war on the rocks

Iran, Terrorism, and Nonproliferation After the Nuclear Deal

After years of tough negotiations and raucous debate, the Joint Comprehensive Plan of Action (JCPOA) entered the implementation phase on Jan. 16. In addition to marking Tehran’s verified action to dismantle central components of its nuclear program, Implementation Day signaled the beginning of sanctions relief for Iran.

Assuming implementation of the agreement continues to move forward, Iran will receive a substantial financial windfall from sanctions relief. While Tehran may direct some, or even most, of the money toward domestic economic priorities, it is likely that a meaningful sum will be diverted to Iran’s efforts to destabilize the region, including its support for terrorism. Indeed, Secretary of State John Kerry indicated last week that “some of it will end up in the hands of the IRGC (Islamic Revolutionary Guard Corps) or other entities, some of which are labeled terrorists.”

As Iran re-enters global markets, the Obama administration needs a strategy that accounts for the deal’s potentially adverse implications for U.S. counterterrorism policy as well as its advantages for nonproliferation policy. Although the strategy exemplified by the JCPOA correctly prioritizes counter-proliferation over counterterrorism, a successful U.S. regional strategy in the Middle East requires that Washington confront this tradeoff head-on. The Obama administration should develop policies that can capitalize on the nonproliferation success while also mitigating the heightened risks of terrorism. In particular, given the risks associated with direct military action against Iran, the United States could expand its use of counter-threat finance tools to better contain Iranian support for terrorism.

What Has Happened So Far

Under the JCPOA, Iran had to eliminate all pathways to a nuclear weapon prior to the removal of sanctions. This process began on Oct. 18 with Adoption Day, when all parties to the JCPOA agreed to modifications to the Arak heavy water reactor to render it incapable of plutonium production. Iran also officially notified the International Atomic Energy Agency (IAEA) of its intention to abide by the Additional Protocol as well as the modified code 3.1, which required that Iran submit the designs for any new nuclear facilities to the IAEA. On Adoption Day, Iran also provided part of the Iran-IAEA roadmap, which clarified possible military dimensions of Iran’s past and present nuclear program.

These steps paved the way to Implementation Day on January 16. To reach this milestone, Iran shipped over 25,000 pounds of low-enriched uranium out of the country, including its stock of 20 percent enriched uranium. Tehran has also taken steps that will make it significantly more difficult to produce material for nuclear weapons. The core of the Arak plutonium reactor is now filled with concrete and Iran has dismantled more than 13,000 centrifuges. After an IAEA inspection confirmed these steps were complete, the United States suspended its nuclear-related sanctions, the European Union ended its nuclear-related sanctions, and the UN Security Council terminated previous nuclear-related resolutions and sanctions. Going forward, the IAEA will conduct intrusive inspections and monitoring under bolstered authority.

Next Steps in Implementing the Iran Deal

Sanctions relief will provide a financial windfall for Iran. Though the exact amount is difficult to measure, estimates of frozen funds to be released have ranged from $29 billion to $150 billion. According to the White House, the sum will be on the lower end of that spectrum. Although Iran has $100 billion to $125 billion in foreign assets that are now unfrozen, it will likely only access “a little over $50 billion” in overseas foreign reserves. The Congressional Research Service estimated that “relief will allow Iran to freely export crude oil and to immediately access a net amount of nearly $60 billion in hard currency held abroad and which Iran cannot now repatriate to its Central Bank.”

Even amidst falling oil prices and the possibility of new U.S. sanctions, it is safe to presume that the government in Tehran will have more funds at its disposal after relief from its nuclear sanctions — and that at least some of these funds will go toward its support for terrorist groups like Hezbollah as well as other destabilizing activities in the Middle East.

Assuming that sanctions relief does indirectly abet Iran’s bid for greater regional influence, including through support for violent non-state actors, why is the game nevertheless worth the candle?

The answer, in short, is that the Iran deal correctly accepts the increased risk related to terrorist financing to advance the vitally important goal of nonproliferation While trade-offs like this one can be agonizing, the JCPOA represents the type of lucid calculation necessary for effective strategy. The best policy is therefore not to dismiss the JCPOA, but to determine what policy options could best minimize the negative consequences of enhanced revenue to the Iranian regime while realizing the full nonproliferation benefits of the JCPOA.

