Europe to Keep Doing Business With Iran If US Leaves Nuclear Deal

EghtesadOnline: European diplomats warned the administration of US President Donald Trump on Monday that Europe is prepared to block US efforts to reimpose international sanctions against Iran, as long as Tehran continues to comply with its obligations under the nuclear deal.

News ID: ۷۴۳۹۴۳

27 September 2017

If the US pulls out of the nuclear agreement, known as the Joint Comprehensive Plan of Action, and reapplies sanctions that target not only Iran, but other countries who do business with Iran, the European Union could take advantage of a statute dating back to the mid-1990s that would protect European companies from being penalized under the sanctions, EU Ambassador to the United States David O’Sullivan was quoted as saying on Monday in a report by The Huffington Post.

Speaking at the Atlantic Center alongside French, British and German ambassadors, Sullivan said, “We have the blocking statute ... which does offer legal protection to European companies which are threatened by the extraterritorial nature of US sanctions in certain circumstances.

“I have no doubt that if this scenario materializes, which it’s not clear it will, the European Union will act to protect the legitimate interests of our companies with all the means at our disposal.”

EU Interests, Stakes in Iran

Trade between Europe and Iran has seen a significant rise after the implementation of JCPOA in January 2016.

Latest data released by Luxembourg-based Directorate General of the European Commission, Eurostat, show Iran’s trade with the European Union topped €9.9 billion in the first half of 2017, registering a 95% rise compared with last year’s corresponding period.

Iran’s exports to EU’s 28 nations exceeded $5 billion, indicating a 227% rise year-on-year. Petroleum, petroleum products and related materials accounted for a majority of Iran’s exports to the EU during the period, with a total value of €4.4 billion.

Italy was the biggest importer as it bought €1.54 billion worth of Iranian goods during the period. France, Greece and Spain followed with €1.26 billion, €638.5 million and €609.4 million worth of imports respectively.

Iran imported €4.94 billion worth of commodities from the European Union during the same period, recording a %38.5 YOY rise. The imports mainly included manufactured goods and chemicals.

Germany topped the list of exporters to Iran, shipping €1.39 billion worth of goods to the Islamic Republic. Italy came second with €849.6 million and France followed with €763.7 million.

According to the European Commission, the EU exported over €8.2 billion worth of goods to Iran in 2016, up 27.8% YOY and imported about €5.5 billion worth of goods from Iran, up 344.8% YOY.

Popular Destination

Iran has become a popular destination for EU businesses, since the nuclear deal and the ensuing lifting of sanctions. A deal was signed between the UK and Iran earlier this month based on which British renewable energy investor Quercus will invest over €500 million ($600 million) in a solar power project in Iran.

French automaker Renault signed a contract in August to set up a €660 million joint venture with Iranian firms for increasing car production inside the country by 75%.

Earlier in July, French energy giant Total, together with Chinese state-owned China National Petroleum Corp, signed a $5 billion deal with Tehran to develop Phase 11 of Iran’s South Pars, the world’s largest gas field.

Deals with European companies include Swiss MECI Group International’s agreement to build a €750-million wind farm in northern Iran, PSA Peugeot Citroen’s joint venture contract with long-time partner Iran Khodro to invest €400 million to upgrade the Iranian carmaker’s auto plant as well as another agreement with local manufacturer SAIPA to invest €300 million in five years in manufacturing and R&D, Airbus’s contract with Iran to sell 100 jetliners worth about $19 billion at list prices (three of which have been delivered so far) and French-Italian planemaker ATR’s contract with flag carrier Iran Air worth $536 million for purchase of 20 ATR turboprop aircraft (four of which have been delivered so far and two more are expected to land within a week’s time).

French construction firm Alstom’s agreement to manufacture 1,000 subway wagons in Iran and Siemens AG’s contract worth at least €1.5 billion to build rail coaches and upgrade tracks in Iran are among the major deals Europeans have secured with the Islamic Republic after the nuclear deal.

In what were the first finance deals clinched with European banks after JCOPA’s implementation, Iran signed two agreements worth a total of €1.5 billion ($1.8 billion) with Austria’s Oberbank and Denmark’s Danske Bank on Thursday.

The first deal, worth €1 billion ($1.2 billion), was signed by 14 Iranian banks and the seventh-biggest bank of Austria that boasts a balance sheet of roughly €20 billion ($24 billion). And the second deal, worth €500 million ($600 million), was signed between 10 banks and the longstanding Nordic lender Danske Bank.

US Sanctions Alone Ineffective

Because Washington has virtually no trade relations with Tehran, US sanctions against Iran are not an effective nuclear deterrent unless other countries join the effort.

In the years leading up to the 2015 nuclear deal, European countries, as well as China and Russia, cooperated with US-led efforts to choke off Iran’s economy in hopes of persuading Iran to negotiate restrictions on its nuclear program. But now that Iran has scaled back its nuclear program in exchange for sanctions relief, the countries that helped negotiate JCPOA see no reason to cut off trade with Tehran again.

According to the Islamic Republic of Iran Customs Administration, Iran’s trade with the US stood at about $387 million during the Iranian fiscal year that ended on March 20, 2017. US exports accounted for about $285 million of the sum.

IRICA’s latest statistics on bilateral trade show Iran exported $31.32 million worth of commodities to the US during the five months to August 22 and imported $72 million in return.

According to independent trade group US-Iran Chamber of Commerce, it is estimated that sanctions on Iran cost the United States $203-271.8 billion in export revenues.

The warning from the EU ambassador came ahead of an Oct. 15 deadline, when Trump has to inform to Congress whether Iran is complying with the nuclear deal. That deadline is the result of legislation passed by Congress in 2015 that requires the president to make several certifications to lawmakers every 90 days.

Those certifications go beyond the technical requirements set forth in JCPOA. One certification, for example, requires the president to confirm that providing sanctions relief to Iran is “vital to the national security interests” of the US.

Defying IAEA

The International Atomic Energy Agency, the organization tasked with monitoring the use of nuclear technology, confirmed last month for the eighth time that Iran was complying with JCPOA. But the subjective nature of the reporting requirements in the law passed by Congress means that Trump could opt to decertify Iranian compliance, even as the IAEA says Tehran is fulfilling its obligations.

If Trump does not certify Iranian compliance, Congress has 60 days to decide whether to fast-track legislation to reimpose nuclear sanctions, a move that Iran would likely claim is a violation of the agreement.

European countries face an awkward situation if the US reimposes sanctions against Iran without definitive evidence that Iran has breached the nuclear deal. They will have to choose between breaking publicly with a key ally or losing credibility by failing to honor a diplomatic agreement.

Trump said last week that he had decided what he will do on Oct. 15, but he’s keeping his decision a secret even to US allies who are party to the agreement.

Amid this uncertainty, European diplomats have lobbied the Trump administration and lawmakers to continue providing sanctions relief in exchange for Iran abiding by strict caps on its nuclear program and allowing intrusive IAEA inspections.

European diplomats were cautious on Monday not to criticize Trump, but it was clear they were frustrated by his insistence that it would be easy to reach a new agreement more favorable to the West.

“This was a multilateral agreement with difficult partners,” French Ambassador to the US Gerard Araud said, referring to Iran, China and Russia, whose national interests are often at odds with US and European interests.

“Anybody who says we [could] get the perfect deal with those kinds of partners is just dreaming.”