One year after the Iranian nuclear agreement was signed, it remains to be seen how viable it will be and what kind of relations Tehran will establish with the West and Russia.

Iranian demonstrators chant slogans during a rally in front of the former U.S. Embassy in Tehran. Photo: AP

It was hard to overestimate the significance of the Iranian nuclear deal, both politically and economically, when the P5+1 countries (the permanent members of the UN Security Council plus Germany) and Tehran signed the agreement one year ago. On July 14, 2015, they came up with the so-called Joint Comprehensive Plan of Action (JCPOA), which is better known as the Iranian nuclear deal.

Under this agreement, Tehran was obligated not to enrich uranium for military purposes, to upgrade the Arak heavy water reactor in central Iran to exclude production of military-grade plutonium and, most importantly, to reduce over the next decade the number of centrifuges at its disposal from nearly 19,000 to only 5,060 functioning in Natanz nuclear facility.

However, Iran was allowed to maintain a small uranium enrichment program with the option of later — and perhaps rapid — expansion.

"Many greet the Iranian nuclear deal that suspends [Iran’s] nuclear program for 15 years with optimism, but they miss one point. As soon as the period of the agreement expires, the Iranians might not only resume the suspended program, but also reinvigorate it," said Alexey Arbatov, the head of the Carnegie Moscow Center’s Nonproliferation Program, in an interview with Russia Direct.

In return, Tehran secured the gradual release of around $150 billion worth of Iranian holdings frozen by banks in Western countries, as well as the step-by-step lifting of international sanctions in the spheres of finance, energy and transport.

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However, only six months later, on January 16 of this year, the agreement came into force when the UN Security Council adopted a resolution on the Iranian nuclear deal and some unilateral sanctions against Tehran were lifted.

Iranian deal: Still no game-changer?

Nevertheless, some of the American sanctions are still in force, which has had a great impact on Iranian public opinion about the deal. Last year about 62 percent of Iranians were optimistic about the agreement and believed that the U.S. would lift all its sanctions. Today, only about 23 percent of respondents are optimistic about the prospects of lifting U.S. sanctions on Iran. Suspicion has replaced hope within the country. This strengthens the opponents of the agreement in Iran and generates more skepticism toward the United States.  

About three-quarters of the respondents of the poll, conducted by the Canadian center Iranpoll, think that the U.S. is trying to prevent normalization of the trade and economic relationships between Iran and other stakeholders within and outside the region, despite the selective cancellation of sanctions. The number of those who think that Iran yielded too much in the deal has also increased from almost 40 percent to 51 percent since last September.

“Some sanctions deal with bilateral relations between Iran and the U.S., and they are still in force,” admitted Iran’s Deputy Foreign Minister Abbas Araghchi in an interview, pointing to the main political achievement from the deal: the recognition of Iran’s right to uranium enrichment. However, the economic challenges are becoming more relevant for the nation rather than some abstract agreements on paper, according to Araghchi.

With many foreign delegations having visited Iran after the partial cancellation of the sanctions, experts are mulling over the question who will become the major political and economic partner of Iran – Europe, the U.S., or Russia, one of its closest allies, though still far from being a strategic partner for Tehran.

However, despite the fact that sanctions were lifted and Western delegations are heading to Iran, it hasn't yet brought a lot of gains to Tehran in practice. For example, the Boeing Company signed a $25 billion deal to sell jets to Iran, but its future seems to be still in limbo. It could take months to implement the agreement amidst "uncertainty from lenders about financing deals with Iran and the need for the U.S. government to sign off on any sale."

One of the problems is that the deal's end user is based in Iran, which has been designated by the U.S. as a state sponsor of terrorism. This makes it more difficult to raise financing for a sale of the Boeing planes to Iran. 

”If Boeing goes through with this deal, the company will forever be associated with Iran’s chief export: radical Islamic terrorism,” said Peter Roskam, U.S. Representative for Illinois's 6th congressional district.

Similarly, the U.S. Export-Import Bank, which frequently provides financial backing for Boeing’s deals, told Congress it wouldn’t finance transactions to Iran because Washington has designated the country as a state sponsor of terrorism. The lack of unanimity within the U.S. about doing business with Iran might be the reason why the $27 billion deal with Airbus to sell its planes to Iran has not yet been completed either.