Advancing U.S. Nonproliferation Policy Through the JCPOA

Nonproliferation has been a pillar of U.S. grand strategy since the early Cold War. Ever since achieving an atomic monopoly 70 years ago, the United States has sought geopolitical advantage by limiting other states’ access to nuclear weapons. Then as now, curtailing the spread of nuclear weapons denied current and prospective adversaries a powerful asymmetric counter to America’s overwhelming conventional warfighting capabilities, thereby preserving U.S. freedom of action and global power projection. Nuclear arms, particularly when paired with advanced delivery systems, are the only type of weapon capable of posing an existential threat to the United States and its allies and partners. Nonproliferation also benefits global security by mitigating the dangers of nuclear use due to accidents or miscalculations. Finally, though highly improbable, the specter of nuclear terrorism — made more likely by proliferation — remains terrifying.

With these benefits in mind, the JCPOA can advance nonproliferation policy in three important ways: (1) preventing (or at least substantially delaying) Iranian acquisition of a nuclear weapon; (2) advancing the cause of nonproliferation in the Middle East; and (3) strengthening the international nonproliferation regime.

First, the JCPOA has the potential to achieve the paramount U.S. nonproliferation objective of the past decade: delaying for decades, if not entirely preventing, Iran from acquiring a nuclear weapon. The deal extensively rolls back Iranian nuclear activities by significantly constraining its ability to enrich uranium, blocking the plutonium pathway to a bomb, and instituting an invasive inspections and verification regime. The JCPOA also provides a template for how crippling economic sanctions and the threat of military force can bring aspiring — and perhaps also existing — nuclear states to the negotiating table.

The deal has already reduced the amount of dangerous nuclear material under Iran’s control, as well as its ability to produce such material. Through the reductions required for Implementation Day, the JCPOA considerably extends Iran’s nuclear breakout time from two to three months to at least a year. While Iran could still decide to cheat or even race to a bomb, adherence to the deal struck in Vienna remains the best-available option to forestall the well-known dangers of Iranian nuclear acquisition: an aggressive Iranian regime, emboldened at home and abroad by the ability to engage in nuclear blackmail.

More fundamentally, the deal advances U.S. national security interests by decreasing the amount of material and equipment available for nuclear weapons purposes in a highly volatile region. Iran itself may face domestic-political upheaval in the coming years as its youth — the largest population bloc in Iran — express their frustration with the stagnant status quo. The successes of the Cooperative Threat Reduction initiatives in the former Soviet Union demonstrate the importance of seizing any available opportunity to remove nuclear weapons-usable materials and infrastructure — not to mention the bombs themselves — from unstable regions.

Second, in countering Iranian acquisition of nuclear weapons, the JCPOA advances the cause of nonproliferation throughout the Middle East. With proxy wars raging in Yemen and Syria, regional rivalries are already fraught with violence. In this context, an Iranian bomb, or imminent breakout capacity, would precipitate paroxysms of insecurity among its Sunni rivals as well as Israel. The United States would have increasing difficulty disincentivizing proliferation among its friends and allies, particularly the Gulf states that have refrained from pursuing nuclear programs, if Iran were to continue its own. Meanwhile, even though the Israeli government protested the JCPOA, the deal mitigates the existential risk to Israel of a nuclear-armed Iran and the frightening specter of an Israeli-Iranian nuclear contest. Working with allies and partners to bolster deterrence in the Middle East could be critical to solidifying these gains.

Third, the JCPOA advances U.S. policy by strengthening the international nonproliferation regime. The deal shows the international community’s seriousness in holding signatories to their Nonproliferation Treaty (NPT) obligations. More broadly, the international community could leverage the terms of the JCPOA to strengthen nuclear safeguards globally. The deal opens the door to universalization of the NPT’s supplementary safeguards agreement, the Additional Protocol, particularly to states that have significant nuclear activities but no Additional Protocols such as Argentina, Brazil, Egypt, and Venezuela. It also introduces an important precedent for Additional Protocol enforcement by establishing a clear, 24-day timeline for resolving disputes over international inspectors’ access to secret nuclear facilities. However, as IAEA Director Amano has noted, implementing the JCPOA and the IAEA-Iran roadmap will require additional resources for the IAEA. By expanding the organization’s budget to accommodate these demands, the United States has the opportunity to durably strengthen the IAEA.

