Conflict and Cooperation, Middle East Crises
giStrat | Oct 2016

Iran Nuclear Compliance

Updated: Nov 15
  • UPDATED: Nov 15

    Assessing the JCPoA Under the Incoming Trump Administration

  • PUBLISHED: Oct 27

    Iran Nuclear

Assessing the JCPoA Under the Incoming Trump Administration

Overview

In October 2016 giStrat conducted an econometric and game theory-based analysis of the nuclear deal with Iran. We identified the most salient factors associated with a country developing nuclear weapons programs or complying with non-proliferation agreements. We then integrated our results with our software giCompute, a proprietary decision science technology, to estimate whether Iran is likely to comply with the JCPoA and to identify conditions under which it would not comply. Below are key updates taking into consideration the incoming Trump administration and the Republican-controlled Senate and House of Representatives.

Iran Is Likely to Comply With the Current Terms of the JCPoA

Our analysis published in October 2016 assessed that under present conditions Iran is likely to comply with the terms of the Joint Comprehensive Plan of Action (JCPoA). After updating our analysis with the incoming Trump administration, our finding still stands. However, our simulations indicate that Iran is less likely to comply if additional sanctions are passed or if it is rapidly destabilized.

Iran May Still Comply if Additional Sanctions Are Passed

Despite the lower likelihood of Iran complying under new sanctions, our findings indicate that it may continue to comply with the agreement so long as the remaining P5+1 signatories remain committed to doing business with Iran and do not participate in a newly passed sanctions regime.

Most P5+1 Signatories Will Likely Continue Business with Iran Even if it Pulls Out of the JCPoA

Our results indicate that most of the P5+1 signatories will likely continue conducting business with Iran should it pull out of the JCPoA because of newly passed sanctions. A potential populist victory for Marine Le Pen of France and the conservative led pro-Brexit government of Theresa May in the United Kingdom might increase the chances of these allies complying with newly imposed US sanctions and ceasing current business arrangements with Iran. However, even under this scenario, the remaining P5+1 members are unlikely to halt business with Iran. Effective sanctions require coordination and cooperation among most P5+1 members, which is unlikely according to our analysis.

An Opportunity for Negotiating on Iran’s Ballistic Missile Program Exists

Contrary to most analysts’ assessments, our simulations indicate that Iran is open to decelerating or halting its advanced ballistic missile program in exchange for removal of missile-related sanctions. Under this scenario the Supreme Leader, President Rouhani, Javad Zarif, and select members of the Iranian Revolutionary Guard Corps (IRGC) would reach consensus to decelerate or halt its ballistic missile program in exchange for sanctions relief, but they would face resistance from ultra-hardliners. However, the recently reported $10 billion arms deals between Iran and Russia will likely concern the United States more than the ballistic missile program.

 

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A Data-Driven Assessment of the Joint Comprehensive Plan of Action (JCPoA)

Analysis

Policymakers, Middle East analysts, and nuclear arms control experts want to know whether Iran will comply with the terms of the nuclear agreement (Joint Comprehensive Plan of Action—JCPoA). Empirical analysis and computer simulations conducted by giStrat indicate Iran is likely to comply with the JCPoA.

To date, Iran has fulfilled its compliance obligations. In return, the international community removed sanctions related to the Iranian nuclear program and released billions of dollars in frozen assets. Critics of the deal worry that the Iranian government will violate the terms of the JCPoA once sanctions are removed. Advocates for the deal believe it is the best option to prevent Iran from acquiring nuclear weapons. Signatories to the JCPoA might not follow the United States should it choose to pull out of the agreement. The United States and wider international community should instead minimize incentives for Iran to violate the agreement and maximize the benefits of compliance.

Iran has fulfilled its compliance obligations since the agreement was reached on 14 July 2015. giStrat compiled data pertaining to all nuclear programs and compliance agreements across a sixty-two-year period (1950-2012) for both a large sample (170 countries) and a smaller sample (twenty-three countries) with nuclear programs. Our empirical analysis identified the most salient factors associated with a country developing nuclear weapons programs or complying with non-proliferation agreements. We then integrated our results with with our software giCompute, a proprietary decision science technology, to estimate whether Iran is likely to comply with the JCPoA and to identify conditions under which it would not comply. Below are the key findings supported by our empirical testing and game-theory modeling:

