Crucially, the United States halted a delivery of fighter jets that Iran’s pre-revolution government had already paid $400 million for. Normally the US would have returned the money if it wasn’t going to deliver the planes, since countries don’t just break formal agreements like that. But the US government had already frozen Iranian assets in the United States as punishment for the hostage-taking — and that included the $400 million.
The hostage crisis was eventually resolved in 1981, at a conference in Algiers. But the Algiers Accords didn’t resolve every outstanding issue — including the legal status of the $400 million.
Instead, the accord set up an international court, based in the Hague, to deal with any legal claims that the governments of Iran and the United States had against each other, or that individual citizens of either country had against the other country.
This court, called the Iran–United States Claims Tribunal, functioned as a kind of binding arbitration. To deal with cases, the involved parties could either negotiate a settlement out of court or take it to a panel made up of three US-appointed judges, three Iranian-appointed judges, and three neutral judges. The panel would then hear the case and issue a binding ruling.
This process, as you might guess, was very, very slow. By the time Obama’s second term in office began, the tribunal still had not come to a ruling on the issue of the $400 million. Sometime afterward, the A ssociated P ress’s Matt Lee and Bradley Klapper report, the US government apparently concluded that it was going to lose the case — and lose big: Iran was seeking $10 billion in today’s dollars.
"US officials had expected a ruling on the Iranian claim from the tribunal any time, and feared a ruling that would have made the interest payments much higher," Lee and Klapper write.
So the Obama administration decided to settle out of court, opening up negotiations with Iran on the terms of the settlement. It did this at the same time it was negotiating the nuclear deal and the return of four US citizens who had been detained by Iran more recently.
However, the people working on the nuclear deal and the prisoner release were different from the team working on the court case around the weapons money — some of the latter group had been involved with the claims tribunal for years.
By January 2016, the countries had struck a deal — the US would pay Iran $1.7 billion, which amounts to about $300 million in interest on top of the originally frozen assets (accounting for inflation).
This settlement was announced the same day in January as Iran received its first round of sanctions relief from the Iran deal.
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