The JCPOA can also strengthen the nonproliferation regime by setting a new gold standard for inspections and monitoring procedures. As 29 leading scientists wrote in a letter to President Obama, by working with the IAEA to “implement some of the key innovations included in the JCPOA into existing safeguard agreements” the United States can “reduce the proliferation risks associated with national fuel cycle facilities worldwide.” Strengthening inspections and verification standards will also support the Nuclear Security Summit process by improving nuclear security and safety. As host of the fourth and final Summit in 2016, the United States is poised to capitalize on this progress.

Revisiting U.S. Counterterrorism Strategy

Despite the myriad nonproliferation benefits of the JCPOA, it is clear that the deal has the potential to set back another core strategic objective — counterterrorism — in important ways. In moving forward with the nuclear agreement, the United States must contain the heightened risk of Iranian support for violent non-state actors, a policy for which Washington has a robust and distinct set of military and economic tools.

The events of 9/11 placed counterterrorism at the heart of U.S. grand strategy. Al Qaeda’s spectacular attacks on the Pentagon and World Trade Center dramatically and nearly instantaneously transformed American security policy and national security priorities. The most critical transformation was a heightened focus on non-state actors as critical security threats — a shift with broad implications for the conceptual underpinnings of U.S. foreign policy. Along with this transformation came an accompanying emphasis on the tools necessary to deal with states that sponsor or harbor terrorist groups.

Early in the Global War on Terror, two models of counterterrorism emerged as possible strategic constructs: a “direct combat” or “rollback” strategy and a more indirect “containment” strategy. In the early stages of the Global War on Terror, the George W. Bush administration determined that direct combat would be the most effective means of counterterrorism. In a bid to “rollback” terrorist elements, the United States pursued a policy of offensive military action in Afghanistan and at least in part justified the invasion of Iraq, on the foundation of legislative authority called the Authorization for the Use of Military Force. Implicitly underlying the decision to pursue a policy of military action was acceptance of a high initial monetary cost and near-term risk in order to minimize and ultimately eliminate the threat from extremist terrorist groups.

In its early years, the Obama administration continued this policy and, in particular, continued to support aerial strikes in Yemen and Somalia. This military action was coupled with support for indigenous security forces to develop the capacity to directly combat terrorist groups.

More recently, this administration has somewhat distanced itself from the rollback approach, but direct action remains the most prominent counterterrorism tool employed by the United States. Instead, it relies more explicitly on economic and diplomatic tools as well as efforts to build host-nation security force capability when feasible. This approach exchanges lower costs and lower near-term risks for longer-term risks posed by the continued presence and capabilities of terrorist groups. This option reserves direct military action for extreme cases (e.g. high-value targets that pose a continuing and imminent threat).

Although a direct action strategy may be appropriate for some of the counterterrorism challenges facing the United States, Iran is probably not in this category. In the context of Iranian military capabilities and political influence, the United States is much more likely to counter Iranian support for terrorism through a policy of containment with occasional and measured diplomatic action to minimize the risk of escalation.

Addressing Iranian Support for Terrorism

Since the 1979 Islamic revolution, Iran has backed an array of terrorist groups. Only five years after the revolution, in January 1984, the United States designated Iran as a state sponsor of terrorism after Hezbollah bombed the U.S. Marine barracks in Lebanon. Iranian-supported groups have fostered unrest in Iraq and the oil-rich Gulf kingdoms, killed Iran’s enemies in Europe, and struck at foes like Israel and the United States. Indeed, Iran-backed Hezbollah operations have repeatedly been directed at Israel, on Israeli territory and overseas, as with the 2012 bus bombing in Bulgaria. Iran has also used the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) to provide cover for intelligence operations, and create instability in the Middle East. The IRGC-QF is Iran’s primary mechanism for cultivating and supporting terrorists abroad including in Iraq and Syria, where they further destabilize the region.

Finally, Iran remains unwilling to prosecute or even publicly identify the senior al Qaeda members in its custody. According to the State Department, from 2009 onward, Tehran allowed al Qaeda facilitators to operate in and through Iran, enabling al-Qaeda to move funds and fighters to South Asia and Syria. Thus, it is not surprising that many members of Congress, policymakers, and scholars are worried that Iran continues to actively support terrorism and foment unrest in the region.

