Three Things To Watch As U.S. Exits Iran Deal

SMITH BRAIN TRUST – Now that President Donald Trump has made official his decision to withdraw the United States from the Iran nuclear deal, a sweep of stringent sanctions are set to go back into effect.

Kislaya Prasad, research professor in the Decisions, Operations and Information Technologies department at the University of Maryland’s Robert H. Smith School of Business, takes a look at the three things that are likely to happen next. 

Current view: Some changes will be immediate as the 2015 agreement reached by seven countries begins to unravel, says Prasad, who is also the academic director for the Smith School’s Center for Global Business. Contracts for the purchase of new aircraft from U.S.-based Boeing and France-based Airbus will be canceled.

Imminent view: Others changes will occur over a short wind-down period, with U.S. and foreign companies having a limited time to end transactions with their Iranian counterparts. “European allies have expressed strong vocal opposition to the U.S. reneging on the deal, and would like to maintain the agreement without the U.S.,” Prasad says. “But it is not clear that they have many options.” 

Few companies, European or otherwise, would want to risk their U.S. commercial interests to pursue investments and projects in Iran, he says. Although some Europeans are likely to request so-called carve-out exceptions that would allow them to continue existing projects and agreements, the Trump administration has already indicated an unwillingness to allow any. “Iran for now seems willing to see what Europeans are able to deliver on,” Prasad says. “If, as now seems likely, this is not much, then I expect they will restart enriching Uranium and developing nuclear weapons. I don't see hardliners in Iran giving the current government a lot of breathing room for this either.”

Long view: A longer term concern is what happens to U.S. credibility in crafting and maintaining other multilateral agreements, Prasad says. “The U.S. has immense economic power to force companies to not cross its will and trade with sanctioned countries or entities,” he says. “On balance, the U.S. has been restrained in the use of this power. Now to force allies to fall in line – against their will and in violation of their commitments to agreements – erodes this power by weakening the bonds that binds it with its allies.”