The United States and Iran continue to stumble through talks over phase 2 of their memorandum of understanding (MOU), presenting different versions of what they agreed on. But could it be that the basic deal so far might endure because the alternative—a return to war—is awful for all sides?
On the latest episode of FP Live, I spoke with Ali Vaez, the Iran project director at the International Crisis Group, an international body that seeks to bridge differences in global peace talks. Vaez thinks a “strong nuclear deal” is still possible, since Iran is today in a very different place than it was during the 2015 nuclear talks under the Obama administration.
Subscribers can watch the full discussion on the video box atop this page, or follow the free FP Live podcast, on which I also offer my own read on the last week’s news. What follows here is a condensed and lightly edited transcript.
Ravi Agrawal: Both Tehran and the White House are spinning the MOU as a win. Who has the better argument?
Ali Vaez: I’ve lived through this in the past—a very similar situation when we had the Joint Comprehensive Plan of Action [JCPOA], the 2015 nuclear deal. The reality is that the imperatives of domestic politics in Tehran and Washington are completely incompatible. Whatever you say to score a point at home is going to burn the other side by definition, and then they will try to counter that narrative in a way that would create troubles for you at home. This is inevitable. It is 47 years of animosity that is institutionalized in both capitals, and there is no going around it.
Having said this, the Trump administration had set the bar very high in terms of what success really means. At some point, [U.S.] President [Donald] Trump required unconditional surrender. This MOU is not that. It is a much more of an equal-footing kind of agreement. For Iran, a much weaker conventional military power, which has survived in this confrontation with the strongest military and the mightiest intelligence organization in the world—the United States and Israel, respectively—that is quite an achievement. But at the end of the day, the MOU strikes the right balance, and it’s a mistake to look at it as having winners and losers. The most important lesson is that wars of choice often end in grief, especially in cases where we aggrandize the threat and underestimate the risks in pursuing a military solution to a complicated problem.
RA: I want to dig deeper on the financial benefits for Tehran in this MOU. So there’s some sanctions relief, there’s several billion dollars in frozen funds that could get released. And then there’s as much as $300 billion in potential economic aid, although it’s unclear who exactly is funding those pots. Talk a bit about each of those and how important they are to Iran.
AV: The $300 billion is really pie in the sky, and it’s in phase 2 of the agreement—which we can discuss if we ever get into phase 2. But in phase 1, there are two specific economic benefits for Iran. One is access to some of its frozen assets. The Trump administration says it’s $6 billion now and $6 billion more as the Strait of Hormuz reopens and traffic goes back to prewar levels. The Iranian argument is that it’s actually $12 billion up front and $12 billion as a progress payment. We will probably never know the exact number, but that’s the first incentive.
The second incentive is that the Treasury Department has issued waivers so that Iran can sell oil and petrochemical products, and most importantly repatriate the revenue. Before the war, Iran was selling oil to China but was not able to access hard currency. That is one of the reasons its currency has been devalued significantly. How much money would Iran make in a month? Would there be additional new customers of Iranian oil and petrochemical products? Would any refineries switch to buying Iranian oil, not knowing whether these waivers, which are only valid for a period of 60 days, will stay in place after that or not? We will have to see. But the estimate is that Iran might be able to make between $5 billion and $8 billion in revenue from selling energy in the course of one month. Some of it, again, has strings attached, and is only for the purchase of humanitarian goods. But Iran is in such a deep economic hole that this is only a drop in the bucket.
RA: I’m curious how much of this actually will make it true to regular people in the economy? Or is a lot of this just the army and its contractors getting the bulk of these sums?
AV: For the Iranian regime, you don’t want to survive a hot war to then freeze in a cold peace. At the end of the day, you have to govern. You have to be able to recover and reconstruct. Otherwise, you’re going to face constant domestic turmoil. Iran was in dire straits economically, even prior to this war. Their GDP is going to shrink by about 10 percent, and the situation internally is catastrophic, so they would have to spend some of this money internally.
What Iran spends its money on, in terms of defense or missiles or proxies, is not a question of how much money they have in their bank account. The best evidence for that is that after the 12-day war, there was no sanctions relief, and yet Iran managed to reconstitute the ballistic missiles and help Hezbollah recover a lot of its capabilities. There is a four-decade track record that you can look at in terms of ups and downs of the economic situation in Iran. They have spent the money that they have believed is essential for their survival regardless of how much cash they have in their bank account.
RA: So it’s about priorities. Speaking of Hezbollah, the very first clause of the MOU made clear that it required an “immediate and permanent termination of military operations on all fronts, including in Lebanon.” I just want to linger on that, because Lebanon wasn’t a party to the deal, nor was Israel. And Israel did indeed attack Hezbollah in Lebanon after the MOU was signed. So how important is it to Iran that it defend Hezbollah’s interests? What is Iran’s threshold for a response?
AV: You’re right: The linkage is quite exceptional. But it is also because this is the first war in which Hezbollah entered into a conflict against Israel on the behest of Iran, and not based on its own calculations. Every other war Hezbollah entered into was because of what it saw as expedient for its own interest; it wasn’t reacting on orders from Tehran. But in this war, it went to the rescue of the Iranian regime, and therefore the Iranians couldn’t throw Hezbollah under the bus.
