Business fallout from reinstating Iran sanctions will be especially felt by Europe

European entities are free to continue dealing with Iran but that would mean losing access to the much larger US market.
Sunday 13/05/2018
Logos of Airbus group and IranAir on display on the day IranAir took delivery of Airbus A321 near Toulouse, on January 11. (Reuters)
Turbulence ahead. Logos of Airbus group and IranAir on display on the day IranAir took delivery of Airbus A321 near Toulouse, on January 11. (Reuters)

WASHINGTON - US President Donald Trump’s decision to withdraw from the 2015 Iran nuclear deal has created an uncertain future about whether Europe and Iran will follow his lead or try to retain the pact without Washington.

Trump announced that the United States would reimpose sanctions against Iran that have been waived since the Joint Comprehensive Plan of Action (JCPOA) agreement took effect in January 2016 under former US President Barack Obama. The waivers, which allowed Iran to increase oil exports and receive additional foreign investment, had reversed years of economic decline in Iran and resulted in billions of dollars’ worth of exports from EU countries.

Although Trump’s decision was widely expected, it will not take full effect until November 8, which gives the six other signatories to the deal, including Iran, time to explore ways to maintain both the restrictions on Iran’s nuclear programme and the economic ties between Iran and the European Union.

French Foreign Minister Jean-Yves Le Drian emphasised the point in an interview on French radio the day after Trump’s announcement. “The deal is not dead,” Le Drian said. “There’s an American withdrawal from the deal but the deal is still there.”

The same day, French President Emmanuel Macron spoke by phone with Iranian President Hassan Rohani, who wants to maintain the deal with France and the other signatories — Russia, China, Germany and the United Kingdom.

The United States is providing “wind-down” periods that give businesses time to wrap up their activities with Iran before the sanctions are reinstated. “At the end of the 90-day and 180-day wind-down periods, the applicable sanctions will come back into full effect,” the US Treasury Department said after Trump’s announcement.

The 90-day wind-down period applies to the purchase of US dollars, trade in gold and other metals and the aviation and automobile industries. The 180-day wind-down targets Iran’s financial and oil industries.

The interlude leaves open the possibility that US officials could amend the nuclear agreement in that period to address Trump’s longstanding concerns about the pact.

“This window provides US Secretary of State Mike Pompeo with additional time to seek agreements that address Trump’s key concerns with the deal, namely, the sunset clauses, inspections regime and lack of application to Iran’s ballistic missile programme, support for terrorism and destabilising activities in the region,” wrote Brian O’Toole, who worked on sanctions in the US Treasury under Obama and now is a fellow at the Atlantic Council think-tank in Washington.

Trump has protested that, under the agreement, the restrictions on Iran’s ability to enrich uranium — a process crucial to making nuclear weapons — expire after 10 to 15 years and that the sanctions apply only to Iran’s nuclear programme and not other actions, such as ballistic missile development.

Another observer, the US law firm Gibson Dunn, which advises on international trade, wrote in an advisory that, because the sanctions will not be reinstated immediately, “it is entirely possible that the announcement by Trump will serve as an impetus to negotiations that bring Iran and the rest of the [signatories] to the table. Such an approach could mirror the Trump administration’s recent tactics with respect to steel and aluminium tariffs, where a splashy public announcement is followed by a series of repeated extensions as the administration seeks to extract further concessions.”

The reinstatement of US sanctions is likely to affect European businesses more than US businesses, which face restrictions on dealing with Iran that are unrelated to the country’s nuclear programme. US businesses and financial institutions “have remained broadly prohibited from engaging with Iran even after the JCPOA was implemented in 2016,” Gibson Dunn wrote.

The sanctions that the US plans to reinstate are largely “secondary sanctions” — sometimes called “extraterritorial sanctions” — that affect non-US businesses, individuals and governments by requiring them to follow the restrictions to maintain access to US financial institutions and consumer markets. European entities are free to continue dealing with Iran but that would mean losing access to the much larger US market and large US financial institutions.

“The US economy is ten times that of Iran in terms of size and value, so it makes more sense to do business with the United States than the Islamic Republic,” Sanam Vakil, a professor in the Middle East studies department at the Johns Hopkins School of Advanced International Studies in Italy, told NBC News.

One question that remains is how strictly the Trump administration decides to enforce the sanctions it is reinstating. An agency in the Treasury Department called the Office of Foreign Assets Control is in charge of implementing US sanctions and it has the flexibility to decide which non-US companies will be affected and how strictly sanctions are enforced.