Iran's showdown accelerates

Iran's 60-day deadline that it gave the parties to the 2015 nuclear deal to grant it sufficient economic benefits and protection from the US pressure campaign is the first one that has mattered in the standoff in a long time. Thus, just under 60 days from now, everything could change in the nuclear standoff between the Islamic Republic and Washington. The deadline and an exchange of threats and initial military moves by the US and Iran have also heavily heightened tensions. It is true that the Trump administration's exit from the nuclear deal in May 2018 and its various deadlines in August, November and May 2 earlier this month all signaled an increase in pressure on Tehran. But these were all tools to impact Iran's behavior; and until now, its behavior and position on the issues in dispute were unchanged. As late as March 21, Iranian Supreme Leader Ayatollah Ali Khamenei gave a major speech signaling strategic patience. Despite all of the US steps to pressure Iran, it would remain in the nuclear deal based on the hope that it could outlast Trump and get a more favorable new US president in November 2020. Incidentally, that Khamenei speech was a major annual speech, equivalent in some ways to the US president's State of the Union speech. In other words, a lot of thought and consideration went into the decision to present Tehran's policy as being patient with the nuclear standoff. So what changed for Iran between March 21 and last week that brought it to up the ante with the US and impose its own deadline? What new developments led it to start its first public minor violations of the nuclear deal and to threaten larger violations or even to pull out of the deal if the situation does not improve by early July? A piece of the answer is that the EU countries' special purpose vehicle, the Instrument in Support of Trade Exchanges (INSTEX), a mechanism designed to circumvent US sanctions on Iran, has been nearly useless to date. Top Iranian officials, including Central Bank of Iran Governor Abdolnaser Hemmati, publicly urged the EU to finally make INSTEX count for something so it will actually help Iran defray the impact of US sanctions. But this is a small piece of the answer. As usual, the bigger piece of the answer seems to be China. CHINA DID condemn the US's May 2 decision to end its waiver of sanctions for doing business with Iran, and initial estimates were that it would ignore the sanctions. Yet the first two weeks since have unexpectedly seen China toeing the US sanctions line. Reports indicate that China Petrochemical Corp. (Sinopec Group) and China National Petroleum Corp. (CNPC), the country's top state-owned refiners, are skipping receiving Iranian oil purchases in May, including from Tehran's ships which are waiting to unload their oil right outside Chinese ports. China is Iran's largest oil customer, with oil imports of around half a million barrels per day. Sinopec and CNPC have skipped receiving cargoes they were due to receive in May, as the companies worried that receiving Iranian oil could trigger US sanctions and sever them from the global financial system. Of the five supertankers that loaded Iranian crude in April for China, only two have discharged, while another two are waiting off Ningbo and Zhoushan in eastern China to discharge. A fifth tanker is reportedly heading to Shuidong in southern Guangdong province. The only silver lining for the Islamic Republic might be that the two firms initially took a similar move last October. Back then, they skipped shipments for November as the US was reimposing sanctions on Iran, but later resumed bookings after the US granted waivers to China. China even purchased additional cargoes to make up the delayed shipments. Beijing seems to be analyzing the issue using a razor-sharp focus on national interests. No matter how important an ally Iran is to a variety of China's long-term strategies, the relationship with the US is still infinitely larger. Put differently, for Iran, China is a buyer of massive importance. But for China, Iran is an ally of secondary significance. Moreover, while some might have thought that the trade war between the US and China might lead Beijing to penalize the US on the Iranian front, the opposite seems to have occurred. China's primary concern seems to be to resolve the trade war with the US favorably. So even as it is fighting for a deal with better terms for it, China seems more ready to lean toward the US on the Iran battle. In other words, both sides care, but the US may care more about the Iran issue than China. THOUGH THIS could change week to week, and China could suddenly start reimporting Iranian oil, so far it would not seem that Iran's 60-day ultimatum is getting the reception that it expected. The Islamic Republic finds that its military and diplomatic room to maneuver is much narrower than expected. Iran may have thought that threatening US personnel in the Middle East, reportedly especially in Iraq, might deter the US from increasing pressure on it. However, it appears to have been unprepared for the US's swift positioning of substantial naval and air assets in the Persian Gulf. No one really knows what to make of news reports of the US considering a troop buildup in the Middle East of 120,000. The picture is especially hazy after Trump's typically ambiguous denials. But US Democratic leaders took it seriously enough to publicly demand late Wednesday that Trump consult with them before a major new US use of force in the Middle East. All of this means that even if this is a bluff, Tehran cannot completely ignore it. Khamenei may also be surprised that the EU pushed back so hard on the ultimatum. Iran may have believed that after it showed “patience” by staying in the nuclear deal after a full year of Trump administration “provocations,” the EU would be sympathetic to its approach of rolling back its compliance with the deal gradually. And its current violations, while significant, do not create any real danger. By building up a stock of enriched uranium beyond the 300-kilogram limit, in a sense, Iran will simply have more unusable uranium. The reason is that, at least for the next 60 days, it will still enrich the uranium only to the 3.67% level. This is not even to the 20% level it was doing before the 2015 nuclear deal, let alone the 90% level needed for nuclear weapons. So more uranium enriched to a low level means it could eventually conceivably make more nuclear weapons. But Iran would not actually shorten the time significantly to getting to a first weapon, unless it starts enriching some of that uranium at a higher level. In that case, Iran has achieved very little to date with its ultimatum and partial violation of the deal. The real question is will the EU, China or both start to help Tehran more economically before the end of the 60 days, even if it means butting heads with the US? Will they have greater fears that Khamenei will order enrichment of uranium upped to the 20% level, which would start to shorten the time needed for Iran to break out to a nuclear weapon? If they do not boost Tehran enough from its perspective, are the Iranians really ready to up their enrichment level and risk a possible preemptive strike from the US or Israel? How far would the US or Israel let Iran go before striking? Some analysts say that the US forces moved to the region were more symbolic, to deter Khamenei from ordering an attack on US troops in Iraq. They would say that the US did not build up its forces to start a big conflict – something Trump has carefully avoided throughout his term, despite his often heated rhetoric. Also, will Israel alter its carefully constructed 10-year defense budget plans, reallocating large funds to return it to having an indefinite immediate airstrike capability on Iranian nuclear facilities, as it had maintained before the 2015 deal? So the 60-day deadline creates far more questions than answers. But six weeks ago, it seemed that the turning point in the US-Iran nuclear standoff would be the November 2020 US presidential election. Under the new constellation of positions, getting the ultimate answers to these fateful questions and the fate of the region may have moved up substantially, and the answers may present themselves as early as July. Reuters contributed to this report.

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