European actions remain insufficient to appease Iran
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Forecast: The Iranian regime will continue to push the envelope of aggressive regional behavior and its missile program despite European concerns. Iranian reformists are working to manage hardliner expectations and frustrations with the limited European economic offers and the Joint Comprehensive Plan of Action (JCPOA) in order to keep Iran in the nuclear deal. Iranian officials of all stripes have criticized a trade mechanism recently launched by the UK, Germany, and France, as well as recent European comments about Iran. The regime will likely continue to signal its unhappiness with Europe by undertaking activities that Europe has deemed “deeply concerning,” such as space launch vehicle (SLV) tests and developing its missile program.
Hardliners and moderates have criticized the newly-established special purpose vehicle (SPV) designed to enable European trade with Iran after the U.S. withdrawal from the JCPOA. The UK, Germany, and France launched the Instrument In Support of Trade Exchange (INSTEX) on January 31, nearly six months after the U.S. first reimposed U.S. secondary sanctions after withdrawing from JCPOA in May 2018. INSTEX is the long-awaited SPV designed to facilitate “essential” or humanitarian trade (such as pharmaceutical, medical devices, and foodstuffs) between Iran and Europe. The SPV has limited significance in its current form, as the humanitarian trade it will facilitate is already exempt from U.S. secondary sanctions. Presidential Advisor Hesameddin Ashena called the SPV “[too] little, [too] late.” Hardliner daily Vatan-e Emrooz ran a front-page *editorial with the headline “Was that it?” Iranian Judiciary Chief Ayatollah Sadegh Amoli Larijani *described the INSTEX as a “limited [action].” The SPV is not yet active and it is unclear when it will become operational, if ever.
The EU subsequently issued a list of 12 “conclusions” on February 2 following the SPV launch. Europe raised concerns with Iran’s ballistic missile program and called on Iran to ratify its remaining Financial Action Task Force (FATF) action items, which would affect Iran’s financing of Hezbollah and Hamas. Iran is unlikely to cease its political and material support to those groups, its close allies, making the Expediency Discernment Council’s (EDC) ratification of the two remaining pieces of legislation unlikely. Foreign Minister Mohammad Javad Zarif met with members of Hezbollah, Hamas, and Palestinian Islamic Jihad (PIJ) in Beirut, Lebanon on February 10-11. Zarif’s visit followed an intensified Israeli air campaign against Iranian and Iranian-backed assets and personnel in southern Syria in recent weeks, including a strike that reportedly *killed 12 IRGC members on January 21. Iran may employ its proxy network even more to respond to Israel’s increased air strike campaign and to deter future Israeli attacks. The effects of the likely Iranian refusal to ratify the remaining FATF items on European willingness to flout U.S. sanctions are unclear, but the outlook is not bright for Iranian trade with Europe.
Regime hardliners will push the envelope in order to signal their unhappiness with Europe. The Iranian regime has continued to intensify its malign behaviors, such as its missile program and SLV tests, since the U.S. last reimposed secondary sanctions in November 2018. Iranian armed forces *unveiled and test-launched a new long-range surface-to-surface cruise missile on February 3. The Islamic Revolutionary Guards Corps (IRGC) unveiled a new underground missile production facility on February 8. The Iranian Space Agency reportedly attempted an SLV launch on February 7, less than one month after another failed satellite launch on January 15. Increased hardliner frustration with Europe over the JCPOA and FATF may fuel more malign behavior by the regime.
Regime hardliners may use their leverage over the two remaining FATF-related items still being considered by the EDC to challenge Europe and signal that Europe must offer more than the INSTEX to ensure Iran’s adherence to the JCPOA and keep Iran from restarting its nuclear program. The regime’s key decision makers, particularly Supreme Leader Ayatollah Ali Khamenei, may be holding out in hopes that a Democrat might retake the White House in 2021, bring the U.S. back into the JCPOA, and lift the reimposed sanctions. Two years is a long time for Iran to continue to bear increasing economic pressure, however, apart from the gamble inherent in assuming that a Democrat will win the next U.S. presidential election. The INSTEX lacks the substantive economic aid that Iran desperately needs and that its leader demanded in order to keep them in the Joint Comprehensive Plan of Action (JCPOA), moreover. Reformists may be unable to stave off growing hardliner pressure to leave the JCPOA in the short term let alone before 2021.