Tension between Iran and the West has increased over the past year since the United States withdrew from the Joint Comprehensive Plan of Action (JCPOA) and launched a "maximum pressure" campaign aimed at compelling Iran to negotiate a more comprehensive agreement. This tension has thrown the future of the JCPOA into doubt. Key developments since the U.S. withdrawal in May 2018 – including U.S. sanctions, EU mitigation steps, and Iran's response – are explained below.

U.S. Withdraws from the JCPOA amidst Criticism
 

On May 8, 2018, the United States withdrew from the JCPOA. This agreement, which froze key parts of Iran’s nuclear program, was reached in 2015 by Iran and the P5+1 (China, France, Russia, the United Kingdom, the United States, and Germany). President Donald Trump cited the shortcomings of the deal, including unrestricted missile development and inadequate inspections, as well as the Iranian government’s support of terrorist groups and militias in the region.[1] Effective immediately, U.S. nuclear sanctions on Iran were reinstated. Any new or prospective contract in a proscribed sector was subject to sanction, with sanctions waivers issued during 90 and 180-day “wind-down” periods to allow for existing contracts to be closed.[2] In order to avoid exposure to U.S. secondary sanctions, foreign firms were advised to end their activities during these periods. Iran condemned the decision, asserting that it would not "renegotiate or add on to a deal we have already implemented in good faith,"[3] and called on European countries to protect its oil sales from U.S. sanctions.[4] The remaining parties to the agreement "reconfirmed their commitment to the full and effective implementation of the nuclear deal."[5]

U.S. Sanctions Reimposed in Two Phases
 

Following the end of the 90-day "wind down" period on August 6, 2018, the United States revoked authorizations related to the import of Iranian carpets and foodstuffs and the sale of commercial aircraft to Iran. Secondary sanctions were reimposed on any foreign party facilitating the purchase or acquisition of U.S. dollar banknotes by the Iranian government, trading with Iran in gold or precious metals, significant transactions involving the Iranian rial, the purchase of Iranian debt, and support of Iran's automotive sector.[6]

In November 2018, following the end of the 180-day "wind down" period, sweeping U.S. secondary sanctions were re-imposed, including on Iran’s port and shipping sector, petroleum-related purchases from Iran, transactions with Iran’s Central Bank and other Iranian financial institutions, the provision of specialized financial messaging services, the provision of insurance, and engagement or investment in Iran’s energy sector. The United States also blacklisted more than 700 individuals and entities, primarily in Iran’s banking, energy, and shipping industries.[7] Nevertheless, the United States initially granted a sanctions waiver to the eight largest buyers of Iranian oil: China, Greece, India, Italy, Japan, South Korea, Taiwan, and Turkey.[8]

European Sanctions Mitigation Efforts
 

The re-imposition of U.S. secondary sanctions made it difficult for foreign firms with ties to the United States or the U.S. dollar to conduct business with Iran without exposing themselves to these sanctions. The EU took several steps to protect trade with Iran in an effort to provide Iran with some of the economic benefit it expected from the JCPOA. The first step was an updated Blocking Statute that forbid EU compliance with U.S. sanctions and nullified foreign court rulings on the matter.[9] In practice, however, the Blocking Statute was largely a symbolic action; dozens of European firms nevertheless announced plans to leave the Iranian market or withdrew plans to enter it.

The second step came in September 2018, when the EU announced plans to launch a Special Purpose Vehicle (SPV) to facilitate trade with Iran.[10] On January 31, 2019, the Instrument in Support of Trade Exchanges (INSTEX) was created,[11] although it only began processing transactions at the end of June.[12] INSTEX aims to support trade between Europe and Iran, initially in the humanitarian sector, by minimizing international cash flow and instead balancing financial transactions internally. To operationalize the payment mechanism, Iran created a corresponding entity, Special Trade and Finance Instrument (STFI), though its shareholders have been linked to sanctioned entities.[13] It remains to be seen how effective INSTEX can be at mitigating the economic impact of U.S. sanctions against Iran. The initial line of credit for the organization stands at only several million euros, a small fraction of EU-Iran trade prior to the reimposition of U.S. sanctions.[14]