All of these difficulties have arisen even though Tehran ratified the 1999 International Convention for the Suppression of the Financing of Terrorism in March 2016. It could be because Iran didn't change its position on the status of such groups as Hezbollah, which is listed as a terrorist organization by the U.S., Canada, EU, and other countries. Iran doesn't consider Hezbollah as a terrorist organization and will remain intransigent on this question, emphasized Araghchi. So, the ground for tensions remains.

Challenges in attracting foreign investment

Nevertheless, with the sanctions lifted, Iran is thinking about attracting foreign direct investment. Even though the five-year development plan for 2016-2021 has not been approved by the new Iranian parliament yet, it seeks to create incentives for attracting up to $12 billion of foreign direct investment annually. But it seems to be not enough to keep the Iranian economy afloat in the upcoming years, because Tehran is struggling to improve its economic record during a period of low oil prices. Although Iran's oil export returned to the pre-sanctions level  (2.3 million barrels a day) it didn't have a positive impact on its budget.

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Iran’s other problem stems from the reluctance of foreign banks to re-connect with the Iranian banking system. The director of the Central Bank of Iran, Valiullah Seif, said that even though the U.S. Treasury officially withdrew from prosecution of third parties for interactions with Iran, foreign banks are still afraid of being prosecuted by the American legislators. Recently, the Korean ambassador in Tehran complained that due to the unresolved issue with bank transactions, Seoul is still forced to smuggle cash for the embassy through third countries.

Structural economic problems

The problem of unemployment in Iran has not been resolved, and in fact, has even become worse, especially among the young population. Official statistics assesses unemployment at 2.5 million, or 11 percent of the workforce. Levels of unemployment of the generation below 30 is at least two times higher. As Hamid Haj-Esmaeli, a specialist in labor markets, suggested, "It is time to look for the reasons of economic problems inside of Iran and not outside.”

He argues that there was not enough effort made to diversify the economy during sanctions and that is why after the implementation of the nuclear deal, the situation did not improve.

“The problem cannot be solved without a precise plan, but the government did not have a plan during the last three years,” said Haj-Esmaeli. He observed that young university graduates still treat employment in the same way as they did under sanctions – that the government should provide jobs, because the private sector is underdeveloped.

The comeback of Iran’s conservatives

With a lot of problems unresolved after the achievement of the Iranian nuclear deal, the opponents of the agreement could strengthen their positions ahead of the presidential election, scheduled for 2017. There are some warming signs. In comparison to last year, fewer voters have expressed their support for current President Hassan Rouhani, who did his utmost to sign the nuclear deal. Meanwhile, the rating of former Iranian president Mahmoud Ahmadinejad, a potential presidential candidate, who criticized the agreement, is three times higher now.

Amidst the fears about the so-called ideological “infiltration” from the West, principalists, or rather “confrontationists” as a lecturer at Northwestern University in the U.S. Saeid Golkar suggests, are increasing their political clout within the country. They see the influence of the West as a more serious security threat than economic sanctions or military invasion.

“Even if we do not smell a threat, it still means we should be on guard,” said Araghchi.

However, those who support the deal keep insisting that it is necessary to take a wait-and-see approach, because the agreement cannot resolve all the Iranian problems at once. In fact, the team of moderates finds itself in a very difficult situation. It needs to maintain the political balance while trying to reduce social tensions, which resulted from the fact that high expectations from the Iranian nuclear deal didn't come true.

What foreign policy strategy will Iran follow?

At any rate, the debates around the nuclear deal will determine the agenda of Iranian politics and it will have a big impact on the country's foreign policy. Preoccupied by the so-called “Western infiltration,” Iranian fundamentalists might impose their agenda on the population and could get a stronger hand in domestic politics, which could lead to more assertive policies of Iran in the region.

At the same time, Iran’s suspicion of the West could mean a stronger aspiration of the nation’s elites to expand partnership with Moscow, given the fact that Russia and Iran declare that they would like to boost their bilateral trade and haven't yet had any disagreements on the conflict in Syria and the future of its president, Bashar al-Assad, at least until the need to decide on the future of Syria will really come forward.

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However, even though Moscow resumed the supply of the S-300 air defense systems in April 2016 and expanded military-technical cooperation with Tehran, this stance will be seen by Iran as the fulfillment of earlier obligations, which Russia failed to observe before, rather than a step towards strategic partnership. At the same time, Moscow will define its policy toward Tehran depending in the international environment in general and its relations with the West, in particular.

It also remains to be seen how viable the Iranian nuclear deal will be in 2017, when a new president comes to power in the U.S., which Tehran still sees as a potential threat despite the lifting of sanctions.