How Governors and State Legislatures Can Mitigate the White House's Iran Strategy

A few months ago it seemed that the Biden administration would pursue a more moderate version of Obama’s Iran strategy. Now it’s poised to make even greater concessions.

A meeting to discuss the full implementation of the Iran nuclear deal and the return of the United States to the deal in Vienna on April 15, 2021. EU Delegation in Vienna/Handout/Anadolu Agency via Getty Images.

A meeting to discuss the full implementation of the Iran nuclear deal and the return of the United States to the deal in Vienna on April 15, 2021. EU Delegation in Vienna/Handout/Anadolu Agency via Getty Images.

May 10 2021
About the author

Richard Goldberg is a senior advisor at the Foundation for Defense of Democracies. He has served on Capitol Hill, on the U.S. National Security Council, as the chief of staff for Illinois’s governor, and as a Navy Reserve Intelligence Officer.

President Biden’s negotiators are camped out in Vienna today, overseeing what appears to be a financial rescue package for the world’s leading state sponsor of terrorism. While a few months ago there was reason to believe that the current White House would pursue a more moderate version of the Obama administration’s Iran strategy, it now seems poised to make even greater concessions to the Islamic Republic than its predecessor. According to news reports and background briefings by senior administration officials, the United States is offering to rejoin the 2015 Iran nuclear deal and lift terrorism sanctions on Iran’s central bank, oil company, tanker company, and several sectors of Iran’s economy in exchange for Iran agreeing to return to compliance with the pact’s terms.

Under the arrangement, Iran would not have to agree to any new limits on its sponsorship of terrorism or development of nuclear-capable missiles—nor would the original nuclear deal be strengthened or extended. The good news, however, is that Congress as well as state and local governments have significant leeway to counteract some of the mistakes the White House appears ready to make. I’ll explain presently, but first it’s important to understand exactly what the dangers are.

The Joint Comprehensive Plan of Action (JCPOA), as the nuclear deal is formally known, faced bipartisan opposition in Congress for good reasons. The deal reversed longstanding international demands that Iran halt all activities related to the enrichment of uranium and fully account for its past work on nuclear weapons. Although nuclear negotiations involve many complex technicalities, the reason for this demand is simple: the same centrifuges that can produce the low-enriched uranium needed for civilian purposes can also produce the highly enriched uranium needed for nuclear weapons. Thus the United States normally insists that countries seeking nuclear energy forgo domestic enrichment—what’s known as the nonproliferation “gold standard.” The Iran deal, by contrast, only limits the number and types of centrifuges the Islamic Republic can operate—and only for a limited amount of time. In other words, it slows down rather than blocks its path to bomb—and that’s assuming Tehran cooperates in the first place.

The Vienna talks also continue alongside fresh data from the International Monetary Fund demonstrating that the Trump administration’s maximum-pressure campaign had been more effective than anyone imagined. Iran’s accessible foreign-exchange reserves plummeted from $122 billion in 2018 to just $12 billion in 2019. By the end of 2020, the regime’s accessible reserves were down to just $4 billion.

The trajectory was clear. Despite their propaganda that maximum pressure had failed—a line parroted by the nuclear deal’s supporters in Washington—the mullahs were rapidly burning through cash. If maximum pressure continued, the regime would soon have to choose between a balance-of-payments crisis and negotiations on America’s terms.

Rather than use this maximum leverage to achieve maximum results, President Biden appears willing to settle with even fewer concessions than Barack Obama received. For instance: in October 2013, just weeks before the Obama administration negotiated an interim nuclear deal with Iran, Iran held an estimated $20 billion in foreign-exchange reserves, but was capable of “muddling through” for at least another year. The price of oil, meanwhile, sat above $100 a barrel. U.S. politicians risked severely hurting constituents at the gas pump by pressing to cut off all Iranian exports. Now, however, the U.S. is a net exporter of oil, prices are around $65 per barrel, and the Iranian regime is strapped for cash. Yet the White House seems content to get less with more.

And uranium-enrichment was not the only flaw with the JCPOA, which the Biden administration seems so eager to revive. The deal was silent on Iran’s sponsorship of terrorism, hostage-taking of American citizens, and human-rights abuses, not to mention the development of missiles that could deliver a nuclear bomb. Lastly, it came with a series of expiration dates on key international restrictions, also known as sunset provisions.

