Published on January 27th, 2017 | by Eldar Mamedov1
Europe Will Fight to Safeguard the Iran Deal
by Eldar Mamedov
There is growing uncertainty around the fate of the nuclear deal with Iran and, more broadly, intentions of the Trump administration regarding that country. Meanwhile, the world, including the American supporters of the agreement—also known as the Joint Comprehensive Plan of Action (JCPOA)— increasingly looks to Europe to safeguard it. The stakes could not be higher. Not only is the JCPOA a singular achievement of multilateral diplomacy and non-proliferation, but it also opens the way to re-engage with a key country at the intersection of the Middle East, the Persian Gulf, Afghanistan, and Central Asia, a huge region beset by radicalism, sectarianism, and terrorism.
In this context, the hearing organized by the European Parliament’s International Trade Committee (INTA) on January 24 on the prospects for trade and investment in Iran could not be timelier. The witnesses, among others, included Peiman Seadat, the ambassador of the Islamic Republic of Iran; Hugo Sobral, head of the Iran Task Force from the European External Action Service (EEAS); Eric Festa, managing director for Iran at Total, the French oil and gas giant; and Rouzbeh Parsi, director of the European Iran Research Group, a think-tank.
Both Ambassador Seadat and Sobral of EEAS restated the shared belief of Tehran and Brussels that the JCPOA is critical not only for its own sake but also because it would pave the way for cooperation on regional security and unlock the enormous potential for economic interaction. Although stressing Iran´s commitment to live up to its end of the bargain, Seadat also echoed Tehran’s disappointment that the implementation of the agreement has so far been uneven. Iran fulfilled its obligations, according to the International Atomic Energy Agency, Seadat argued, but the US, contrary to the spirit and the letter of the agreement, has continued to place hurdles in the way of Iran´s legitimate trade with the third parties. This, in turn, has limited the economic benefits Iran could derive from the JCPOA and may undermine it in the long run.
Of particular note in this sense was the testimony of the representative of Total. Erik Festa elaborated on how the uncertainty emanating from the US hinders the prospects of economic cooperation between the EU and Iran.
Total has had a presence in Iran since the 1950s, was active in the period before the sanctions were imposed in 2012, and was one of the first European companies to re-establish its presence in the country after the nuclear-related sanctions were lifted as a result of the JCPOA. In November 2016, Total signed a Heads of Agreement with the National Iranian Oil Company (NIOC) for the further development of South Pars, the world’s largest gas field that Iran shares with Qatar. According to that agreement, Total will invest more than four billion euros in this project in the next three years.
Meanwhile, the uncertainty associated with American politics affects the company in at least two major ways. First, the fact that the US president can unilaterally decide not to renew presidential waivers or at any time issue new executive order reinstating secondary sanctions would harm European companies like Total that do business in Iran. The remaining US sanctions, which prohibit the use of technology with more than 10% of US content, is also an issue, particularly in the oil and gas industry. By reducing the number of suppliers it could impact the costs of doing business for the company.
Second, according to Total’s Iran point person, recent US judgments against European banks made the whole Western financial system “uneasy” about Iran-related transactions, with the exception of a few small and medium private banks. As an example, it took Total three months to make a transaction of a few hundred thousand euro to a bank in Tehran to pay the firm’s local salaries and office rents. Small banks can’t handle the transactions needed for the large-scale projects in which Total is involved.
Some EU member states have engaged with the Office of Foreign Assets Control of the US Treasury individually, with the aim of mitigating such risks. But European businesses advocate for a concerted EU action, such as, for example, a close dialogue with the US to prevent the Trump administration from unilaterally re-imposing secondary sanctions by not extending the presidential waivers. European banks need to obtain assurances from the US authorities, both at federal and state level, that they will not be at risk if they engage in financial transactions with Iranian banks when those transactions are fully compliant with the remaining sanctions.
At the same time, the EU can also help Iran modernize its banking sector and move it closer to the Western standards. The Total representative probably spoke for many EU businesses when he pointed to the difficulty of respecting the required due diligence in doing business with Iran when most Iranian entities have very complex shareholder structures.
Rouzbeh Parsi, who recently authored a study on Iran’s economy for the German Friedrich Ebert Foundation, was skeptical about the prospects of reaching an understanding with the US because of the “irrational moment” that the US politics is going through. As the world´s largest trade bloc, the EU should assert its independence from the US, Parsi argued, so as to free itself from the whims of US federal and even state legislators. Parsi recalled a precedent when in 1996 the EU stood its ground against secondary U.S. sanctions over doing business in Iran and Libya and threatened to take the US to the World Trade Organization. Faced with such a challenge, the US preferred to enact serial presidential waivers rather than risk confrontation with the EU.
Since then the EU has mostly played second fiddle to the US when it came to Iran. But then every post-World War II American president reaffirmed, at least rhetorically, America’s commitment to and support for peaceful European integration. By contrast, Trump’s dismissive attitude to the EU and just about everything it represents is already prompting some re-thinking of the trans-Atlantic link. Safeguarding the Iran deal is one of the areas where the EU will assert its independence—assuming, that is, that the EU itself does not succumb to the demagogic right in a string of crucial elections in 2017, including those in the European powerhouses of Germany and France.
Photo: The EU’s Federica Mogherini and Iranian Foreign Minister Javad Zarif by Hamed Malekpour via Wikimedia Commons
This article reflects the personal views of the author and not necessarily the opinions of the European Parliament.