November 24, 2013 | The Wall Street Journal

A Weak Agreement Likely to Get Worse

The Geneva deal agreed to Sunday by six major powers with Iran is a gamble on Western optimism. While slightly rolling back Iranian nuclear capability, the agreement greatly weakens Western economic sanctions. Iranian sanctions-busters will be in position to exploit the changing market psychology and newly created pathways to reap billions of additional dollars in economic relief beyond those projected by the Obama administration. The Geneva deal's provisions are too weak to prevent Iranian physicists from making further nuclear progress in several key areas.

The interim agreement has glaring loopholes even as it addresses some areas of Iran's nuclear-weapons capacity. It includes several Iranian commitments that, if verifiably implemented, would extend Iran's nuclear breakout time from about a month to about two months, while making it easier to detect an Iranian breakout.

It places more constraints on Iran's nuclear program than was the case in the deal that the Obama administration reportedly was prepared to sign two weeks ago. The Senate's threat to pass additional sanctions, France's objections to the initial deal, and Israel's fierce resistance to the terms of the proposed agreement seem to have played a role in providing U.S. negotiators with leverage to extract a better deal from Iran.

Even with improvements, the interim agreement fails to bring Iran into compliance with its key international legal obligations as spelled out in United Nations Security Council resolutions. The agreement comes closest on compliance with the resolutions' requirement that Iran “suspend” work on “all heavy water-related projects” including “construction” of the Arak reactor. While the Geneva agreement commits Iran to refrain from the most significant activities at Arak, it does not preclude Iran from general construction work at the site. Iran will easily be able to restart or threaten to restart the more dangerous work at Arak when the six-month interim period ends.

On Iran's other legal obligations, the gap is much greater. The Security Council resolutions require Iran to verifiably “suspend . . . all enrichment-related activities.” Yet the Geneva agreement fails to commit Iran to suspend enrichment of uranium to 3.5%. The preamble language even appears to position Iran to begin negotiations for a final deal with its domestic-enrichment program already pocketed as a concession.

The U.N. resolutions require Iran to “provide such access and cooperation as the IAEA requests” to resolve the International Atomic Energy Agency's concerns about Iran's research into nuclear-weapons design. Multiple IAEA reports, including from March 2011 and November 2011, have provided extensive descriptions of Iranian research involving activities related to the development of a nuclear explosive and noted that some of the research “may still be ongoing.” Yet the interim agreement does almost nothing to gain such access and cooperation or to require Iran to come clean or provide access and cooperation to ensure that such research is not continuing.

Remarkably, not even the agreement's “elements of the final step of a comprehensive solution” make clear reference to Iran revealing its past nuclear-weapons research. Thus, Iran's affirmation, in the interim agreement preamble, that “under no circumstances will Iran ever seek or develop any nuclear weapons” is, with respect to weapons-design research, all trust and next to no verify.

The Security Council resolutions also explicitly require Iran to “not undertake any activity related to ballistic missiles capable of delivering nuclear weapons.” However, the interim agreement includes no Iranian commitments related to its ballistic-missile program. Not even the agreement's “elements of the final step of a comprehensive solution” make any reference to Iran halting its activity related to ballistic missiles that could deliver nuclear weapons.

In the absence of verifiable Iranian commitments not to proceed with nuclear-weapon and ballistic-missile research, there is nothing to stop Iran from having a designed bomb and ballistic missile ready to go. Once Iran completes a dash to weapons-grade uranium, it can insert the warhead and quickly have a deliverable nuclear weapon.

Thus, even if Iran faithfully implements each of its commitments under the interim agreement, it could find itself, in May 2014, a mere month further away than it is now from having weapons-grade uranium—but six months closer to having the rest of a deliverable nuclear weapon.

In exchange for these nuclear concessions, the Geneva deal provides significant relief to the Iranian government, which has been under severe pressure from financial sanctions. These sanctions cut Iran's currency and oil sales in half, and the sanctions restricted the regime's access to much of its estimated $80 billion to $100 billion in total foreign exchange reserves.

The Obama administration estimates that its sanctions-relief deal provides Iran with about $7 billion over six months in repatriated oil earnings, gold, petrochemical and auto sanctions, and some tuition assistance for Iranian students. Since Iran only has unrestricted access to an estimated $20 billion in overseas foreign-exchange reserves, even this $7 billion will increase Iran's unrestricted foreign reserves by over 30%. The interim agreement thus gives a rapid cash infusion to a regime that faced escalating sanctions and a potential full-blown balance-of-payments and currency crisis.

The Geneva deal, however, promises Iran potential sanctions relief of much more than $7 billion. Members of Congress, the Israeli government and the Foundation for Defense of Democracies have valued the potential sanctions relief over a six-month period at up to $20 billion. These calculations factor in how Iran could fully exploit the loopholes opened by the Geneva deal, and how an environment of sanctions relief and de-escalating sanctions could change the market psychology from fear to greed.

How could Iran do that? The impact of the Geneva deal on oil sanctions alone is instructive. First, despite administration promises not to touch the “core sanctions,” the interim agreement does exactly that by suspending for six months a 2011 U.S. law that requires countries buying crude oil from Iran to significantly reduce those purchases. The deal also suspends the core European Union and U.S. insurance and transportation sanctions for these Iranian oil sales that have been a major barrier. This could be worth over $2 billion to Iran that it otherwise would have lost over the six-month period. In addition, sanctions relief on Iran's auto sector reverses the free-fall of an industry that, before sanctions, accounted for 10% of Iran's GDP and is the second-largest employer after the energy sector.

When it comes to sanctions, official loosening prompts more unofficial loosening as the market reads the trend lines. Ultimately, Iran may find that the Geneva deal gave it more than loopholes to exploit and cash to earn. The agreement has given Tehran a new environment of changing expectations for the trajectory of the Iranian economy and a major reprieve from a more severe economic crisis.

As American economic leverage diminishes and Iranian nuclear leverage increases over the next six months, a flawed interim deal may result in an even worse final agreement.

Mr. Dubowitz is executive director of the Foundation for Defense of Democracies, where he leads projects on Iran sanctions and nonproliferation. Mr. Kittrie is a law professor at Arizona State University and a senior fellow at the foundation.


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