How reimposing sanctions on Iran could strengthen its drive for nuclear power

Among the consequences of the United States reimposing sanctions on Iran may be, ironically, an increased Iranian push toward nuclear power and a pivot away from renewable energy.

If curtailing Iran’s nuclear program was — as Trump stated — the goal of withdrawing from the deal, the sanctions are likely to have the opposite effect. The economic pressure will very possibly push the Iranians to expand their nuclear power program rather than halting it.

The reinstatement of sanctions has now given Iran economic, as well as political, incentives to pursue nuclear power.

The sanctions will be reimposed in two phases. The first, which already took effect, targets Iran’s purchase of U.S. currency, trade in gold and precious metals, and the sale to Iran of cars and airplanes and related parts.

The second, which will take effect in November, directly targets Iran’s energy industry, banning imports of its oil and petrochemical products.

While in the short term, there may not be a major effect on Iran’s domestic supply of oil and gas, in the medium to long term, the sanctions will cut into Iran’s oil and gas production. The sanctions will prevent international energy companies from investing freely in Iran and have already compelled some to pull out of existing projects.

The other signatories to the JPOA — Britain, China, France, Germany, Russia and the European Union — have held firm in their commitment to the deal and have endeavored to convince Iran to stay in. But they have little leverage over private companies to compel them to continue doing business with Iran, and certainly not enough to counterbalance the considerable economic pressure the United States can bring to bear.

Already, French energy giant Total has quit its planned multibillion dollar gas project in Iran, citing the U.S. penalties that would follow from doing business with Iran. Total signed up in July 2017 to develop a gas field along the southern coast of Iran as lead partner in the project, along with the China National Petroleum Corp. and Iran’s Petropars. The company, which has substantial assets and financing tied up in the U.S., had been unable to obtain a waiver to allow it to continue the project in Iran. As the U.S. has already shown its unwillingness to grant such waivers, exemptions sought by the European Union, India, China, and other potential trading partners, are unlikely to be successful.

At the same time as Iranian oil and gas production will be throttled with the loss of export markets and investment, the country’s domestic demand for energy will continue to grow. Between 2006 and 2016, Iran’s primary energy consumption increased by 40%. The country consumed more than 270 million tons oil equivalent of primary energy in 2016, nearly all of it in oil and natural gas.

Worsening economic conditions and energy shortages could have a politically destabilizing effect, an outcome that Washington may be hoping for and that Iran’s leaders are clearly motivated to avoid.

Given Iran’s track record in dealing with sanctions and outside political pressure, the country is unlikely to back down and give up its nuclear ambitions. Instead, the need for energy security may lead Iran to push forward with greater urgency on plans to develop nuclear power.

Meanwhile, the threat of sanctions has already affected Iran’s nascent but promising renewable energy sector — with potential long-term consequences for international efforts to fight climate change.

After the lifting of sanctions in 2015, investors had begun to flock to Iran with plans to develop renewables. The country’s climate, with high irradiation and plentiful wind, make it an ideal site for solar and wind projects.

More than five gigawatts of planned renewable power projects are in jeopardy now due to the reimposition of U.S. sanctions. Limiting Iran’s access to cost efficient and effective renewable energy technologies will weaken the economic case for renewables versus nuclear power.

Russia is likely to see an opportunity to sell Iran more nuclear reactors. The two countries have strong political ties and cooperation and have worked together before on nuclear projects.

The U.S. sanctions will not halt further nuclear coordination between the two. Rather, as has been frequently noted, by cutting Iran’s economic ties and cooperation with the West, the sanctions are likely to push Iran into Russia’s arms.