Deal or No Deal (Iran, Not Tariffs)

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During a week in which the volatility of markets mirrored the fluctuations in the president’s tariff policy, one might expect this to be a piece about trade. I’m sure there’ll be many more opportunities to address those issues, but I thought we could all use a break from 24/7 tariff discussions. I know I could.

This weekend, the United States and Iran are set to hold their first talks on Tehran’s nuclear program since U.S. President Donald Trump returned to the White House. In 2018, Trump withdrew from the original Joint Comprehensive Plan of Action (JCPOA) agreement, which the Barack Obama administration struck with Iran—in partnership with China, the European Union (EU), France, Germany, the United Kingdom, and Russia—because he believed it to be “a horrible, one-sided deal that should have never, ever been made.” Last month, Axios reported that Trump gave the Islamic Republic a two-month deadline to reach a new agreement to restrict their nuclear program: “If they don’t make a deal, there will be bombing…bombing the likes of which they have never seen before.” 

The question is what kind of deal—if any—is likely to emerge from these talks. To understand the range of possible outcomes, it’s useful to look at what’s changed and what remains the same since the JCPOA was negotiated.

In 2013, Iran was forced to come to the table under acute economic distress brought on by U.S., EU, and UN sanctions. By the numbers, these sanctions helped shrink Iran’s gross domestic product (GDP) by about 3.7 percent in 2012 and 1.5 percent in 2013, reduce oil exports from 2.5 million barrels per day (bpd) to approximately 1.1 million bpd, devalue the Iranian rial by some 80 percent against the dollar, and restrict Iran’s accessible foreign reserves from about $100 billion to less than $20 billion. While later enforcement of the sanctions was imperfect, there is no doubt they had a meaningful impact on Iran’s economy.

While Iran’s heavily sanctioned economy hasn’t recovered, one major change is the nature of Iran’s relations with key partners. Back in 2010, Russia and China worked with the United States to constrain Iran’s nuclear ambitions, supporting UN Security Council sanctions resolutions. Starting in 2010, China began to reduce its purchases of Iranian oil by as much as 20 percent, restricted Chinese banks from providing financing and tracer services, and paused a number of infrastructure projects. Russia, for its part, suspended the sale of advanced S-300 air defense systems and restricted the export of critical Uranium fuel.

Now, as fellow members of the Axis of Autocracies, Russia and China are on the other side of the table, enablers of Iran. As Iran has reoriented the economy towards Russia and China, it is significantly less vulnerable to Western economic coercion. Essentially, the three states have set up a full energy trade system with all the trade nodes—insurance, ships, banks, ports—which is shielded from current U.S. sanctions. Iran-Russia trade increased significantly from 2013 levels, and China now imports nearly 90 percent of all Iranian oil exports. (In fact, the current combination of sanctions on Russia and Iran and no secondary sanctions on oil buyers has enabled China to receive oil at a significant discount.) This week, Russia’s lower house of parliament approved a twenty-year strategic partnership with Iran. 

Iran’s more insulated economy is hardly enviable: inflation remains above 35 percent, there is effectively an all-out energy crisis, with shortages in power, natural gas and refined products. Even so, due to the significant cooperation with China and Russia, U.S. and EU economic sanctions are likely to be substantially less effective in getting Iran to accept a new deal than they were before. 

One of the criticisms of the JCPOA was that it dealt only with Iran’s nuclear program, not its destabilizing activities across the region. Now, however, Iran’s ability to defend itself, let alone project power across the Middle East, is at a low point. Tehran’s proxy network of militias and allies which included Bashar al-Assad’s Syria, Lebanese Hezbollah, Hamas, and the Houthis has either collapsed or been seriously degraded, although the Houthis continue to pose a meaningful threat. 

In the wake of Hamas’s October 7 attacks, Israel dealt crippling blows to Hamas and Hezbollah, Assad’s regime in Syria fell to rebels who see Iran as its top enemy and are aligned with Turkey, Iran’s main rival in the Middle East, and the United States has ramped up its efforts to diminish the Houthis’ power projection capabilities in the Red Sea and beyond. There remain various Iran-aligned militia groups in Iraq and Iran which continue to possess an arsenal of ballistic missiles and drones capable of long-range strikes. But the United States, Israel, and other regional partners have proven highly adept at intercepting these weapons. Moreover, the October 2024 air strikes by the Israel Defense Forces destroyed key plants related to ballistic missile production and severely degraded Iran’s Russian-supplied air defense network. Though many of Iran’s nuclear and ballistic missile facilities are buried deep underground in hardened shelters, there is no doubt that key energy, military, and political assets in Iran are extremely vulnerable to U.S. and Israeli airstrikes.

