Last week, while reluctantly renewing waivers of statutory sanctions against Iran, President Trump issued an ultimatum: Either the United States’ European allies negotiate a “supplemental agreement” that strengthens the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement and targets Iran’s ballistic missile program, or the United States will no longer waive sanctions against Iran.  The President’s statement was clear:  “This is a last chance. In the absence of such an agreement, the United States will not again waive sanctions in order to stay in the Iran nuclear deal.”

The pointed rhetoric followed repeated promises by Trump during the 2016 campaign to renegotiate the JCPOA; a statement in February 2017 by the Trump Administration that it was “officially putting Iran on notice” regarding its missile program; the Trump Administration’s initiation of an official review, in April 2017, of whether sanctions relief for Iran was in the interest of the United States; and the President’s “decertification” of JCPOA sanctions relief in October 2017.

As anticipated here on the blog nearly a year ago, the Trump Administration has used the Iran Nuclear Agreement Review Act and the periodic waivers of statutory sanctions as pressure points in seeking to renegotiate the JCPOA, and now it appears we are entering a critical period in which the future of the JCPOA may be decided.

This post explores a question sometimes overlooked in all of the commentary regarding President Trump’s next moves: What would actually happen if the President refused to renew the waivers of sanctions currently in place?

Well, that sound you would hear would be the Iran Sanctions Act (ISA) (as amended), the National Defense Authorization for FY 2012 (NDAA 2012), the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA), and the Iran Freedom and Counter-Proliferation Act (IFCA) all whirring back to life.  By refusing to renew the waivers, President Trump essentially would flick a switch that reactivates the nuclear sanctions under these statutes.

That means that the President would have authority to impose sanctions on non-U.S. persons that:

  • make certain investments relating to Iran’s development of its petroleum resources;
  • provide refined petroleum products to Iran;
  • provide goods, services or support relating to Iran’s domestic petroleum refining capabilities and associated infrastructure, ability to develop domestic petroleum resources, or domestic production of petrochemical products;
  • purchase, subscribe to, or facilitate the issuance of Iranian sovereign debt or the debt of any entity owned or controlled by the Government of Iran;
  • provide significant support to Iran’s energy, shipping, or shipbuilding sectors, or to Iranian port operators;
  • provide significant goods or services used in connection with the Iranian energy, shipping, or shipbuilding sectors;
  • provide certain metals to Iran; and
  • provide insurance, reinsurance, and underwriting services for any activity for which sanctions have been imposed under U.S. law.

However, even in the event that the President flicks the switch and revs up the machinery of the sanctions listed above, there would remain the question of enforcement.  Interestingly, the ISA, NDAA 2012, ITRSHRA, and IFCA provide that the President is required to impose the above sanctions if no waivers are in place.  However, that requirement is of dubious constitutionality, and in any event it seems unlikely that Congress would push the President too hard on the subject.  So the extent of enforcement of the reactivated sanctions (if any) would be within President Trump’s discretion.

There is no telling what the President would do, if anything, in terms of enforcement.  Refusing to issue the waivers, by itself, would be a shot across the bow, in that it would introduce significant uncertainty regarding the continuing effectiveness of the JCPOA and the sanctions risk related to trade with Iran.  But imposing sanctions on non-U.S. companies—for engaging in Iran-related business that they understand to be permitted under the JCPOA—would be something else entirely, an order of magnitude more severe.

Setting aside the question of enforcement, there is also the question of how Iran would respond to President Trump refusing to renew the statutory waivers.  Iran would have a strong argument that this would constitute a clear violation of the JCPOA, as JCPOA Annex V, Paragraph 11 requires the President to issue waivers on “Implementation Day” (which occurred on January 16, 2016), and further to “direct that all appropriate additional measures be taken to implement the cessation of application of sanctions . . . .”  Iran could seek redress under the dispute resolution mechanism of the JCPOA, or could threaten to pull out of the JCPOA entirely.

Finally, as previously noted here, the European Union has raised the prospect of enforcing the EU Blocking Regulation in response to any Trump efforts to undermine the JCPOA.  The regulation would prohibit EU persons from complying with U.S. secondary sanctions targeting Iran.

As President Trump weighs crucial decisions regarding the JCPOA over the next few months, all of these moving parts warrant close attention.