Iran File

Rouhani Pressures Europe to Continue Oil Trade with Iran

[Notice: The Critical Threats Project frequently cites sources from foreign domains. All such links are identified with an asterisk(*) for the reader's awareness.]

Forecast: President Hassan Rouhani is leveraging Iran’s space program to pressure Europe to continue importing Iranian oil despite the reimposition of U.S. sanctions against Iran. The Iranian Space Agency attempted to launch a satellite into orbit using a space launch vehicle (SLV) on January 15. Iran’s space program and use of SLVs supports the regime’s ballistic missile development, which could threaten Europe and the mainland United States. Senior Iranian officials, including Supreme Leader Ayatollah Ali Khamenei, demanded that Europe maintain oil trade with Iran following the reimposition of U.S. secondary sanctions in November 2018. The regime’s recent attempt to launch a satellite into space, against the warnings of the U.S. and the international community, likely signals Rouhani’s impatience with Europe over their delay and likely inability to guarantee Iranian oil exports to Europe.

Rouhani seeks to demonstrate Iran’s space research progress in order to raise the cost of Europe’s potential failure to continue buying Iranian oil. The Iranian Space Agency’s Simorgh SLV attempted to launch the Payam satellite into orbit on January 15, Iran’s first attempt since July 2017. The rocket did not reach the necessary velocity and failed. Iranian Information and Communications Technology Minister Mohammad Javad Azari Jahromi tweeted that another Iranian-made satellite is “waiting [to be placed] into orbit,” soon after the Payam’s failed launch. Rouhani commented that Iran will resolve the remaining problems and soon launch another SLV. U.S. Secretary of State Mike Pompeo and France condemned the SLV launch and claimed that the test aids Iran’s intercontinental ballistic missile (ICBM) pursuits because of the common technologies involved in both undertakings. Significant technical differences between testing a SLV and operationalizing an ICBM remain, however. Iran nevertheless benefits from SLV tests by obtaining engineering experience and data, according to some technical experts. Iran could apply such experience and data toward the development of an ICBM, which Pompeo noted could threaten the mainland United States. Rouhani previously *noted on January 10, before the Payam’s failed launch, that Iran will launch two satellites in the next several weeks. Iran’s next launch may occur during the upcoming 40^th anniversary of the Islamic Revolution in Iran on February 11. Iran has historically used the anniversary for provocative gestures such as ballistic missile tests and satellite launches. The timing of these launch attempts is likely also tied to negotiations with Europe regarding continued purchases of Iranian oil.

Iranian officials are growing impatient and hardliner pressure on Rouhani over the JCPOA’s perceived futility is growing. Khamenei and Rouhani have both threatened to resume Iran’s nuclear enrichment following the U.S. withdrawal from the JCPOA on May 8, 2018. Hardline Guardian Council head Ayatollah Ahmad Jannati criticized Rouhani on January 17 for not following through on Khamenei’s June 2016 threat to “set the JCPOA on fire if [the U.S] tears it up.” Jannati stated that “ultimately, [the Rouhani administration] will have to do just that.” The EU, the UK, France, and Germany seek to maintain oil trade with Iran in order to ensure Iran’s continued commitment to the Joint Comprehensive Plan of Action (JCPOA). Khamenei stated in May 2018 that Iran reserves the right to “restart nuclear activities cancelled under the JCPOA” if Europe is unable to maintain its purchases of Iranian oil. Europe has thus far failed to establish a bartering mechanism, commonly referred to as a special purpose vehicle (SPV), for oil trade with Iran. Europe is expected to launch a bartering mechanism “over the next 2-3 weeks,” however, it is unclear if the SPV will include oil trade or only cover humanitarian trade. The EU’s possible establishment of an oil-focused SPV is still problematic because the U.S. may sanction the SPV, thereby endangering the mechanism’s efficacy.

Rouhani aims to accelerate Iran’s space and nuclear research, likely to increase pressure on Europe. Rouhani *recommended increases to the budgets of several institutions and organizations tied to Tehran’s space and nuclear programs for the upcoming Persian Calendar year. The increases come in a budget otherwise aiming at austerity to reflect the growing challenges Iran faces balancing its budget on a weakening economy. Parliament may further increase Rouhani’s proposed increase to space and nuclear-related budgetary line items before sending the budget to Iran’s Guardian Council for final approval. Rouhani proposed the following increases from the current Persian Calendar year’s final budget:^[1]

• The Iranian Space Agency’s budget increased by approximately four percent
• The Atomic Energy Organization of Iran’s (AEOI) budget increased by approximately 26 percent. AEOI head Ali Akbar Salehi noted on January 15 that Iran can enrich uranium up to 20 percent within four days, levels far beyond the 3.67 percent permitted under the JCPOA. Salehi also *announced the construction of a centrifuge assembly center at one of Iran’s primary uranium enrichment sites on June 5, 2018.
• Amir Kabir Industrial University, Sharif University, Malek Ashtar Industrial University, and Imam Hossein Comprehensive University received budget increases of approximately 18, 13, 22, and 13 percent respectively. Iran’s state-controlled university system is closely tied to the regime’s aggressive behaviors such as its nuclear program and malign cyber activity. Iranian scientists affiliated with the regime’s previous nuclear weapons research maintain close ties to Malek Ashtar Industrial University, in particular. Imam Hossein Comprehensive University is the higher educational establishment of the Islamic Revolutionary Guards Corps (IRGC), roughly similar to the U.S. Army War College or National Defense University.

Europe’s continued delay in implementing an oil-focused SPV may push Rouhani to concede to hardliner pressure to withdraw from the JCPOA. Mounting hardliner pressure increases the prospects that Iran will soon give up on the nuclear deal. Rouhani *told the Iranian people following the U.S. withdrawal from the nuclear deal that Iran will negotiate with the remaining signatories of the nuclear deal over the next “several weeks” in order to secure “economic guarantees” from Europe. It has now been nearly eight months and the Rouhani administration has thus far failed to secure guarantees from Europe to salvage Iranian oil exports and business deals with European companies. Hardliner pressure following the perceived failure of the JCPOA, Rouhani’s legacy achievement, forced the removal of several of his cabinet members and led to his questioning before Parliament. Rouhani may give in to hardliner pressure, which may increase following Iran’s parliamentary elections in 2020, in order to save his political stock in Iran before presidential elections in 2021. Abandoning the deal would destroy Rouhani’s legacy achievement, however. He himself cannot run for president again in 2021, moreover, weakening his electoral motivation for giving in on his signature accomplishment. Iran continues to benefit from the deal even without the SPV, as there is a big difference between the lack of an agreement on European oil purchases and the full restoration of European sanctions on Iran. The nuclear deal’s elimination of prohibitions on Iran’s ability to purchase “offensive” weapons in a few years and the sunsetting of restrictions on its nuclear programs several years after that also make remaining formally in the deal attractive to Iran. It remains unclear, therefore, how much of Rouhani’s changing rhetoric reflects an effort to coerce Europe into an agreement athwart U.S. sanctions and how much indicates his willingness to withdraw from the deal.

^[1] The Critical Threats Project based its calculations on final budgetary allocations for the current Persian Calendar year (1397) from expenses and owned assets reported in the upcoming Persian Calendar year’s (1398) proposed budget. Calculations may vary due to inconsistencies between derived final allocations and reported final allocations between state budget documents.