January 19, 2016
TSG IntelBrief: Implementation Day and a Prisoner Swap with Iran
On January 16, the International Atomic Energy Agency (IAEA) reported that Iran had met the key nuclear requirements stipulated in the Joint Comprehensive Plan of Action (JCPOA), including: dismantling two thirds of its uranium enrichment centrifuges and the core of its heavy-water nuclear reactor at Arak, and eliminating nearly all of its stockpile of low-enriched uranium. The IAEA certification triggered the P5+1’s declaration that “Implementation Day” was reached, putting into effect the comprehensive sanctions relief specified in the deal. The sanctions lifting reopens Iran to the international financial system, lifts all constraints on its energy sector, and enables Iran to access about $115 billion of its foreign exchange reserves held abroad (mostly proceeds from oil sales deposited in banks of Iran’s remaining oil customers China, Japan, South Korea, India, and Turkey). About half of those reserves are obligated to creditors, particularly China, thus limiting the immediate financial benefit to Iran.
Virtually simultaneously, Iran’s judiciary released four U.S.-Iran dual nationals, the most prominent of whom are Washington Post reporter Jason Rezaian, pastor Saeed Abedini, and former U.S. Marine Amir Hekmati. A fifth detainee released was an American student. Iran also agreed to help try to locate former FBI agent Robert Levinson, missing since his 2007 visit to Iran’s Kish Island. In return, the United States released seven Iranian-Americans convicted of violating U.S. law by exporting technology to Iran and dropped charges against 14 others accused of similar violations. U.S. officials refused Iranian requests to release any person convicted of an act of terrorism. On Sunday, it was announced that the United States would settle Iran’s 35 year-old claim for funds paid for Iranian military equipment impounded in the United States when the Shah fell in 1979 by releasing to Iran $1.7 billion, including accrued interest.
The prisoner swap in particular suggested that Iran’s moderate President Hassan Rouhani, architect of the JCPOA negotiations, is benefitting politically from ending international sanctions and Iran’s isolation. To obtain the release of the dual nationals, Rouhani had to prevail on Iran’s judiciary, a bastion of hardliners aligned with Iran’s Islamic Revolutionary Guard Corps (IRGC) and Supreme Leader Ali Khamenei—all skeptics of Rouhani’s compromises with the United States. Rouhani’s strength was also demonstrated last week by the swift release of ten American naval personnel captured by the IRGC Navy after they strayed into Iran’s territorial waters.
The weekend’s events do not necessarily set the region on a new course. Although Rouhani is politically ascendant for now—and his allies are likely to prevail in February 26 parliamentary elections, unless hardliners block their candidacies—he does not seek to alter Iran’s pursuit of its core interests. There is broad consensus in Iran that Saudi Arabia, in partnership with the United States, seeks to weaken Iran and its regional allies, particularly Syria’s President Bashar al-Assad. Iran has been attending recent international negotiations to try to end the war in Syria, but at the same time continues to facilitate the deployment of Shi’a fighters, particularly Iraqis, to assist the fatigued Syrian armed forces. Rouhani has said Iran will continue to develop ballistic missiles, even though the United States cites October and November 2015 Iranian missile tests as violations of UN resolutions and on Sunday imposed sanctions on eleven additional entities that provided technology to that program. Iran sees ballistic missiles as key to redressing its weakness in conventional strength. Nor are there any indications that Rouhani is willing to reduce Iran’s support for regional Shi’a Islamist movements, particularly its main protégé Lebanese Hizballah. The sanctions relief will provide additional financial resources for Iran to pursue these interests, although its domestic economic needs are likely to take priority.
Implementation Day also has global economic implications, arriving at a time when the world oil market is oversupplied and oil prices have fallen below $30 per barrel—a nearly 75% decrease since mid-2014. The 2013 interim nuclear agreement capped Iran’s crude oil exports at about 1 million barrels per day, but those constraints are now lifted. Iranian oil officials say they will begin putting an additional 500,000 barrels per day on the market, drawing initially on stored oil. With Saudi Arabia refusing to cut production in order to weaken U.S. shale oil producers as well as rivals Iran and Russia, the additional Iranian oil will likely depress oil prices further. Prices have fallen so far that Saudi Arabia has had to cut its national budget in order to be able to withstand the downturn until U.S. shale oil production falls and prices recover.
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