EU-Iran Relations after the Nuclear Deal Steven Blockmans, Anoushiravan Ehteshami and Gawdat Bahgat (eds) May 2016 Abstract The signing of the Joint Comprehensive Plan of Action between Iran and global powers on 14 July 2015 was a major turning point in the emerging strategic landscape of the Middle East. The ‘nuclear deal’ led to the lifting by the EU and the US of nuclear-related sanctions and is now operational. Other sanctions remain in place, however. Nevertheless, unhindered by US competition, European trade delegations have entered into a latter-day gold rush, led by the promise of the biggest untapped market in the world. As such, the EU has both an opportunity and a responsibility to help Iran reintegrate properly into the international system. But, faced with a system of governance where the lines of command and control are not always clear to the outside observer, Europe stands to lose if it continues to pursue its uncoordinated approach towards the Islamic Republic. This report offers recommendations to guide the EU towards a comprehensive EU strategy for relations with Iran. It maintains that there is no other option but to keep universal values and the rule of law at the core of the emerging bilateral relationship. In fact, the protection of the economic rights of European traders and investors would allow the EU to push for wider reforms and the normalisation of relations. ISBN 978-94-6138-527-7 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopying, recording or otherwise – without the prior permission of CEPS. Available for free downloading from the CEPS website (www.ceps.eu) © CEPS 2016 CEPS ▪ Place du Congrès 1 ▪ B-1000 Brussels ▪ Tel: (32.2) 229.39.11 ▪ www.ceps.eu TABLE OF CONTENTS Executive Summary ........................................................................................................................1 Glossary of Terms and Abbreviations .........................................................................................4 Part I: A Changing Iran in a Changing Region ............................................................................5 An Introduction Steven Blockmans, Anoushiravan Ehteshami & Gawdat Bahgat ......................................... 5 Iran’s New Centrism – A Tactical Retreat for Factional Re-formation Azadeh Zamirirad ............................................................................................................. 11 Internal Transformation and Changing Mentalities: Impact on the Iranian Regime Senén Florensa .................................................................................................................. 14 The Opening Up of a Latter-Day Eldorado? Enrico Ponzone ................................................................................................................. 20 Regional Security: A View from the Arab Gulf States Christian Koch .................................................................................................................. 25 The Impact of the Iranian Nuclear Deal on Central Asia Roger Kangas .................................................................................................................... 28 Part II: The EU and Political and Economic Reform in Iran .................................................... 33 In Search of an Effective EU Policy for Iran Fernando Garcés de los Fayos ............................................................................................ 33 Iran Sanctions Compliance after ‘Implementation Day’ Jay Modrall ....................................................................................................................... 38 Renewed EU-Iranian Economic Relations: Opportunities and Pitfalls Arnaldo Abruzzini ............................................................................................................ 43 Energy Cooperation between the EU and Iran Anoushiravan Ehteshami .................................................................................................. 47 Building a Long-Term EU-Iran Strategic Relationship… and Putting Fundamental Human Rights back on the Agenda Majid Golpour .................................................................................................................. 52 Towards an EU Strategy for Iran Nima Rashedan ................................................................................................................. 57 List of Contributors ...................................................................................................................... 64 Annexes .......................................................................................................................................... 65 EU-Iran Relations after the Nuclear Deal Steven Blockmans, Anoushiravan Ehteshami and Gawdat Bahgat (eds) May 2016 Executive Summary After more than a decade of painstaking diplomatic negotiations, the Joint Comprehensive Plan of Action (JCPOA) between Iran and global powers was signed on 14 July 2015. The Iranian nuclear deal was a major turning point in the emerging strategic landscape in the Middle East. On 15 December 2015, the Board of Governors of the International Atomic Energy Agency issued a resolution ending speculation about the possible past military dimensions of Iran’s nuclear programme. That resolution paved the way for the implementation of the JCPOA on 16 January 2016, the temporary lifting by the EU and the US of nuclear-related sanctions, and the start for the Islamic Republic of a process of reintegrating into the global system. This report examines Iran’s internal political, societal and economic dynamics, as well as the country’s role in a changing region. An examination by several experts provides the basis for a critical analysis of the development of the European Union’s relations with Iran in three key areas: trade and investment, energy cooperation and human rights. It does so within the parameters established by the current international sanctions regime which, as the contributions to this report reveal, is so far the only coordinated effort in Europe’s relations with Iran. Other than that, there is no comprehensive approach that would synchronise and subordinate member state-level policies. Unhindered by competition from the US, European trade delegations are tripping over each other to secure segments of what is commonly described as the world’s last big market to open up. Europe’s approach to renewing ties with Iran has so far been premised on building personal, institutional and business relations, while avoiding a confrontation with the Iranian authorities in areas where differences of opinion exist: human rights and fundamental freedoms, the arms embargo on Syria and ballistic missile tests. The main justification offered by European foreign policy officials for this stance is the overriding priority to strengthen the pro-reform camp in Iranian politics. The dilemma for the EU is that it is faced with a state in which each branch of government, including that of the reformist President Hassan Rouhani, is under the control of a Supreme Leader who aims to secure both the legacy of the Islamic Revolution and the future of the system of government that he has helped to put in place. This means that Europe stands to lose by pursuing its uncoordinated approach. As in the case of Russia, which took the foreign policy establishment in the West by surprise when it annexed Crimea, keeping up appearances with Iran could lead to unexpected and unfavourable consequences. If the EU and its member states continue to avoid confrontation with the military business conglomerates like the 1 2 EXECUTIVE SUMMARY Islamic Revolutionary Guards Corps (IRGC) that support the Supreme Leader, this will not only play into the hands of the hardliners, it will also prolong the dangers for European companies of doing business in Iran. Even for smaller trade deals, enterprises are in need of EU-wide support in the form of due diligence and clear, simplified procedures for complying with EU and international law, such as anti-corruption measures and non-financial disclosure. All this raises the question of what elements could contribute to a more effective EU policy towards Iran. This report maintains that, even from a realist standpoint, there is no other option but to maintain universal values and the rule of law at the core of the emerging bilateral relationship. Put differently: the protection of the economic rights of European traders and investors provides the wedge to push for wider reforms and the normalisation of relations. The EU is vested with both an opportunity and a responsibility to help Iran to properly reintegrate into the international system. In this respect, the determination of the EU and Iran to engage in a human rights dialogue is a welcome first step. Complementing the agenda set out in a joint statement issued on 16 April 2016 during a visit to Tehran by High Representative/Vice President Federica Mogherini, and no fewer than seven of her fellow European Commissioners, and in an effort to inform a future comprehensive EU strategy for relations with Iran, this report makes the following key recommendations: The EU should focus on well-coordinated, pre-planned policies that aim to best serve Europe’s collective long-term security and commercial interests, while resolutely promoting universal values. To that end, all public statements by