No Iran Solution in Sight

The September 14 attack on two critical Saudi oil infrastructure facilities has brought U.S. – Iran policy to a significant crossroads. This divergence has arguably been approaching since May 2018 when the Trump Administration withdrew the United States from the 2015 multilateral Iran nuclear accord, more formally known as the Joint Comprehensive Plan of Action (JCPOA). Coupled with the withdrawal was the re-imposition of all the U.S. secondary sanctions on Iran that had existed prior to the beginning of the agreement’s enforcement in January 2016.

In the first year after the U.S.’ withdrawal from the agreement, there were no significant provocations by Iran because the implementation of U.S. sanctions gave Iran some latitude to export approximately 1.3 million barrels per day (mbd) of crude oil – about half of Iran’s baseline level of 2.5 mbd. However, in late April 2019, the Administration announced a significant new step in its effort to compel the Iranian leadership to capitulate to an extensive set of demands for a revised nuclear deal, namely the application of “maximum pressure.” As of May 2, the Administration terminated sanctions-exemptions for the purchasing of Iranian oil, a move that has driven Iran’s oil exports to a new low of 300,000 barrels per day. This significant drop in oil exports has caused Iran’s economy to contract by an estimated 6% in 2019, and reports in September 2019 indicated that the International Monetary Fund might downgrade its outlook for the Iranian economy even further.

The severe pressure on Iran’s economy has prompted an Iranian decision to adopt its own “active resistance” counter-offensive. The intention of the Iranian strategy is to put countervailing economic and strategic pressure on the United States and its allies by interrupting or threatening the free flow of oil in the Gulf. Since May, Iran and Iran-backed armed factions in the region have attacked several oil tankers in the Persian Gulf, seized other tankers, downed an unmanned U.S. aerial vehicle, and attacked critical Saudi energy infrastructure. The September 14 attack on Saudi oil processing facilities at Khurais and Abqaiq cut Saudi oil production virtually in half, at least temporarily.

The September 14 assault demonstrated that Iran and Iranian-backed elements can attack regional U.S. allies and destabilize the global oil market to a degree that was heretofore underestimated by experts and U.S. officials. The incident also demonstrated that: (1) a U.S. military buildup since the start of the crisis in May had not succeeded in deterring Iranian attacks; and (2) Trump Administration assertions that U.S. sanctions are “working” at reducing Iran’s ability to intervene in the region are subject to dispute. On the latter point, the attacks on Saudi Arabia illustrate that a weakening of the Iranian economy does not translate into a lessening of Iranian strategic capabilities or a capitulation to U.S. demands. These observations cast doubt on the utility of imposing further sanctions on Iran as retaliation for Iranian provocations, including the September 20th imposition of additional U.S. sanctions on Iran’s Central Bank.

The September 14 attack on the Saudi facilities makes finding a solution to resolving Gulf tensions perhaps more unlikely than any other previous point. The basis for this analysis is that the attack: (1) prevented any chance of a meeting between President Trump and Iranian President Hassan Rouhani at the U.N. General Assembly meetings in late September; (2) derailed U.S. deliberations about supporting a French proposal to provide Tehran with a $15 billion credit line secured by future Iranian oil exports in exchange for Iran’s return to full JCPOA compliance; and (3) led to a U.S. decision to add forces to the region, which reinforces Iran’s wariness about U.S intentions and raises the potential for an unintended military clash.

Restoring the Gulf to the level of tension that existed before May 2019 will require both the United States and Iran to adjust their expectations and requirements. President Trump has consistently denounced the JCPOA as a one-sided deal, of limited scope and duration, that enabled Tehran to expand its regional influence through the benefits of sanctions relief. A resolution acceptable to the Trump Administration would require Tehran, at the very least, to agree to expanded rights for nuclear inspectors, an extension of the expiration dates of the nuclear restrictions, and limits on development of ballistic missiles. For Iran, a resolution of the crisis requires that Iran be allowed to export oil at least to the level that existed before the oil export sanctions-exceptions ended in early May. Alternatively, Iran might accept the monetary equivalent of oil sanctions relief in the form of the France-proposed $15 billion credit line.

Of course, hardliners on both sides oppose concessions along these lines. However, without flexibility among all parties, it is difficult to see how active military hostilities between the U.S. and Iran can be avoided. Whereas President Trump might be satisfied to deploy forces and impose additional sanctions without actually striking Iran, for Tehran the “status quo” is unacceptable. Unless a solution is reached, more attacks along the lines of the September 14 assault on critical Saudi infrastructure can be expected. That attack makes clear that Tehran will not stop its provocative actions unless and until at least some of the pressure on its economy is relieved, regardless of the potential retaliatory consequences.