Containing the Sanctions Windfall Through Counter-Threat Finance

As noted above, the arrival of Implementation Day means the international sanctions will release at least $29 billion in currently frozen assets, some portion of which can be expected to go to destabilizing activities abroad. U.S. counterterrorism strategy must address threats emanating from Iran, but direct action against terrorist targets on Iranian territory — and even Iranian nationals operating abroad — introduces escalatory risks. Containment, therefore, is a preferable strategic principle.

In the context of existing authorities and the potential increase in revenues flowing to Iran after Implementation Day, a terrorism containment strategy against Iran could leverage an important component of the U.S. counterterrorism toolkit: counter-threat finance. Such efforts could reduce the funding available to and financial support of violent non-state actors. In particular, the United States can impose sanctions under statutory and executive order authority; these sanctions are generally implemented through regulations.

Many of the sanctions are administered through the Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the U.S. Department of State. The OFAC maintains the Specially Designated Nationals and Blocked Persons list, the so-called “blacklist” of entities whose assets are blocked based on information that they are controlled by, or acting on behalf of, sanctioned countries, or are designated under non-country-specific programs, such as those targeting terrorists and foreign narcotics traffickers.

While the broad nuclear weapons program-related sanctions must be lifted consistent with the nuclear agreement, the United States could maintain and expand a robust campaign to target specific companies and specific actions that facilitate illicit Iranian activities. In particular, the United States maintains Iran as a state sponsor of terrorism, triggering several sanctions. Washington can continue the policy of sanctioning any entity that facilitates Iran’s support for terrorism or other destabilizing activities. Such designations can, and likely will, include some companies that become delisted as part of the nuclear agreement. The United States is also maintaining Iran’s designation as a “jurisdiction of primary money laundering concern” under Section 311 of the Patriot Act. This classification imposes enhanced due diligence standards on banks which engage in financial transactions with Iran, providing legally enforceable verification that these financial institutions are not facilitating illicit financial activities.

These terrorism-related sanctions have significantly more impact in the context of enhanced business engagement after JCPOA implementation. In this context, the additional revenue serves two competing functions. One is to enhance available revenue for state-sponsored terrorist activity, but the other is to tie Iran to the international marketplace, thereby increasing the economic cost and consequences of targeted sanctions.

Strategy, Iran, and the United States

Sound grand strategy requires flexibility to seize opportunities for advantage. The agreement reached in Vienna was one such epochal moment. Yet progress does not come free and, in the case of Iran, nonproliferation progress comes alongside an increased risk of support for terrorism. The Obama administration should seize this opportunity to consolidate its success in forestalling the spread of nuclear weapons while also redoubling its efforts to contain Iranian support for terrorism using the tools of counter-threat finance.

Taken together, the JCPOA and the sanctions approach described above could constitute two planks of a broader strategy to contain Iranian power. Any such strategy must be built on a foundation of vigorous deterrence against both nuclear and terrorist activities. However, a range of Iranian activities projecting Iranian influence and contravening U.S. interests are likely to continue. A comprehensive strategy with respect to Iran should take into account these activities and the full-range of tools — military, economic and diplomatic — needed to minimize the harm to U.S. national security objectives.

The Obama administration’s recent decision to impose sanctions on Iran for its ballistic missile testing demonstrates that there remains space for economic coercion to counter Iranian regional ambitions. Although the Supreme Leader has threatened to renege on the JCPOA given any additional U.S. sanctions, no such response has ensued. Nevertheless, jeopardizing the nuclear deal with unrelated sanctions — though permissible under the JCPOA — remains a potential concern.

To maintain an atmosphere of good faith, the United States would do well to clearly delineate the consequences of Iranian support for terrorism. The administration should put in place a clear and transparent policy on what actions and behaviors will trigger terrorism-related sanctions. This information should be transmitted not only to the Iranian government, but also to key corporate and financial institutions. Under such conditions, and while preserving military options as required, the United States could advance its objectives of enhancing nonproliferation while minimizing the terrorism risk and continuing to develop its broader strategy to contain and counter Iranian influence.

 

Radha Iyengar is a senior economist at the nonprofit, nonpartisan RAND Corporation.

Rebecca Friedman Lissner is an International Security Studies Fellow at Yale University and a PhD Candidate in the Government Department at Georgetown University.