As the U.S. drops out of the Iran nuclear deal, Iran may first try diplomacy but could also seek help skirting U.S. sanctions from other parties to the deal, particularly Russia and China.
Iranian President Hassan Rouhani on Tuesday said Iran would speak with China, Russia and European countries to see if the 2015 deal can be maintained without the U.S. However, if the deal collapses, Iran could return to its nuclear program.
President Donald Trump withdrew the U.S. from the agreement, calling it "disastrous," and promising the "highest level of economic sanctions against Iran." After the move by Trump, companies would have 90 to 180 days to wind down existing contracts with Iranian companies.
Longer term, analysts also say the bigger issue is the schism in Iranian internal politics, and who ultimately gains the upper hand.
"Rouhani doesn't control the nuclear field. The supreme leader does. What does the supreme leader do now? I think the biggest risk is the hard-liners in Iran get the upper hand, and Iran resumes their nuclear program. I think Rouhani may have been discredited today," said Helima Croft, global head of commodity strategy at RBC Capital Markets.
But as analysts assess whether renewed sanctions will be successful, they point to the fact that China is unlikely to curtail its purchases of Iranian oil, and may in fact increase them. Iran may also find an ally in Russia, also under U.S. sanctions.
Iran could first explore diplomatic channels after Trump's decision to resume sanctions on Iran based on evidence from Israel that Iran is continuing a nuclear program and its support of terrorist organizations in the Middle East. But while it could go to the United Nations General Assembly, the U.S. sits on the Security Council.
"I think Iran does nothing in the short run ... I don't think they want to invite anyone to start bombing the country," said Edward Morse, global head of commodities research at Citigroup. Morse said Iran will likely seek abitration under the terms of the nuclear pact.
Iran entered the agreement in 2015 with the U.S., China, Russia, the U.K., Germany and France to end its nuclear program in exchange for a waiver of harsh financial sanctions that hampered its ability to export oil.
Analysts expect European companies that do not want to be prohibited from dealings with the U.S. to comply with the renewed sanctions, but European leaders are expected to continue to work to find a way to keep the pact in place.
"While there is considerable debate over the effectiveness of unilateral U.S. action on Iran, we think that a revival of the threat to lock non-compliant corporates out of U.S. capital markets provides the White House with a pretty powerful stick," notes Croft. "While Chinese compliance is probably a nonstarter, we do anticipate a high degree of cooperation from European, Japanese and South Korean corporates despite their host government's opposition to the U.S. move."
French President Emmanuel Macron tweeted that there will be a continued effort to work on a broader framework to include lengthening the nuclear agreement; curbing ballistic missiles and Iranian activity in Yemen and Syria.
Carlos Pascual, a former U.S. diplomat and the State Department's top energy official when the sanctions were first imposed, said one way forward could be a parallel set of sanctions that the U.S. could agree to with Europe on the topics mentioned by Macron.
"I imagine what will happen is the administration will continue some form of discussion or dialogue with the Europeans on whether there are supplementary sanctions that could be put in place on ballistic missiles. It's unclear what might be done to constrain Iran in the region," said Pascual, senior vice president at IHS Markit.
He said Iran's activity in the region extends to Hezbollah and Hamas, and into places like Syria, Libya, Lebanon and Yemen.
"Sanctions on Iran's involvement in the region become complicated because they are so extensive, and they are hard to measure and verify. It would be extremely difficult to implement," said Pascual.
Iran learned to get around sanctions the last time, and it could do so again but more successfully, analysts said. Instead of the more than 1 million barrels a day that were kept off the market in the last round of sanctions, the result is likely to be more little more than 300,000 since U.S. allies do not support ending the deal, known as the Joint Comprehensive Plan of Action.