The first sunset went into effect last October with the expiration of the international arms embargo on Iran. The next arrives in 2023 when UN missile restrictions expire. The following year, Iran can test advanced centrifuges with international legitimacy. By 2031, Iran would be fully authorized to enrich as much uranium to weapons grade as it wants.

In 2015, these provisions were risky. But many JCPOA supporters believed or claimed to believe that Iran had truly abandoned its quest for nuclear weapons. And they could point to the fact that the deal brought the regime back into compliance with the Nuclear Non-Proliferation Treaty, which it had ratified in 1970, by requiring it to address outstanding questions from the International Atomic Energy Agency (IAEA) about past work on nuclear weapons. Today, we know Iran’s answers to the IAEA were lies—that some form of clandestine nuclear program continues—and that the JCPOA’s monitoring and verification program failed to detect it.

Evidence of this came in early 2018, when the Mossad discovered that Iran was concealing a secret nuclear-weapons archive—a curation of its past work on nuclear weapons. The mere existence of the archive and the regime’s deliberate attempt to conceal it from international inspectors offers us the clearest evidence to date that the mullahs never abandoned their long-term nuclear ambitions—and that they plan to exploit the JCPOA to achieve these ambitions.

Later that year, Israel’s prime minister Benjamin Netanyahu alleged that Iran was concealing nuclear material at a secret warehouse. In 2019, the IAEA announced it had discovered traces of nuclear material at an undeclared site in Iran—reportedly the same warehouse flagged by Israel—while Netanyahu announced the existence of additional nuclear sites in Iran. The U.S. Treasury Department dropped a bombshell that year as well: Iran continued to employ scientists who worked on its nuclear-weapons program at a secret military organization headed by the founder of that clandestine program.

This March, the IAEA’s director general revealed that the agency had visited three more sites in Iran and found traces of nuclear material at two. None of these sites had been declared to the IAEA. The failure to disclose nuclear material and sites to the IAEA represents a breach of Iran’s obligation under the Non-Proliferation Treaty, let alone the JCPOA. Returning to a nuclear deal that failed to detect these undeclared nuclear activities, sites, and materials is absurd. Returning to that deal without first demanding a full accounting of such undeclared activities is indefensible.


With all that in mind, it’s important to remember that there was still a feeling of hopefulness shared by Iran-deal skeptics across the political aisle in the early days of the Biden administration. President Biden and his national-security team acknowledged the flaws of the JCPOA and recognized the need for a better, more comprehensive deal. “If Iran comes back into full compliance with its obligations under the JCPOA, the United States would do the same and then use that as a platform to build a longer and stronger agreement that also addresses other areas of concern,” the State Department spokesperson Ned Price said in January.

The administration also committed to keeping terrorism sanctions on Iran, as distinct from nuclear ones, in place even if it rejoined the JCPOA. Secretary of State Tony Blinken, who explicitly made such a pledge during the presidential campaign, told the Senate Foreign Relations Committee in January that it would not be in the U.S. interest to lift terrorism-related sanctions on the Central Bank of Iran or the National Iranian Oil Company.

By April, these promises were already broken. With Iran refusing to commit to any follow-on negotiations over its sponsorship of terrorism or development of nuclear-capable missiles, Price suggested the administration’s goal was no longer to “build a longer and stronger agreement” but instead “to focus on compliance for compliance.”

Far worse, the administration shattered its commitment to maintain terrorism sanctions on Iran by offering to lift sanctions on Iran’s central bank, energy sector, financial sector, and other companies and sectors tied to funding the Islamic Revolutionary Guard Corps (IRGC), the regime’s paramilitary arm that funds terror abroad, abuses its own citizens at home, and sends its legions to wreak havoc throughout the Middle East. One senior official told reporters that these sanctions were illegitimately labeled “terrorism” to make it harder for Biden to rejoin the JCPOA—an outrageous comment in light of the fact sheets published by the U.S. Treasury linking banks and companies to terror finance.

One day later, reporters asked Price to name a single bank or company illegitimately subject to U.S. terrorism sanctions today. Price demurred. Instead, he argued that imposing terrorism sanctions on any bank or entity originally granted sanctions relief under the JCPOA was inherently inconsistent with the agreement. While the Obama White House and then-Vice-President Biden promised Americans that the U.S. would continue to impose sanctions on any entity engaged in financing terrorism, the Biden administration appears to be shifting the U.S. interpretation of the JCPOA in Iran’s favor—effectively pledging an endless subsidy to Iran’s sponsorship of terrorism—while getting nothing in return.

