October 12, 2017

Memo: Potential Economic Fallout of a U.S. Exit from the JCPOA

If Congress re-imposes nuclear sanctions on Iran under the Iran Nuclear Agreement Review Act (INARA) the United States could be forced to sanction our closest allies in Europe and Asia. This would have profound negative consequences on the transatlantic alliance and with other nations that would be vital for any effort to negotiate a deal regarding North Korea. Similar risks would accompany a potential legislative effort to dramatically escalate non-nuclear sanctions effectively re-imposing sanctions lifted under the accord under a separate justification. Potential consequences will include:

  1. Alienating allies by targeting some of their foremost companies with secondary sanctions for their continued trade with Iran that was envisioned under the JCPOA.
  2. Engaging in a trade war with our closest allies, who could retaliate against the U.S. economy or protect their own companies from U.S. sanctions.
  • The E.U. Ambassador to the U.S., David O’Sullivan, recently said “the European Union will act to protect the legitimate interests of our companies with all the means at our disposal.” In this scenario sanctions would only punish U.S. businesses without producing a significant economic impact on Iran.

3. Elevating the economic and security influence of Russia and China in the region.
4. Precipitating a decline in the use of the dollar as the world’s reserve currency. The use of the dollar underpins the bite behind U.S. multilateral sanctions and provides significant financial benefits to the U.S. economy.

Treasury Secretary Jacob Lew warned about this in 2016 when he said “if foreign jurisdictions and companies feel that we will deploy sanctions without sufficient justification or for inappropriate reasons—secondary sanctions in particular—we should not be surprised if they look for ways to avoid doing business in the United States or in U.S. dollars.”

5. India, South Korea, and Turkey are already implementing policies to use their own currency in transactions with Iran.
6. Removing economic incentives for Iran not to pursue a nuclear weapons program that it is not currently pursuing.

The re-imposition of sanctions or alternatively a comprehensive non-nuclear sanctions package would place the U.S. in a conundrum. If the sanctions effectively block our allies from investing in Iran this will severely damage our partnerships and if our sanctions do not have a secondary effect, then we will essentially be sanctioning our own economy with little impact on Iran. On this point it is important to note that re-imposition of sanctions could upset a Boeing deal worth $41.6 billion when leasing and purchasing are combined, and that Boeing claims will support 100,000 U.S. jobs.  Below you can find a partial list of recently completed and ongoing investment into Iran that could be impacted by decertification and U.S. sanctions.

To see our report please see the following:

Memo Potential Economic Fallout of a U.S. Exit from the JCPOA

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