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June 16, 2016

The Obama Administration Needs to Double Down on the Iran Deal

President Barack Obama spent enormous political capital to cement an agreement with Iran that constrained its nuclear program for more than a decade. That agreement, however, is now at risk of unraveling.

The danger of the agreement collapsing, to the detriment of U.S. interests, is now evident. Under the nuclear accord, Iran agreed to constrain its nuclear program in return for economic reprieve from U.S. sanctions. While Iran has so far lived up to its nuclear-related obligations — addressing U.S. concerns over its nuclear program by reducing its number of operating centrifuges, reconfiguring its heavy-water reactor, and permitting an unprecedented inspections regime — the United States has struggled to fulfill its end of the nuclear bargain.

The British law firm Clyde & Co. conducted a recent survey of business executives interested in engaging Iran. Respondents stated that the major barrier to market entry into Iran is U.S. sanctions, which are inhibiting access to trade finance and insurance and effectively preventing banks from bolstering their business ties with Iran. As a result, Iran has faced persistent difficulties receiving practical value from the lifting of sanctions, which is placing the nuclear accord at risk.

Hard-liners in Iran are touting the sanctions issue as an example of why the United States cannot be trusted. That message is having an effect: Recent polling indicates that the Iranian people are growing increasingly skeptical that Washington is acting in good faith in meeting its commitments. Iranian moderates who support the accord, meanwhile, risk being undermined by this development. Absent a turn in Iran’s economic fortunes, the hopes and aspirations of the Iranian people will continue to be denied and their political engagement — as evidenced by recent parliamentary elections, in which Iranian hard-liners were dealt a significant defeat — stymied.

To its credit, the Obama administration is actively seeking to resolve concerns over the sanctions-lifting. A few weeks ago, Secretary of State John Kerry hosted a meeting of the British Bankers Association to encourage major European banks to re-engage their Iranian counterparts. High-level U.S. officials have likewise been touring the world, seeking to provide practical guidance on what the lifting of sanctions means and the scope of remaining U.S. sanctions. More public written guidance will soon be forthcoming.

But such guidance has been insufficient — and is likely to remain so. Following their meeting with Kerry, most of the banks in attendance stated publicly that they would not engage in Iran-related business for the foreseeable future, due to persistent U.S. sanctions risks. Without major European banks willing to re-engage Iran, financing will be unavailable for some of Iran’s bigger trade and investment opportunities.

The Obama administration needs a new game plan. Just as it expended political capital to secure the deal, it must expend the political capital to sustain it. Otherwise, the administration risks snatching defeat out of the jaws of victory and upending this historic diplomatic achievement.

Such additional steps come in two parts. First, the Obama administration will need to provide detailed written guidance to foreign banks and companies explaining what steps are required to ensure that they do not risk exposure to U.S. sanctions. Absent such guidance, non-U.S. banks and companies will continue to lack the confidence to engage in Iran-related dealings.

The Obama administration reportedly has been reluctant to provide the level of detail necessary to instill confidence in companies that they can do business in Iran. For instance, companies have long sought to understand the necessary level of due diligence to avoid exposure to U.S. sanctions — perhaps through a checklist of sorts. But U.S. officials, unwilling to act outside their comfort zone, have rejected calls to providesuch detailed guidance, thus failing to address many firms’ primary concern.

Second, the Obama administration will need to take action to ease market entry into Iran. Banks have been hesitant to facilitate trade with Iran so long as Iran remains cut off from the U.S. financial system, and large foreign enterprises have been reluctant to pursue trade and investment opportunities in Iran so long as the U.S. primary trade embargo remains intact.

The administration can resolve these persistent concerns through a broader licensing scheme. For instance, the United States could re-authorize the U-turn license, which permitted U.S. dollar transactions involving Iran to be cleared through a U.S. bank, or license American banks to provide dollars to foreign financial institutions so that dollar-clearing can take place offshore. Similarly, the administration could take a hard look at the sense of maintaining a unilateral trade embargo with Iran while it is encouraging foreign parties to engage in trade with Iran. In lieu of those more dramatic steps, the administration could also license U.S. persons to facilitate certain transactions with Iran, particularly if those U.S. persons are employed in non-U.S. companies.

The politics of such action may not prove appetizing. Uber-hawks in Congress are bent on denying the Obama administration this diplomatic success and will try to block any action aimed at resolving sanctions concerns. But the sustainability of the nuclear accord is dependent on the Obama administration taking these steps. Absent such measures, the Iran deal threatens to unravel with the United States being the scapegoat, as Iran will continue to be denied the benefit of its bargain.

Passing off current problems with the lifting of sanctions to the next administration is not an option. Obama has made a big investment in limiting Iran’s nuclear program — the time is now to secure that investment.

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