Analysis

As Iran Sanctions Kick in Again, EU Scrambles to Protect Interests

Newly reimposed American sanctions on Tehran could have a major impact on Europe, particularly in light of the looming trade war with the U.S.

Iranians walking by the a mural painting of Ayatollah Khomeini on the wall of the former U.S. embassy in the Iranian capital of Tehran, August 7, 2018.
AFP

As the United States reimposes its sanctions on Tehran, the European Union has announced its intention to protect Europe’s financial interests in Iran. The EU will seek to protect companies from “secondary sanctions” – penalties applied not to Iran directly, but to firms and organizations that conduct business there, which could be affected by the U.S. move.

The reinstatement of the tough measures, due to go back into effect on Tuesday, will have severe implications for the economy of Iran, and will also impact the economic interests of its trade and business partners, including many European companies.

>> EU 'deeply regrets' renewed U.S. sanctions on Iran 

On May 8, President Donald Trump announced that the United States would pull out of the 2015 nuclear deal with Iran, and reactivate the sanctions previously placed on that country because of its pursuit of nuclear weapons. The U.S. has maintained that the agreement Tehran signed with it, as well as the EU, Britain, China, Russia and Germany three years ago, was violated.

The first and immediate stage of the move includes imposition of restrictions on business and commerce in many industries, among them automobiles, steel and gold. Iran’s ability to buy dollars, maintain accounts in foreign banks and take out loans will also be restricted. The second stage of toughened sanctions, this time affecting the Iranian oil industry, will take place in another 90 days.

Iranians burn a photograph of U.S. President Donald Trump during an anti-U.S. demonstration outside the former U.S. embassy headquarters in Tehran, Iran, on Wednesday, May 9, 2018.
Bloomberg

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The EU opposed the withdrawal of the United States from the nuclear deal, insisting that Iran is meeting its commitments and that the accord is the best way to prevent further development and proliferation of its nuclear weapons. For its part, the U.S. argues that economic pressure – restrictions that will make it difficult to impossible for Iran to sell oil and other products, or to enter into basic financial transactions like buying foreign currency or transferring payments – will be most effective in pressuring the regime in Tehran to agree to eliminate its nuclear project, under better conditions than those obtained by the Obama administration.

The Europeans view trade and economic cooperation as a path to peace – as happened following World War II with the establishment of the European community that evolved into the EU of today. Meanwhile, the union has also developed major economic interests in Iran.

With the looming trade war with the United States currently threatening exports from Europe, any additional disruption in the world weakens the Continent. Thus, it’s not surprising that the EU declared on Monday that it will act to protect its financial and economic interests. While political and security considerations still hover in the background, these interests are now taking center stage.

To that end, EU will move to protect European corporations via a “blocking statute” that essentially prohibits the companies that fall under its jurisdiction from adhering to the sanctions, and permits them to request compensation if they are hurt by the old-new measures. This applies to what the statute classifies as “legitimate businesses,” which presumably do not include arms deals or any institutions that abet terror. The latest version of the statute goes into effect on August 7.

The original statute was drafted in the 1990s in response to the American sanctions on Cuba, Libya and Iran, but it has rarely been applied in the interim.

Another course of action that was being considered by the EU commission two months ago was making one-time bank transfers to the Iranian central bank for future deliveries of oil shipments.

The penalty for violating the newly reimposed U.S. measures against Tehran could be severe: In 2015, a U.S. court imposed a $9-billion fine on the French bank BNP Paribas for violating the sanctions against Iran, Sudan and Cuba.

European energy and infrastructure companies have operated in Iran for decades. Major European companies doing business there include the Italian engineering firm Ansaldo Energia; Airbus, which began delivering planes to Iran last year; and automakers like Volkswagen and Renault, which last year signed deals worth billions of dollars and drew up plans for new plants to be built in Iran.