An Oil Deal for Trump Can Mean a Nuclear Deal for Iran

There are many reasons to be pessimistic about the upcoming U.S.-Iran talks in Oman. The negotiators will arrive with a combination of plentiful political baggage generated during five rounds of indirect U.S.-Iran negotiations last year—which concluded with U.S. and Israeli attacks—and expansive goals. The Trump administration may seek Iranian concessions beyond the nuclear program, including curtailment of Iran’s ballistic missile program, support for proxy groups, and domestic repression. Meanwhile, Iranian officials will likely aim to trade away a now-derelict nuclear program for extensive sanctions relief.

The Trump administration’s moves to decisively lift sanctions on Syria demonstrate that when there is political will, authorities at the U.S. Treasury, State, and Commerce departments can be spurred into rolling back a major country-level sanctions program. But the rapid sanctions relief afforded to Syria was only possible because of the wholesale change in political leadership—something that the prospect of a new U.S.-Iran agreement necessarily forestalls. Moreover, even providing limited sanctions relief will be politically costly for the Trump administration in the wake of the unprecedented violence used against protestors in Iran.

But if it is politically and technically untenable for the Trump administration to provide Iran sanctions relief, does that mean negotiations are doomed? No. The Trump administration’s creative, if controversial, moves in Venezuela offer a way forward on Iran.

On Jan. 6, a few days after the extraordinary military operation to capture Venezuelan leader Nicolás Maduro, the Trump administration announced a presidential action intended to provide “peace, prosperity, and stability to the Venezuelan people.” As part of an agreement with the Venezuelan authorities, now led by Maduro’s former deputy, Delcy Rodríguez, the United States took effective control of the Venezuelan economy.

Rather than lift sanctions on Venezuela, the presidential action granted special status to revenues earned through the “sale of natural resources.” The Trump administration prohibited any “attachment, judgment, decree, lien, execution, garnishment, or other judicial process” that could fetter its own access to Venezuela’s natural resource revenues while the sanctions remain in force.

At the same time, the Trump administration declared its “possession” of the funds. While underscoring that oil revenues remain the “property of the Government of Venezuela,” the funds are held in a “custodial” capacity by the United States in accounts held in Qatar.

The Venezuela deal is innovative. It reflects the Treasury Department’s growing sophistication at managing the money of other countries and combines two well-developed capacities: custodial possession of foreign government deposits and the creation of special financial channels using third-country banks.

Back in 2003, the U.S. took control of the oil sector in post-invasion Iraq. One of the key steps was the creation of the Development Fund for Iraq, a custodial account at the New York Federal Reserve Bank in which the country’s oil revenues are deposited. These revenues were the primary source of dollar liquidity for the Trade Bank of Iraq, which was reconstituted after the U.S. invasion under the guidance of JPMorgan. The arrangement in Venezuela, which empowers the United States to have effective control of a country’s oil exports under the auspices of economic reconstruction, draws significantly from the Iraq playbook.

The Trump administration is obviously wary of giving the impression that it has seized Venezuela’s natural resource revenues. Unlike Iraqi revenues, the funds earned from Venezuela’s oil exports are not being deposited in the United States. Instead, they are being deposited in a custodial bank account in Qatar, from which Venezuelan banks can draw dollar liquidity.

This is not the first time that the Treasury Department has tapped Qatar to host a special financial channel. In September 2023, as part of a prisoner swap agreed with Iran, the Biden administration granted Iran access to $6 billion of previously frozen reserves by authorizing their transfer from South Korea to Qatar, where the funds were deposited in accounts held by the Central Bank of Iran and monitored by U.S. Treasury officials. Iran could not repatriate the money into the Iranian financial system, but it could tap the funds to pay for humanitarian imports.

The financial channel was never operationalized—after the Hamas attacks of Oct. 7, 2023, President Joe Biden, worried about political blowback, moved to deny Iran access to its money. But the process of coordinating with Qatari authorities over the operation of such a channel created a framework for the new Venezuela account, which has already received its first deposit of $500 million.