The most noteworthy change in Iran’s hand, however, is that the country is much closer to being able to produce a nuclear weapon today than ever before. While Iran has yet to take—or, at least, announce—a political decision to pursue the bomb, its status on the nuclear threshold affords Tehran negotiating leverage with Washington. 

When the JCPOA was concluded, Iran hadn’t yet ramped up its production of 60 percent enriched uranium—the key fissile material for building a nuclear weapon. Today, Western intelligence agencies and the International Atomic Energy Agency estimate that Iran has around 274 kilograms (604 pounds) of 60 percent enriched uranium and could produce enough 90 percent enriched Uranium in as little as two weeks, though weaponizing that fissile material could take substantially longer.  

The United States’ negotiating position vis-à-vis Iran is more complicated than it was when the JCPOA was concluded. There’s no love lost between Trump and the Iranian regime, which allegedly planned to assassinate Trump on the campaign trail, a response in part to his role in the 2020 targeted killing of Qassem Soleimani, Quds Force commander of the Islamic Revolutionary Guard Corps (IRGC). Then, there is the underlying question of Trump’s credibility as an interlocutor. In response to Trump’s request for direct nuclear negotiations, Iran’s supreme leader told his people “this same person [Trump] threw the completed and signed negotiation off the table and tore it up.” Trump’s willingness to abandon commitments he himself made, including in the United States-Mexico-Canada Agreement, which he proudly negotiated during his first term, doesn’t help.

On the other side of the ledger, Trump seems more willing to pursue the use of force and has openly articulated the threat of military action should negotiations fail. Just last week, the president moved a sizable contingent of B-2 stealth bombers capable of delivering bunker-busting bombs, to Diego Garcia in the Indian ocean, a tiny island home to a sensitive joint U.S.-UK air base, to show Iran and their Houthi partners that he means business. If the president brought the full force of the U.S. military to bear on Iran, the results would be devastating for the regime and could well destroy many of Iran’s nuclear facilities. Yet, a kinetic military action against Iran is at odds with Trump’s long-stated goals of reducing the U.S. military’s presence in the region and avoiding new wars. While Iran is on its back foot, it still has a formidable arsenal of ballistic missiles it could unleash against targets in Israel, Saudi Arabia, and the Gulf, in addition to thousands of U.S. troops still stationed in Iraq and Syria. Never mind the fact that the U.S. military in the region is already stretched thin in pursuing an intense campaign against the Houthis in Yemen, as well as managing a long-term, coalition effort to defend Israel against unprecedented drone, rocket, and missile attacks. 

And then there is the Israeli factor. Prime Minister Benjamin Netanyahu has his own red lines, which will certainly affect the U.S.-Iran negotiations. In recent public statements, including during his visit to the White House this week, Netanyahu has made clear that the Begin Doctrine—named for Israeli Prime Minister Menachem Begin after the country first carried out preemptive strikes on an adversary’s nuclear weapons program in the early 1980s—remains in full effect: Israel views Iran’s acquisition of a nuclear weapon to be an existential threat and will use military force to prevent this outcome if other, non-kinetic means of negotiation fail. Netanyahu also made clear his terms for a diplomatic solution by endorsing the so-called “Libya Model.”   

The Libya Model, named after the denuclearization process undertaken by Libyan leader Muammar al-Qaddafi’s regime in 2003, would require that Iran completely dismantle and surrender all components of its nuclear program, including centrifuges and other enrichment equipment, highly enriched uranium, and weapons designs. This would go well beyond the JCPOA. Conceding to the Libya Model would certainly be seen as a sign of weakness for the Iranian regime and put the Ayatollah at odds internally with the IRGC. As my CFR colleague Ray Takeyh and Reuel Gerecht argued yesterday in the Wall Street Journal, it is likely that “for Mr. Khamenei, getting bombed is preferable to giving up the bomb.”

So what does this all mean for the upcoming negotiations? The talks could yield a variety of outcomes, ranging from a Libya Model nuclear agreement to a full-blown kinetic military operation by the United States and/or Israel to destroy Iran’s nuclear facilities. Or they could produce something in between, which would not be that different from the JCPOA, except with an Iran that is much closer to producing a nuclear weapon—in which case one could ask the obvious question whether pulling out of the JCPOA was worth it. 

It’s possible these negotiations are all for show—on both sides. Iran’s willingness to negotiate could well be just to buy time to advance its nuclear program, while Trump’s eagerness to talk could be to demonstrate he has exhausted non-military means to resolve the issue before allowing a military strike. 

Trump prides himself on being the ultimate dealmaker and would like to be seen as the ultimate peace maker, worthy of a Nobel Peace Prize. He’s got Russia-Ukraine and Israel-Hamas already on his agenda. Now let’s add Iran and its nuclear program. U.S. Special Envoy to the Middle East Steve Witkoff is going to have a busy spring. Let’s hope he’s not responsible for negotiating those ninety bilateral trade agreements, too.