This last concession should be met with a strong and swift response from Congress, which is far from powerless in this regard. In 2017, Democrats and Republicans united behind legislation to impose sanctions on Iran for non-nuclear illicit conduct. The legislation, which mandated sanctions on entities affiliated with the IRGC, passed nearly unanimously in the House and Senate while the U.S. remained a participant in the JCPOA. The Biden administration is now challenging this bipartisan consensus and offering to skirt the 2017 sanctions law.

Congress has options to respond and keep terrorism sanctions on Iran in place. New Jersey’s Senator Bob Menendez, the chairman of the Senate Foreign Relations Committee, was the lead co-author of the 2017 Iran terrorism-sanctions law. His fellow Democrat, Senator Joe Manchin of West Virginia—who holds a key swing vote in today’s 50-50 Senate—opposed the JCPOA in 2015 and supported Trump’s decision to withdraw from the agreement in 2018.

For members who support terrorism sanctions on the IRGC, the most straightforward course of action would be to pass a bill similar to the 2017 one, forcing President Biden to make new determinations and impose fresh sanctions on any entity connected to the IRGC or Iran’s sponsorship of terrorism. If Biden lifts sanctions on the Central Bank of Iran or the National Iranian Oil Company, for example, the underlying evidence that both entities help finance terrorism will still exist. Such a move by Congress will, therefore, force the administration to reimpose sanctions on most of the entities currently subject to U.S. terrorism sanctions.

If opponents of the renewed Iran deal are unable to obtain the necessary votes for such measures in stand-alone form, they could instead pursue an amendment to the annual defense bill, which is exactly what they used a decade ago to sanction the Central Bank in the first place. They also have the power to delay key nominations related to Iran, as demonstrated by the weeks-long confirmation battle over Biden’s nominee to become undersecretary of defense for policy.

But thanks to the distribution of power created by the American Constitution, it’s not only Congress that can make things a bit more complicated for Tehran. Starting in the late 2000s, state and local governments passed laws divesting public pension funds from companies that invested in Iran’s energy sector. Some states expanded to target insurance companies and banks connected to Iran’s illicit conduct as well. As of late 2016, 31 states had sanctions in place against the Islamic Republic.

Governors, state legislatures, and even mayors and city councils that already have Iran sanctions laws in place should consider strengthening and expanding them. For instance, pension funds can be divested from a wide range of companies that engage in or facilitate transactions with entities connected to Iran’s financial, energy, metals, mining, minerals, manufacturing, and automotive sectors—all of which have been linked to the IRGC.

States have other tools as well. Foreign banks must apply to state regulators to open offices and establish representation. Either by executive order or statute, states could consider adding one more certification to foreign bank applications: that they do not conduct or facilitate transactions with Iranian financial institutions except for those related to food and medicine.

For those who think states and cities do not have enough economic leverage over foreign banks and companies to make a difference, recent cases suggest otherwise. In 2015, Illinois became the first state in America to use pension divestment to target companies engaged in boycotts of Israel. Florida, New Jersey, Texas, and eight other states followed. When companies wind up on a state blacklist, corporate executives pay attention and change their behavior. Most recently, Airbnb reversed course on a decision to remove Jewish homes in the West Bank from its platform after Illinois and other states declared the company’s policy a violation of state divestment laws.

When it comes to Iran, expanding existing pension divestment laws to cover firms connected in any way to IRGC-controlled economic sectors could deter European and Asian firms eyeing a return to the Iranian market. Among just the twelve states with anti-BDS pension divestment laws, public investment funds hold more than $170 billion in international equities. Imagine the impact of 31 states teaming up to target Iran.

In the end, whether Congress, states, or local government prevail in derailing sanctions relief for Iran in the weeks and months ahead, the private sector will get the message loud and clear: any sanctions relief provided by the Biden administration could very well be temporary. If Republicans retake Congress in 2022, or the White House in 2024, the return of sanctions becomes even more likely. For corporate general counsels and executives around the world, long-term contracts with Iran are a flashing red light illuminating the legal risk, financial cost, and reputational damage waiting just ahead. And whatever the state of nuclear negotiations, the less cash the ayatollahs have, the less trouble they can cause.

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