Both the management of Iraq’s oil exports and the creation of special financial channels in Qatar point to the Treasury Department’s growing ability to engineer unique financial arrangements as part of complex diplomatic negotiations. Whereas negotiations with sanctioned countries have typically centered on the prospect of sanctions relief, the Trump administration has offered Venezuela interim economic relief without lifting sanctions, skirting the difficulties associated with granting relief absent a genuine political transition in the country. A version of this formula could offer U.S. and Iranian officials the basis for a deal as negotiators prepare for their fateful meeting.

Of course, the custodial role played by the United States in Venezuela’s oil industry is an obvious infringement on Venezuelan sovereignty. Iranian leadership will likely reject any attempts by the Trump administration to directly replicate the Venezuela model in Iran. Article 153 of the Iranian Constitution states that “any form of agreement resulting in foreign control over the natural resources … is forbidden.”

But Iranian economic sovereignty is already significantly limited by the power of U.S. secondary sanctions. Iran cannot trade freely in the global economy and has been muddling its way through a slow-moving economic crisis ever since Trump reimposed sanctions in 2018. The question facing Iran’s leaders is not whether the country will continue to face limitations on its economic sovereignty—it cannot expect to receive major sanctions relief in any new deal—but whether it can engineer a less antagonistic economic relationship with the United States, securing economic relief without the rollback of sanctions. In this respect, the Venezuela model is instructive.

Iran’s prodigious international reserves exceed $120 billion. However, Iran has ready access to just one-quarter of these reserves, according to International Monetary Fund estimates. This is the primary pressure point of Trump’s maximum pressure sanctions. Even as Iran exports significant volumes of oil, the lack of access to oil revenues and to central bank reserves has pushed the country into an artificial balance of payments crisis. There is significant scope for the Trump administration to improve Iran’s access to its reserves, allowing the country’s central bank to stem the ongoing volatility in Iran’s foreign exchange market, including sharp devaluations such as that which triggered the most recent round of national protests.

The 2023 deal with the Biden administration demonstrates that Iranian officials are willing to agree to a certain level of custodial oversight by U.S. officials in return for freer access to reserves. But the Trump administration is going to demand more than mere oversight—the kind of “possession” of oil revenues granted by Venezuelan authorize represents an unconscionable concession for Iranian negotiators. But what about granting the Americans a stake in the freeing of Iranian assets?

By depositing billions of dollars of Iranian assets into special bank accounts, any new U.S.-Iran deal would create its own source of revenues. The interest earned from these deposits would be substantial. The Trump administration could devise a dedicated financial channel to enable Iran access to both accrued and future oil revenues. In return, Iran could make special commitments around the interest earned from these deposits to ensure economic benefits flow back to the United States.

For example, Iran could commit to spend at least $1 billion importing goods and commodities from the United States each year. At the Qatar benchmark interest rate of 3.85 percent, the Trump administration would need to grant Iran access to just $25 billion of reserves to secure its own annual billion-dollar pay out. Over time, Iran could increase its commitments to engage in trade with the United States, especially if future sanctions relief created openings for U.S. firms to export much-needed equipment and machinery to the country.

In 1988, the founder of the Islamic Republic, Ayatollah Ruhollah Khomeini, drank from the “poison chalice” and agreed a cease-fire with Saddam Hussein, ending the devastating eight-year long Iran-Iraq War. A year later, Khomeini was dead, and Iranian officials were left to rebuild a devastated economy and uplift a demoralized people. Then-Iranian President Akbar Hashemi Rafsanjani hatched a bold plan. He approached the American oil company Conoco, inviting it to become the first foreign energy company to invest in the Islamic Republic. A deal was struck in 1995 for a $1 billion investment in two Iranian offshore oil fields. The Clinton administration eventually nixed the deal, unwilling to countenance a rapprochement with Iran.

It has been eight years since the Trump administration withdrew from the Iran nuclear deal and imposed maximum pressure sanctions on Iran, thrusting Iran into a crisis akin to a war. On the table during the upcoming negotiations will be a poisoned chalice. If Iran’s negotiators drink from the chalice and extend a hand to the Americans, it will not be the first time.