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Bracing for Impact: US Pullout from JCPOA & Prospects for Pak-Iran Relations

Date: May 31, 2016

In response to the US decision to re-impose sanctions on Iran and end American participation in the 2015 Joint Comprehensive Plan of Action (JCPOA), Jinnah Institute reached out to a senior panel of opinion makers and policy practitioners this week to solicit their views on potential implications for regional security and stability, and consequences for Pak-Iran relations..

Amb. Zamir Akram, Former PR to the UN and advisor Strategic Plans Division

President Trump’s decision to withdraw from the Iran nuclear deal and re-impose sanctions on Iran is likely to have far-reaching implications. Other JCPOA signatories, i.e. Britain, France, Germany, Russia and China, have unanimously opposed the US decision and are committed to honour the agreement, while Israel and Saudi Arabia have supported President Trump. Iran says it will abide by the deal if other signatories do so. However, American pressure and the need to preserve the transatlantic alliance may force European sates to renege, encouraging Iranian hardliners to abandon the agreement. Achievements of the Iran deal, i.e. two-thirds dismantling of centrifuges, 97 per cent destruction of uranium stocks, intrusive IAEA monitoring and Tehran’s commitment to not acquire nuclear weapons, would then be lost. Iran may also withdraw from the NPT, a major blow to global non-proliferation efforts. Apart from sanctions, Washington may also try to destroy Tehran’s nuclear capabilities and/or attempt regime change, leading to even greater regional instability. Russia and China will take full benefit of this opportunity and firmly resist any attack against Iran, deepening diversions with America. Given President Trump’s unpredictability, North Korea may become more wary of any potential de-nuclearisation agreement with the United States. Pakistan’s economic relations with Iran, including the gas pipeline project, will likely suffer due to US sanctions. Regionally, Islamabad’s delicate balancing of relations with Tehran and Riyadh will come under further stress. Internally, a backlash against the US is also likely, further complicating the equation with Washington.

Amb. Najmuddin Shaikh, Former Foreign Secretary

There is a short time period before sanctions waived by the JCPOA will be reinstated — approximately six months for energy-related sanctions and three months for other sanctions. President Rouhani and his team led by Foreign Minster Zarif will likely try to keep the JCPOA alive and persuade Europe, China and Russia to continue to offer the benefits Iran is entitled to expect under the terms of the JCPOA. Despite Iranian hardliner demands for an immediate resumption of nuclear activities, it is likely that the Rouhani administration will prevail and no precipitate action will be taken with regard to the resumption of nuclear activity, or the expulsion of IAEA representatives from Iran. There will likely be a further devaluation of the Iranian Rial and consequently a hike in prices. Iran will also maximise oil sales in the next 180 days. In the wider region, meanwhile, an exacerbation of sectarian tensions can be anticipated with Saudi Arabia clamping down further on its Shia majority eastern provinces.  Shia support for Iran may manifest itself in demonstrations in Pakistan, a country that has the largest Shia population outside Iran. Expect strong security measures to ensure they remain peaceful and to prevent counter-Sunni demonstrations. Iran will also demand greater Pakistani effort to prevent the use of its territory for attacks on Iran. The development of Chabahar, based on Indian investment, will likely halt or slowdown. New Delhi will continue its oil purchases from Iran at concessional rates against rupee payments, incentivising Iranian purchase of Indian goods. China will do likewise. Also expect intense diplomatic activity in next 90 days by the US, EU, China and Russia, with our highly impacted region playing a minimal role in finding a resolution before sanctions are reinstated.

Arif Rafiq, Non-resident Fellow, Middle East Institute

On balance, Pakistan is a beneficiary of the Trump administration’s decision to exit the Iran nuclear deal. One, the re-imposition of US sanctions on Iran and entities that do business with it raises the risk of foreign investment in the Chabahar port and industrial zone, an Indian-backed transshipment competitor to Pakistan’s Gwadar and Karachi ports. Washington’s exit from the Iran deal coincides with the opening of the Afghanistan-Pakistan border crossing in North Waziristan, and a broader effort by Islamabad and Kabul to revive cross border trade. Together, these developments could catalyse the return of Afghanistan’s trade that was previously making its way through Iran. Two, with added constraints on Iran’s financial transaction options, it could become more dependent on China, Pakistan’s ally, for financing and investment, putting India at a disadvantage. There may also be a rise in Yuan-denominated transactions between China and Iran. And Tehran could be pulled deeper into the Belt and Road framework. Three, it adds a new friction point between New Delhi and Washington. The Trump administration is less likely than its predecessor to provide exceptions for companies transacting with Iran. And, in the event of direct conflict between Iran and the United States, Indian neutrality would have costs. But there are also downsides for Pakistan. It too will face difficulties in transacting with Iran, though it could leverage this for better terms on gas imports from Iran. Rising energy prices will widen Pakistan’s current account deficit. And, finally, Iran now has greater incentive to strengthen support for the Taliban, making a much-needed political settlement to the Afghanistan war less likely.

Huma Yusuf, DAWN Columnist

President Trump’s decision to re-impose sanctions on Iran carries indirect yet significant implications for Pakistan. In the immediate term, Pakistan will have to act deftly to balance relations with both Saudi Arabia and Iran at a time when rivalry between the two countries will intensify owing to the Kingdom’s support for Washington’s decision. Islamabad’s special relationship with Saudi Arabia notwithstanding, Pakistan cannot risk souring relations with Iran. Our western neighbour is a key partner in terms of counterterrorism cooperation and regional trade and energy connectivity.  More importantly, Pakistan has to juggle its ties with Iran and Saudi Arabia to prevent a flare-up of proxy sectarian warfare as experienced in the 1990s. More broadly, Pakistan is now at greater risk of becoming directly involved in the escalating conflict dynamics of the Middle East. With General Raheel Sharif at the helm of the Islamic Military Alliance, and an unspecified number of Pakistani troops providing support for Saudi Arabia within the Kingdom, any conflict escalation would likely implicate our troops. Given persistent domestic security challenges, these too in an election year, it is not prudent for Pakistan to expend resources in a new conflict theatre. Moreover, such involvement would go against the spirit of the 2015 parliamentary resolution against participating in the Saudi intervention in Yemen with an eye to maintaining a neutral foreign policy position. Pakistan has not proven agile in foreign policy matters and is already facing the fallout of failing to balance the US-China dynamic. Taking a clear side in the Saudi-Iran rivalry would not only have immediate security and economic implications within Pakistan but would also affect our ties with other regional allies such as Qatar and Turkey.