Some EU countries seek to use trade to up pressure on Iran - Haaretz

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Fri., October 26, 2007 Cheshvan 14, 5768

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Some EU countries seek to use trade to up pressure on Iran

By Assaf Uni

BERLIN - The European Union is Iran's largest trading partner. About 40 percent of all imports to Iran come from the 27-state bloc. European energy companies operate in Iran's thriving energy market. European machinery, mostly German, powers most of the Islamic Republic's industries. European firms run transportation and chemical projects, while European banks store Iran's foreign currency reserves and offer the country loans.

As the United Nations Security Council is waffling on the third round of international sanctions against Iran, some in Europe are calling to use these close trade relations to pressure Tehran even further. In the race between the economic sanctions and the Iranian centrifuges, France is leading the push for the European Union to step up efforts.

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As in other aspects of French foreign policy, Sarkozy has turned sharply away from the stance of his predecessor, Jacques Chirac, on this issue, too. France no longer aims to counterbalance the U.S. in terms of its foreign policy, and no longer considers economic sanctions against recalcitrant regimes unacceptable. Certainly, Sarkozy does not publicly expound notions like "a bomb or two in the hands of Iran would pose no threat to world peace," as Chirac has said.

"The world today is faced with two options," Sarkozy said recently. "An Iranian bomb or the bombing of Iran." The French president describes both options as a "catastrophe," but has called a nuclear Iran "terrifying" and "unacceptable" for France.

The French mentioned the possibility of attacking Iran last month for the first time: "We will negotiate to the end, but at the same time we will prepare ourselves ... for the worst, war," Foreign Minister Bernard Kouchner said. When it comes to western intelligence assessments on how long it will take Iran to develop a nuclear weapon, the French are the most pessimistic: two years, maximum.

For Israeli Prime Minister Ehud Olmert, who met with Sarkozy in Paris on Monday, the urgency with which the French view the issue is as good as it gets. "I couldn't have heard things on the Iranian issue that could have been any more in line with my expectations," Olmert told reporters.

Under Sarkozy, France assumed the leadership of the European effort against Iran, and in recent months it has called on the European Union to impose economic sanctions on Iran, independent of the Security Council. This French initiative has, for the first time, caused an open split among the Europeans, who had been presenting a united front on the matter.

France wants to see EU sanctions against Iran now. It does not want to wait for the Security Council to evaluate the International Atomic Energy Agency report; officials in Paris say this may take months, and ultimately prove ineffective. The French proposal calls for blocking European firms from bidding on Iranian government contracts, limiting cooperation with Iranian banks and refusing entry to senior Iranian officials affiliated with the Revolutionary Guards.

The proposal takes direct aim at Iran's energy sector, which depends on Europe for spare parts and euros, the currency in which it conducts petroleum transactions.

The French government has asked the country's largest energy companies, Total and Gaz de France, not to compete for any more Iranian government contracts, and French banks have cut the volume of their business dealings with Iran by 50 percent since 2006. French banks have cut their business with Iran by 50 percent since 2006. Still, Renault is going through with a joint venture for building cars in Iran, and is investing $426 million in it.

Among the Europeans, Britain sides with France. The new British prime minister, Gordon Brown, said he would back sanctions. "The British stance on Iran continues to be determined and assertive," an Israeli diplomatic source said. "London does not want Iran to have a nuclear bomb."

Opposing the French is Germany, backed by Italy, Spain and Austria - key commercial partners of Iran. Berlin and its allies argue that only international unity can effectively pressure Iran. Otherwise, they say, Chinese and Russian firms will fill the void left by the European firms, and Europe will have lost its influence.

"For the first time, the European stance is divided," another Israeli diplomat said. "Germany insists that the sole path is via the Security Council. They are determined to reach an agreement with Russia and China on a third round of sanctions, and are unhappy with the French initiative."

Nonetheless, Germany, the largest exporter to Iran, with a trade balance of $5 billion per year, is gradually shrinking its business dealings with the Islamic Republic.

Three German banks announced in recent months that they are ending their cooperation with Iran, and German exports have dropped by 20 percent in the past six months. Berlin also is gradually diminishing the line of credit it offers Iran to import German goods, from a high of $3.3 billion in 2004 to $1.2 billion last year.

However, some 1,700 German firms continue to do business with Iran, including the electronic giant Siemens, and the chemical giant BASF. There are no legal limits regarding dealings with Tehran.

Meanwhile, German diplomats are complaining behind the scenes that the French, in collaboration with the Americans, are trying to present Germany as carrying on with a "business as usual" approach.

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