  • Likelihood of Compliance: Iran is likely to comply with the JCPoA. A comparison of the JCPoA to other agreements indicates that the verification and data exchange protocols are highly robust and that this is the most stringent non-proliferation agreement in the history of the nuclear era.
  • Verification, Data Exchange, and Strong Governing Bodies: After comparing nuclear non-proliferation agreements from the last sixty-two years, we found that verification and data exchange protocols, coupled with a strong governing body that assures these mechanisms function robustly, are the most significant methods to assure compliance. The JCPoA mandates strong verification and data exchange mechanisms overseen by a strong governing body.
  • Economic Development and Sanctions: The most significant motive for compliance with the JCPoA is economic development. Our findings show that the more a country develops economically, the more likely it is to comply with non-proliferation agreements. From a policy standpoint, we conclude that efforts aimed at developing the Iranian economy would significantly enhance the likelihood of Iran not developing a nuclear weapons capability. In this context, the lifting of nuclear-related sanctions has been just as critical in preventing Iran from developing a nuclear weapons capability as the verification and data exchange mechanisms set in place by the JCPoA.
  • Future Opportunities: Although Iran’s accelerated ballistic missile program is not part of the JCPoA, President Rouhani himself has publicly stated it is a priority. Contrary to most expert analysis, giStrat’s combination of statistical analysis and game-theory based analytics suggest Iran is open to limiting its ballistic missile program in exchange for removal of missile-related sanctions. Under this scenario, Supreme Leader Ali Khamenei, President Hassan Rouhani, Foreign Minister Mohammad Javad Zarif, and the Islamic Revolutionary Guard Corps leadership might be willing to decelerate Iran’s missile development without abandoning its current capabilities.
  • Conditions for Non-Compliance: We identified two scenarios in which Iran is less likely to comply. (1) Under a scenario in which Iran is destabilized domestically, the Iranian government is more likely to break from the JCPoA and resume the path prior to the agreement. Domestic unrest can push leaders to pursue nuclear weapons as a means of bolstering nationalist sentiment while displaying power and prestige. (2) If the terms for relief of sanctions are not met, then the Iranian government is less likely to comply with the JCPoA.

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Game Theory Impact Modeling: Pathways to Strengthen Compliance

giStrat applied its cloud computing technology to estimate game theory-based benefits (payoffs) of the major groups and actors associated with the Iran nuclear deal. Our analysts ranked the known preferences of key stakeholders across five of the compliance determinants deemed significant from our empirical findings: (1) verification for compliance; (2) data exchange for compliance; (3) degree of domestic stability; (4) degree of regional rivalries; and (5) degree of sanctions. Using this process, we estimated the overall utility value each stakeholder places on the variety of potential outcomes related to JCPoA compliance. This allows us to estimate the likelihood of Iran’s compliance and to identify pathways for strengthening adherence to the agreement.

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Likely Outcome: Iran Complies with JCPoA but Accelerates Ballistic Missile Program

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Outcome: giStrat’s decision analytics indicate Iran is likely to comply with the JCPoA, though the Iranian government is also likely to accelerate its ballistic missile program. President Rouhani has publicly stated that progress on the ballistic missile program is a priority.

Gradual circumstances, such as the lack of economic reforms, will likely not affect whether Iran withdraws or does not comply with the JCPoA, although they will continue to exact a heavy toll on underemployed youth and the middle class in Iran. Rising expectations will have to be met with an improved economic reality for Iranians. Increased revenue from lifted sanctions might be enough to bolster quasi-state owned enterprises without forcing economic reform. However, this circumstance is not unique to Iran and remains a problem in countries with large oil exports.

Strengths: Iran continues to comply with the nuclear deal. The agreement has already increased economic cooperation with the international community. The central bank of Iran also believes it can improve the livelihood of the Iranian population and expects economic growth upwards of five percent in 2016.

Weaknesses: Regional tensions continue due to Iran’s acceleration of its missile program. Iran can comply with the JCPoA while continuing nuclear-related research and development.

Opportunities: There is a potential for increased regional stability through greater economic cooperation and improved economic stability.

Threats: Fast-paced development of delivery capabilities with potential for dual use can pose a risk to Iran’s neighbors, as Iran continues to seek knowledge of advanced nuclear capabilities.

Alternative Outcomes in Which Iran Does Not Comply with the JCPoA

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Iran Is Rapidly Destabilized: Significant domestic instability could force the Iranian government to break from the JCPoA and resume its pursuit of nuclear weapons. Destabilization includes acute events such as massive anti-government protests, attempted coups, or an insurgency. Under a scenario of internal destabilization, Supreme Leader Khamanei, pragmatists led by President Rouhani, and reformists would rally to secure the country from a perceived threat. This unlikely coalition would support the resumption of advanced centrifuge development as a deterrent to destabilizing forces.

Great Expectations from Sanctions Relief: Iran might also cease to comply if the international community does not relieve sanctions according to the terms in the agreement. This non-compliance scenario is less dramatic but more likely than a sudden destabilization of the country. Mismanagement of the economy, along with the effects from years of strict sanctions, continues to exact a heavy toll from the population. Iranian businesses cannot take advantage of unfrozen assets because of unresolved problems in the banking industry and continued apprehension from Western companies wary of business with Iran. Foreign Minister Zarif, under tremendous pressure in Tehran, continues to bring up this issue in the JCPoA Joint Commission.

Strengths: Iran’s economy has benefitted from the JCPoA despite the imperfect implementation of sanctions relief. Although the economy grew only by half a percent in 2015, it is expected to grow approximately four percent in 2016. Iran has seen some benefits from the deal already. Since the enactment of the agreement, German exports to Iran increased by fifteen percent in the first six months of 2016. Iranian carpet exports, a significant source of revenue for the economy, have increased forty percent.