The Iranians can’t rule out that once Israel is done with its elections, or President Trump is done with midterms, that they would not be attacked again. Given the importance of this network—from the Houthis in Yemen to Iraqi Shiite militias to Hezbollah—in their defense in this war, they cannot afford to alienate their regional allies. That’s why they couldn’t throw Hezbollah under the bus, and why Hezbollah had to be included in this.
I would argue that linkage is important now. But once this war is fully over in a sustainable fashion, and Iran is actually benefiting from engaging in diplomatic talks with the U.S., would they really, once again, strike Israel directly from Iranian territory if Israel attacks Beirut? I doubt it, but again, there has to be a time lag, and there has to be more economic incentives on the Iranian side in order for that linkage to be dissolved.
RA: So let’s talk about the new nuclear file, because the MOU stated that Iran “reaffirms that it shall not procure or develop nuclear weapons.” The use of that word, reaffirm, signaled that this was always Iranian policy because it was a signatory of the NPT [Nuclear Nonproliferation Treaty], right?
AV: You’re absolutely right. When the Iranians signed the NPT in the 1970s, they committed not to develop, procure, or use nuclear weapons. And they’ve done so repeatedly over the years in almost every negotiation that they’ve had with the West, from the 2003 agreement with the Europeans to the 2015 nuclear deal with the Obama administration and so on. So that’s not a new thing, but they understood that President Trump had turned it into a political requirement for him to be able to say that Iran has made this commitment.
Some people are portraying this as totally meaningless. I do see value in the way that the administration has approached this and the possibility of trying to get some kind of a nuclear deal that is potentially even stronger than what the Obama administration was able to do. It’s simply because of the fact that reality on the ground is different, probably. This is not the nuclear program that the Obama administration was dealing with. At the time, Iran had an industrial-scale enrichment program. It would have never agreed to suspend enrichment even for a single day, same with the Biden administration. But because of the 12-day war, Iran has not spun a single centrifuge since last June. It has not enriched a single gram of uranium since then. Therefore, getting Iran to agree to a moratorium on enrichment, even when you have zero enrichment, is a better way of making sure that there is no diversion toward weaponization than if you have even a little enrichment.
This is something that the administration can potentially achieve if the talks continue in the right direction. And then of course the Iranians have also agreed, prior to the war, that in addition to a period of moratorium, they would agree to a period of very strict restrictions, including zero stockpiling of enriched uranium in the country. The JCPOA allowed for very little. Now it will be zero. After zero enrichment, it would be zero stockpiling. And again, those things are real nonproliferation achievements. Of course, on their own, they’re not enough. They have to go hand in hand with a lot of transparency measures, inspections, verification protocols, and so on. But I do see the possibility of the Trump administration being able to get a strong nuclear deal.
RA: Let me just add two wrinkles to this. One is why would Iran go along with nuclear talks when it seems to have gotten so much of what it wanted on the financial arrangements? Is it your argument that it would go ahead with this because it needs more of those progress payments? And related to this, does Iran even need a nuclear weapon anymore, given that it now has essentially a very effective economic one in its ability to shut down the Strait of Hormuz?
AV: The answer to your first question is that the MOU from the Iranian perspective is a double test for President Trump. They’re going to see if he can deliver on economic incentives. Not only has he reneged on commitments to the Iranians in the past, including withdrawal from the JCPOA in 2018, but the Biden administration also didn’t deliver. There is a long track record and a lot of mistrust on the Iranian side. The second test is to see if Trump can rein in [Israeli] Prime Minister [Benjamin] Netanyahu. Without that, the Iranian fear is that they would give away most of their leverage: They would dispose of their stockpile of highly enriched uranium only for Israel to attack them again a year from now.
If the United States passes these tests—so far it appears that it is moving in that direction—then the Iranians absolutely need more economic reprieve. What is on offer now does not compare with what they have lost in this war: almost $2 trillion of damage, not just in terms of physical damage, but opportunities lost. They need way more economic reprieve than this. They need wholesale sanctions relief. What Trump did by delivering on oil waivers in a very comprehensive way—including not just Iran’s ability to export oil, but also all the associated services, banking, insurance, shipping, ports—required courage and determination, which is not always an easy thing to do in the case of Iran in Washington. This increases Iran’s incentive to try to get a final agreement because there is this sense within Iranian officialdom that because of this nuclear confrontation with the West, they have been left behind. That the rest of the region has made a lot of progress technologically, economically, socially—and they’ve been left behind.
On the second part of your question, the Strait of Hormuz does provide them with a very powerful leverage and a tool of coercion, essentially a deterrent. But they also understand that over the coming years, there is an expiration date on this weapon of mass disruption. People will start diversifying, through pipelines or different pathways to get around the Strait of Hormuz. They will also diversify their supply chain and energy resources. The Iranians understand that if they overuse this, they would lose the leverage quicker. But in any case, it is not something that will be available to them five to 10 years down the road. This is a moment in which they would have to redesign and rethink their defensive strategic doctrine. The next few months are so important because if diplomacy moves in the right direction and we start proving to the Iranians that they could have a different threat perception of the region around them and of U.S. policy toward them, then they would come to a different set of conclusions than if things start going south.