Ramping Up Sanctions
 

Over the past several months, the United States has imposed additional sanctions aimed specifically at restricting Iran's nuclear complex. In March 2019, the U.S. Department of the Treasury designated 31 individuals and organizations connected to Iran’s Organization of Defensive Innovation and Research (SPND),[15] which has been associated with "possible military dimensions to Iran's nuclear program" according to the International Atomic Energy Agency (IAEA).[16] The United States also revoked several waivers for international nuclear cooperation with Iran specifically allowed by the JCPOA, including the expansion of the Bushehr nuclear power plant and the receipt and storage of Iranian enriched uranium and heavy water.[17] On July 18, the Treasury Department sanctioned a global network of suppliers supporting Iran's uranium enrichment program.[18]

In addition to limiting Iran’s nuclear development, recent U.S. sanctions have targeted the Iranian military and political leadership. In March, the United States designated the Islamic Revolutionary Guard Corps (IRGC) – the elite force which answers directly to Iran’s Supreme Leader – as a foreign terrorist organization.[19] The United States also sanctioned eight senior IRGC commanders as well as Iran’s Supreme Leader Ali Khamenei.[20]

Furthermore, the United States has continued to target Iran's economy – the center of the U.S. maximum pressure campaign. In April, the United States declined to renew waivers that had allowed eight countries to buy Iranian oil, with the aim of stopping all Iranian oil exports.[21] The United States also imposed sanctions on Iran's iron, steel, aluminum, and copper sectors, which represent Iran's largest non-petroleum-related sources of export revenue,[22] and blacklisted Iran’s largest petrochemical company and its subsidiaries.[23] Finally, the United States sanctioned a state-owned Chinese oil trader and the company's chief executive on July 22 for continuing to purchase Iranian oil – the first time such sanctions have been imposed.  

Ongoing Iranian Missile Development and Exports
 

During the past year, Iran has continued the development and testing of nuclear-capable ballistic missiles. These tests contravene U.N. Security Council resolution 2231, which calls upon Iran "not to undertake any activity related to ballistic missiles designed to be capable of delivering nuclear weapons, including launches."[24] Recent tests include a medium-range ballistic missile launch on December 1,[25] and a pair of space vehicle launches on January 15[26] and February 2,[27] respectively, which involved technologies similar to those used in long-range ballistic missiles.

Iran has transferred some of its missile technology to proxies in the region, including Houthi rebels in Yemen.[28] European parties to the agreement have criticized these actions, which have created additional friction with Iran.

Military Escalation in the Gulf
 

Recent months have seen a series of tit-for-tat actions between Iran and the West. Since the beginning of May, the United States has sent more than 2,000 troops to Saudi Arabia and deployed additional aircraft in the region, citing the Iranian threat.[29] In May, Iran allegedly attacked an Emirati, a Norwegian, and two Saudi oil tankers in the Gulf of Oman.[30] In June, the United States and the United Kingdom accused Iran of a similar incident involving a Japanese and a Norwegian tanker.[31] [32] In a separate incident one week later, Iran acknowledged shooting down a U.S. surveillance drone that it claimed was flying in Iranian airspace.[33] The United States almost launched a retaliatory strike against Iran but reportedly called it off at the last minute.[34] More recently, British forces detained a tanker in Gibraltar carrying Iranian oil that was allegedly bound for Syria.[35] Iran then seized a British tanker in the Strait of Hormuz.[36] Over 20 percent of the world’s oil exports pass through the strait, which is described by the U.S. Energy Information Administration as "the world's most important chokepoint," setting the stage for continued conflict.[37]

Iran Noncompliance with the JCPOA
 

On May 8, 2019 – exactly one year after the United States withdrew from the deal – Iran announced a 60-day window for the remaining JCPOA parties to provide sanctions relief before it would stop observing certain terms of the agreement.[38] With Europe unable to fulfill this demand, Iran pushed ahead. In July, Iran announced that it had surpassed the JCPOA’s 300 kg stockpile limit on low-enriched uranium gas[39] and that it had begun enriching uranium beyond the 3.67 percent threshold set by the agreement.[40] Iran is for the moment enriching uranium to 4.5 percent, which is below the level of highly-enriched uranium needed to fuel nuclear weapons. This move appears designed to put pressure on Europe to better mitigate the economic impact of U.S. sanctions. After an additional 60 days, however, the Atomic Energy Organization of Iran (AEOI) said that it would consider increasing the enrichment level to 20 percent.[41] Government officials also affirmed that the AEOI may revert to the previous design of the Arak heavy water reactor, which would provide Iran with weapon quantities of plutonium in its spent fuel.[42] Under the JCPOA, Iran has been working with China and the United Kingdom on a design that would minimize the production of plutonium. Iran exercised restraint in the year following the U.S. withdrawal from the JCPOA, but it appears that this effort is drawing to a close.