US sanctions against Iran come into force as EU struggles to keep nuke deal afloat

EPA-EFE/ABEDIN TAHERKENAREH

Iranians purchasing gold to safeguard their savings after US President Donald J. Trump pulled out of a landmark nuclear deal and reinstated sanctions against Tehran, August 6, 2018.

US sanctions against Iran come into force as EU struggles to keep nuke deal afloat


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The EU’s big three – Germany, France, and the United Kingdom – say they remain committed to a nuclear deal with Iran, despite Washington’s decision to restart sanctions against Tehran, which kicked in on Tuesday.

It remains unclear, however, how the EU’s commitment to the agreement will persuade European firms to remain in Iran as none of the companies wants to be in violation of the sanctions regime, which would leave them open to

The decision by the Donald J. Trump administration has in effect achieved a fatal blow to the landmark agreement that was signed in 2015 by his predecessor, Barack Obama. The Obama deal included guarantees from Tehran that it would end its development of nuclear weapons programme and allow international monitoring groups unfettered access to their research facilities in exchange for the end of crippling decade-long economic sanctions.

Trump’s decision to pull the US out of the Joint Comprehensive Plan of Action (JCPOA) triggered the reintroduction of US sanctions, which will later be expanded to Iran’s oil industry in November.

The EU’s assurances that Iran can still count on their cooperation offer little reassurance. Companies will have to choose between operating in the US or in Iran. For European banks, energy companies, and car manufacturers, the choice is necessary. They must leave Iran as they would not be able to fund their operations.

Europe, however, is still hoping to counter the US’ sanctions. The European Commission is introducing a so-called blocking statute that forbids EU firms from complying with the sanctions while providing them with a mechanism to recover damages from penalties that could be imposed by the Americans.

EU foreign ministers believe that lifting the sanctions was essential to the JCPOA deal. UK’s foreign secretary Jeremy Hunt was willing to sign a joint statement with Federica Mogherini, French Minister Jean-Yeves Le Drian of France and Heiko Maas of Germany proclaiming continued support for the 2015 agreement. Their statement expressed “regret,” “concern,” and some resolve to protect European operators in Iran, against US sanctions.

US National Security Advisor John Bolton has also expressed Washington’s resolve to extend sanctions from firms to countries by collectively EU Members States that fail to comply with Washington’s initiative.

Most analysts agree that the EU’s countermeasure would ultimately only be effective for companies that do not operate in the US. If Washington moves to enforce secondary sanctions, companies will have to comply.

The question now is how Iran will react if Europe were to follow Washington and end its economic engagement with Iran. One of the concerns is that Iran could block the Strait of Hormuz, triggering a global energy crisis.

Other analysts see an opportunity for Russia, China, Turkey, and India to step in to assist Iran. Turkey is already under US economic sanctions and has made it known that Ankara will defy Washington by refusing to end oil imports from Iran. Similarly, Beijing is locked in a trade war with Washington and both Moscow and Delhi are looking to seize the opportunity to solidify their positions in the Middle East and Central Asia.

China sees Europe’s withdrawal as an opportunity for the Chinese auto industry to take a market share from Peugeot and Renault, the two main French car companies that were working with Iran’s state-owned Khodro and Saipa on a contract worth $26 million. If the French companies voluntarily opt to leave Iran, the Chinese could fill the vacuum due to the fact that a number of Chinese car models are already manufactured in Iran.

The one cautionary note for Chinese carmakers is that they have joint ventures with their US and European car counterparts and Chinese banks stand to lose as much as European financial institutions if they remain active in Iran.

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