MENA Strategic Bulletin – Special Edition: Iran, sanctions and escalation risk

UN sanctions on Iran set to snap back as diplomacy stalls

The window for diplomacy on Iran’s nuclear programme is rapidly closing despite a final push by Foreign Minister Abbas Araghchi at the UN General Assembly (UNGA) in New York this week. On Tuesday the FM met with European counterparts from France, Germany and the UK (E3), along with EU foreign policy chief Kaja Kallas, in an attempt to delay the reimposition of UN sanctions on Iran on September 27. Tehran reportedly sought to highlight steps it has taken to rebuild trust on its nuclear activities, including a new agreement with the International Atomic Energy Agency (IAEA) to reinstate inspections at sites suspended since the 12-day war with Israel and the US last June.

The E3 remains firm that Iran – which has only agreed to inspections “in principle” and has provided its own timeline for the resumption of these – must fully meet European conditions to be granted a six-month extension. Conditions include entering into negotiations with Washington, transparency over its enriched material, and granting full access to UN inspectors. On Tuesday, Iran’s Supreme Leader Ayatollah Ali Khamenei firmly rejected direct negotiations with the US. Following a speech to UNGA by US President Donald Trump in which he called Tehran the “world’s number one sponsor of terror,” Ayatollah Khamenei declared talks with Washington “a dead end.”

Regional and stakeholder impact

Tehran has few options left to prevent the reimposition of sanctions. The E3’s conditions for extending sanctions relief are viewed by Tehran as unacceptable, particularly following the 12-day war. Tehran will not re-start talks with the US without assurances that its nuclear programme will be safe from further attacks – guarantees that only Washington can give. Nor is it likely to accept the new US demand that it gives up uranium enrichment entirely.

More broadly, the E3, once seen in Tehran as a counterweight to US and Israeli escalation, are now fully  aligned with Washington on this issue – a shift attributed to Iran’s support for Russia in Ukraine and European efforts to reinforce transatlantic unity. The lack of flexibility among Western JCPOA signatories means that the era of diplomacy over Iran’s nuclear programme appears to be drawing to a close.

Anticipating sanctions, Tehran has already begun seeking ways to mitigate their impact. It has been in talks with Russia and China – both of which oppose the triggering of snapback. China has been Iran’s main destination for oil exports under US sanctions and will continue thus. Neither Beijing nor Moscow can block the snapback mechanism; however, they may work to weaken the enforcement and legitimacy of sanctions when Russia takes over as UN Security Council president in October. Such efforts could further undermine confidence in international law.

While Iranian officials and state media have sought to downplay the significance of UN sanctions to their domestic audience, the scope of the penalties – an arms embargo, freeze of overseas assets and limits on uranium enrichment, among others – combined with existing US sanctions under the second “maximum pressure” campaign – will increase pressure on the Iranian regime. Iran faces interlinking crises: longstanding financial challenges, water and energy shortages, industrial decline and rising unemployment. Despite a security crackdown, protests against government mismanagement, corruption and declining living standards have persisted – with more than 20,000 arrests made since June alone, according to reports – and may intensify as sanctions bite.

Abroad, Tehran has threatened retaliation – but has little room for manoeuvre. Within parliament, hardliners are advocating for maximalist policies such as legislation to withdraw Iran from the Nuclear Non-Proliferation Treaty. However, such a move would risk alienating Beijing and Moscow – Iran’s economic lifelines under sanctions – and could invite further confrontation with Israel. Either of these outcomes would threaten Iran’s ability to rebuild its domestic defence capabilities and command structure, a process likely to take years. For this reason, Tehran is likely to avoid steps that would delay or derail the re-establishment of an effective military deterrence. Despite pressure from hardliners, it is likely to opt for more measured steps, such as the continued suspension of IAEA inspections.

Tehran is also likely to hit back via asymmetrical tactics in maritime corridors in its neighbourhood, similar to those it deployed in 2019 after the US withdrawal from the JCPOA. Gulf states are particularly exposed to Iranian or proxy activity. They have pursued cautious rapprochement with Tehran and will seek to sustain it to limit spillover risks, especially threats to energy assets and export flows. Reducing the threat of Iranian-backed strikes against Gulf territory has become even more critical following the stark realisation post-Israel’s strike against Hamas in Doha that the US may not be a reliable security guarantor.

What’s next

• The risk of Iran–Israel/US escalation – and broader spillover – to remain high or increase: The prospects for an agreement are very slim and sanctions are likely to be implemented come Saturday evening.
• Gulf energy and maritime routes under threat – again: Some analysts expect an isolated Iran to return to escalatory tactics in the Gulf. Though its conventional military and proxy network are much diminished, Iran is still capable of significant disruption within and around maritime corridors. Major steps, such as closing the Hormuz Strait are unlikely due to the damage it would do to Tehran’s own economy and those of its allies. Instead, it is likely to opt for lower key measures such as harassing or sabotaging oil tankers and commercial ships with missiles and drones. GCC countries, as well as China, which depends heavily on Gulf oil exports, are particularly exposed and likely to urge restraint. Iranian escalation via the Houthis is very likely: China and Russia have reportedly negotiated freedom of passage rights with the group, which will enable the Houthis to direct their efforts towards Western and Israeli interests only.
• Diversification of defence ties with emphasis on nuclear deterrence: National security has become a key priority for regional states amid the spread of conflict in the Middle East and concerns about the credibility of US security guarantees. The death of the JCPOA may accelerate this trend and result in more emphasis on effective nuclear deterrence in national security strategies. Saudi Arabia’s recent defence pact with Pakistan is an early indication. Regional states may also seek to hedge against a potential Iranian nuclear threat by establishing or deepening partnerships with China on developing domestic nuclear capabilities.