Great Satan” that is the U.S.

Volatile economic situation

Iran’s economy is not doing well, but it is not in a “free fall,” as the New York Times put it recently, perhaps reflecting sentiments in the streets. There are no gas lines, no mass withdrawals from banks, and supermarket shelves are well stocked. Economic growth has slowed down considerably after its initial spurt following the nuclear deal, but the situation is far from panic.

Economic volatility began a few months ago in the parallel market for foreign exchange, as Trump’s resolve to take the U.S. out of the JCPOA became more clear. Iran’s tough measures taken to stem the fall in Iran’s currency in April have added to the volatility.  The government shut down the parallel market, which aided capital flight but also facilitated a significant fraction of Iran’s foreign trade. Prices of many non-essential imports that do not receive subsidized foreign exchange started to rise in tandem with the rapidly falling value of the rial in the narrow illegal market.  Many smaller exporters who have to sell their foreign currency earnings to the government at the official rate (42,000 rials per U.S. dollar) are on the verge of shutting down. Other businesses are hurting because of exceptionally high interest rates, exceeding the rate of inflation by as much as 8-10 percentage points. Iranian banks have yet to emerge from insolvency caused by the real estate crash of five years ago.