Europe and the Iran Deal: Between a Rock and a Hard Place

After more than a year of uncertainty, President Trump announced that the United States would reimpose sanctions against Iran in violation of the JCPoA (Joint Comprehensive Plan of Action), more commonly known as the Iran Deal. This leaves the multilateral agreement the US signed with China, France, Germany, Iran, Russia, the UK and the EU in 2015 to prevent Iranian nuclear proliferation in limbo. Now Washington finds itself at loggerheads with its European allies.

For those who thought that the United States would allow the other signatories of the Deal to continue without its participation, the State and Treasury Departments’ subsequent statements and briefing make sober reading. The Trump Administration has made clear that foreign companies, including European businesses operating in Iran, will have six months to wind down their operations. Otherwise, they will find themselves on the receiving end of US secondary sanctions.

Washington once again intends to coerce Iran into negotiations through sanctions in a bid to work out a better arrangement, despite Iran’s continued compliance with the 2015 agreement. The US has been critical of the Deal’s ‘sunset clauses’, which mean some of its more stringent safeguards phase out after 2041, and of the exclusion of Iran’s ballistic missile programme and regional behaviour from the Deal. However, it was commonly understood by all those who negotiated the Deal that such an all-encompassing agreement would be impossible to negotiate, and the world was much safer without a nuclear Iran.

Iran’s response has been cautious so far. Despite its warnings in late April that it could leave the Non-Proliferation Treaty and immediately restart enriching uranium, President Rouhani has focused on securing greater European, Chinese and Russian support for the Deal in the absence of the United States. In light of Trump’s withdrawal, Tehran will likely ramp up regional activities to show Washington that cooperation is to its benefit, using the situation as an opportunity to drive a wedge between the US and its European allies.

All of this is a massive headache for Europe. Europeans are now faced with a stark choice: either trying to prevent Iran turning its back on the Deal or ceding to President Trump. So far, Europe’s response has been uniquely unified, reflecting the unanimity and strength of European opinion on the Deal.

Discussions amongst EU members have centred on ways to protect European investment in Iran. Since the advent of the Deal, European business with Iran has grown dramatically. In 2017 EU exports to Iran (goods and services) totalled €10.8bn and imports from Iran totalled €10.1bn, around double trade in 2016. Commenting on Trump’s departure, Donald Tusk announced, ‘We agreed unanimously that the EU will stay in the agreement as long as Iran remains fully committed to it. Additionally, the commission was given a green light to be ready to act whenever European interests are affected.’

Brussels is looking at reviving the Block Statute 1996 regulation. Originally adopted as a countermeasure to US extraterritorial sanctions against Cuba and Iran, this regulation would prohibit EU companies and courts from complying with foreign sanctions laws and cancelling business ties with Iran, under threat of punishment. To do so, the European Parliament and Council will need to update the law to include Trump’s new sanctions, a process that could take up to two months. The EU is also considering a number of countermeasures including increasing investment in Iran via the Euro investment bank, exploring one-off transfers to Iran’s central bank and strengthening assistance to Iran.

Yet it is uncertain whether European countermeasures will be enough, and if Europe will be able to withstand US pressure. Already a number of EU companies have decided to wind down investment in Iran: Maersk, the world’s largest oil shipping container firm based in Denmark, has stated it will end all contracts with Iran by November 4; and Total, the French oil giant, is to pull out of its 50.1 per cent stake in South Pars 11 oil field, with a high likelihood of China picking up the investment.

In essence, the United States is a larger and more attractive market for European firms. There is little Europeans can do to change this. ‘We’re not going to force French businesses to stay in Iran. The president of the French republic is not the CEO of Total,’ commented French President Emmanuel Macron on Total’s decision. German Chancellor Angela Merkel has similarly urged caution: ‘We can see whether we can give small and medium-sized companies certain relief. That is being examined… As for compensating all businesses in a comprehensive way for such measures by the United States of America, I think we cannot and must not create illusions.’

While European governments may struggle to withstand US pressure, this will not translate into an effective or unified response. In the long run Trump’s decision will likely harm Washington’s ability to act internationally, especially through sanctions. The US will struggle to persuade its allies to take part in sanctions efforts on Iran, and in future. After all, it is important to remember that it was European participation in the sanctions regime that brought Iran to the negotiating table.

Adversaries could also be less willing to accede to future US foreign policy demands, as they may doubt whether they will actually receive any benefits. I commented last month how Trump’s decision on the Iran Deal would endanger negotiations with North Korea, but this is also true for the US and European sanctions regime against Russia. As Axel Hellman at the European Leadership Network commented, ‘By reintroducing penalties for trading with Iran, the United States may have just accidentally jeopardised the success of sanctions as a foreign policy tool.’

Trump’s decision reveals an abdication of US leadership and a disregard for the rule-based international order which the transatlantic relationship has sought to defend. It cannot be viewed in isolation but must also be seen in light of his decisions to abandon the Paris Climate Accord and leave the Trans-Pacific Partnership, and his willingness to engage in trade wars with allies and adversaries alike. For Europeans, the United States not only lacks a grand-strategy consistent with their interests but is acting impulsively to undermine its own values.

Therefore, the question of how Europe will respond to the US withdrawal from the Iran Deal affects more than just Iran. It requires Europeans to question how they want to defend, and indeed reshape, the post-1945 world order while their traditional ally seems intent on tearing it apart. Europe is stuck between a rock and a hard place – to defend the Iran Deal, they must act against their oldest ally. But in the changing geostrategic context, it is the responsibility of Europeans to take action that not only defends the Iran Deal but also defend a vision of a rule-based international system, mutual cooperation and compromise.

The article and image were originally licenced and published by © 2018 Asian Affairs, and have been republished with their permission.

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