Weaknesses: Cooperation between Iran and the United States remains limited because of domestic political constraints.

Opportunities: Cooperation among P5+1 partners increases to prevent Iran from developing nuclear weapons capabilities.

Threats: Pulling out from the JCPoA would signal Iran’s desire to develop a nuclear weapons capability. Potential conflict could ensue as countries seek to remove Iran’s ability to acquire nuclear weapons.

Conclusion

Policy Implications

The verification and data exchange protocols outlined in the JCPoA, coupled with a mandate for a strong governing body to enforce these mechanisms, are the most important tools available to ensure Iran complies with the agreement. A comparison of the JCPoA with other agreements indicates that this is the most stringent nuclear non-proliferation agreement in history. In addition to reducing Iran’s opportunity for developing a nuclear weapon, policy-makers should also consider minimizing Iran’s motive to weaponize its nuclear program. The most significant motive for compliance with the JCPoA is economic development. Our findings clearly show that the more a country develops economically, the more likely it is to comply with non-proliferation agreements. From a policy standpoint, we conclude that efforts aimed at developing the Iranian economy would significantly decrease the likelihood of Iran developing a nuclear weapons capability. In this context, the lifting of nuclear-related sanctions has been just as critical in preventing Iran from developing a nuclear weapons capability as the verification and data exchange mechanisms set in place by the JCPoA.

Relief from sanctions has removed a major obstacle to Iran’s economic development. But it is not enough. Highly inefficient state controlled enterprises and high levels of corruption are more vexing obstacles to economic development in Iran. These factors create a business environment that is unfriendly to foreign investment. The Rouhani administration is attempting to remove these obstacles by pushing for robust economic reforms that pull the Iranian economy out of isolation and into a global market. However, significant factions within Iranian domestic politics seek to prevent economic reform. A transformation of the economy would likely make Iran more responsive to the international community, including the West. This runs counter to the resistance ideology of many politicians in Tehran, as is evident by the quasi-state owned enterprises that control so much of the Iranian economy. We conclude that the biggest threat to Iranian noncompliance is not their ability to skirt around the JCPoA verification mechanisms but rather their limited ability to enact the reforms required to re-join the global economy.

Methodology

Regression Models

giStrat developed two econometric regression models to empirically identify the factors most significantly associated with having a nuclear program and complying with non-proliferation agreements. The first econometric regression model captures all countries and analyzes the factors that determine whether a country chooses to develop a nuclear weapons program. The second model analyzes the countries that pursued nuclear weapons and assesses the factors that affect compliance. We use the White standard errors to correct for spatial and temporal autocorrelation.

In Model 1 we use several independent variables that include both macro level variables and a variable identifying whether verification occurs at the national or international level, or not at all. We also include whether a country was under nuclear sanctions or threat of nuclear sanctions. We use GDP per capita (logged) to show whether the economic capacity of the country affects nuclear weapons development. We use the Polity data to include a measure of democracy. Our macro level variables include measures of domestic instability (measured by riots, protest, and demonstrations against the government), interstate conflicts, rival threat, and whether a country has a nuclear defender.

In Model 2 we use a probit model with compliance as the dependent variable (measured as whether a country was pursuing a weapons program while a member of a non-proliferation treaty). We find that verification at the international level decreases the probability of noncompliance. Logged GDP per capita decreases the likelihood of noncompliance. When data exchange is included in a treaty it decreases the probability of noncompliance. The creation of a governing body reduces the likelihood of noncompliance. A combination of routine and challenge inspections increases noncompliance. Sanctions are not statistically significant.

About giCompute

giStrat applied its cloud computing analytics software to estimate game theory-based benefits (payoffs) of the major groups and actors regarding the issue of Iran’s nuclear compliance by ranking their known preferences across five of the compliance determinants deemed significant from our empirical findings: (1) verification for compliance; (2) data exchange for compliance; (3) degree of domestic stability; (4) degree of regional rivalries; and (5) degree of sanctions. Using this process, we estimated the overall utility values of the various factions and stakeholders in Iran and internationally on the variety of potential outcomes related to JCPoA compliance. This allows us to estimate the likelihood of Iran’s compliance along with pathways for strengthening it. These calculations helped us estimate the degree to which leaders in Iran, the United States, and the international community would support and influence outcomes related to compliance on the Joint Comprehensive Plan of Action (JCPOA). giCompute incorporates the principles of game theory and decision science to calculate the positions leaders adopt and more importantly the impact of their actions on the overall outcome. Game theory is a subfield of micro-economics focused on the mathematical study of conflict and cooperation between decision-makers.

Contributors

Global Impact Strategies

Amir Bagherpour, PhD, Chief Analytics Officer
Allison Hamlin, Associate Analyst
Jeff Yuejun Li, Research Analyst

Client

PAAIA

Download the full report here

 

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