US President Donald Trump decided on May 8 to violate the nuclear deal, formally known as the Joint Comprehensive Plan of Action, despite Iran’s compliance with it. His decision to withdraw from the deal strongly increased the political and legal uncertainties for European firms in Iran.
It remains unclear to what extent US secondary sanctions against these firms will now be resurrected. The degree of support they would then enjoy from EU governments is also still ambiguous.
Fears of long-arm US enforcement action and measures to counter money-laundering have already curtailed European bank services to major European firms and projects in Iran. In Germany, Austria, France and Switzerland, only second- and third-tier banks with limited US exposure have been willing to provide services to their local companies in Iran.
Trump’s decision would probably curb the desire of several European energy companies to invest in Iran. Some European and Asian refineries may relatively quickly reduce their purchases. Lack of access to freight insurance may again prove a hindrance to crude exports.
Can European policymakers present a strong economic and political package that preserves many of the deal-related benefits for European firms? Rob Malley, who heads the International Crisis Group, has written that such a package should include short-term and medium-term measures. His suggestions merit attention by European policymakers and business representatives.
The EU could design legal shields against secondary US sanctions threatening European companies. For example, it could publish a general license describing an acceptable standard for due diligence and regulatory compliance to conduct legitimate business with Iran.
The EU would then protect energy companies with a small footprint in the US to continue purchasing Iranian oil and gas. The EU would also empower European central banks to process related payments to pay for Iran’s imports from Europe.
There may be a joint effort by the state-owned export credit or investment agencies of EU member states to cover political risks incurred by their companies. The EU as a whole could also negotiate with the US to acquire special protection for a set of its companies. The EU could threaten to impose tariffs on US exports to the EU if such carve-outs are not granted.
As the regional expert Graham Fuller has stated: “Turkey and Iran represent the only two serious, developed, advanced, stable states in the region, with broadly developed economies, serious “soft power,” and flexible policies that have gained the respect of most Middle Eastern peoples, even if not of their governments.”
European business should continue to build local relationships and explore the opportunities indicated in McKinsey’s report Iran: The $1 trillion opportunity? However, they now need to pay even more attention to their political, reputational and operational risk management while the Trump presidency stays in power. They may also need to monitor - and influence - the commitment of European governments to chart a path independent of the US on Iran.
Dr. Heinrich Matthee is a political risk analyst for companies and a guest researcher at the University of Amsterdam
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