As Trump Goes Nuclear on Iranian Oil, Europe Must Match His Brinkmanship

Donald Trump (Gage Skidmore via Flickr)

by Esfandyar Batmanghelidj

In the view of veteran observers of the oil industry, Trump has “gone nuclear.” Speaking during a background briefing on Tuesday, a senior state department official announced that the the Trump administration wants to completely eliminate imports of Iranian oil by its current customers. The official told journalists that, during a tour of countries that has already begun with a visit to Japan, U.S. officials will be “requesting that their oil imports go to zero, without question.”

Until recently, there had been an expectation that the Trump administration would issue significant reduction exceptions as was the case under the Obama administration, allowing countries to sustain some level of imports from Iran if significant reductions take place. Indeed, the guidance issued by the U.S. Treasury on May 8 following Trump’s withdrawal from the Joint Comprehensive Plan of Action, made specific reference to significant reduction exceptions as part of the reapplication of oil sanctions. These exceptions were to be devised following “the Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of Energy, and the Director of National Intelligence” as consistent with “past practice.” A survey of oil analysts conducted by S&P Platts after May 8 suggested that “US oil sanctions on Iran will likely have an immediate impact of less than 200,000 bpd and will block less than 500,000 bpd after six months.” The announced policy is akin to a reduction of over 2 million barrels per day.

Something seems to have shifted during the OPEC meeting. As reports emerged that Japan had been asked to cease its imports of Iranian crude, Bijan Zanganeh, Iran’s oil minister, engaged in expectation management. During an interview with Bloomberg Television, he stated, “I don’t believe [the Japanese] can receive a waiver from the United States,” adding that Iran would need to “find some other way” to mitigate the effect of the oil sanctions. With Saudi Arabia cavalierly announcing that it will boost its production to record levels in July, it is easy to see how a Saudi commitment to raise production would have been coordinated with an American effort to eliminate Iran’s export market entirely.

To this end, Iran is facing the most serious challenge to its economy and political integrity to date. The Trump administration has taken its avowed commitment to exert “unprecedented financial pressure” far beyond the realm of coercion and into the realm of destruction. For Iran’s government, which receives about half of its revenues from oil sales, the prospects are grim. Of course, such an outcome is consistent with the regime-change goals of the Trump administration and its regional allies. They are seeking to engineer a collapse from within. But what is seemingly unaccounted for in such a scenario is the immense risk of regional chaos and conflict if they push Iran’s government to the brink. The risk is not merely that instability will lead to violence and mass displacement that could spill beyond Iran’s borders, but more likely that when faced with a near-existential threat, Iran’s ruling elite will seek to regain leverage in the most destructive ways possible.

In one plausible scenario, the Iranian reaction to the total embargo of its oil sales will be to try and impose a physical blockade on Saudi exports by closing the Strait of Hormuz and engaging in a new “tanker war.” The threat to close the strait has been a constant feature of hardline rhetoric from Iran over the years, and the move is easier said than done. But any suggestion that Iran could escalate in such a manner would no doubt spook oil markets—about 18 million barrels per day, equivalent to 20 percent of global supply, pass through the strait each day.

European Response

The prospect of a global oil crisis spurred by Trump’s brash move to deny waivers should frighten European leaders. Aside from the risks of confrontation in the region that would stem from any blockade attempt, the knock-on effects of an even short-term supply crisis could send the already fragile Eurozone economies into a recession. European officials have been quick to note the risks, characterizing the move as “really unhelpful and part of an escalation plan” and declaring that Europe “strongly disagree[s] with this plan.”

The timing could not be more fraught for Europe, which had been expected to present its long-awaited package of economic measures to Iran in the next week. These measures, intended to help incentivize Iran’s continued compliance with the JCPOA in the face of U.S. sanctions snapback, will have little meaning if the preservation of oil imports cannot be assured. Realistically, it will be difficult for Europe to find a way to maintain a viable importation mechanism in the absence of exemptions. If circumvention is not an option, Europe must find new leverage and compel the United States to change its policies. There are three actions that can be taken.

First, European governments must buy themselves and Iran time to reduce the chaos factor. Accelerating and increasing imports of Iranian oil over the next few months, basically allowing Iran to frontload its expected 2019 exports before the sanctions deadline kicks in, would help ensure that Iran retains an ability to sustain the rising pressure. Indian imports of Iranian oil surged in May in anticipation of the U.S. sanctions. European governments should, as a matter of national security, use any excess storage capacity to purchase as much Iranian oil as possible. In order to encourage Europe’s more independent oil traders and refiners to take on these purchases, Iran would need to offer attractive commercial terms in something akin to a flash sale.

Europe should also consider its own coercive measures. American oil exports to Europe have recently reached levels of around 500,000 barrels per day, levels approaching those of Iran. It would be relatively straightforward for Europe to declare that it will seek to eliminate imports of American oil to Europe as a countermeasure for Trump’s move to ban Iranian imports. The impact on the oil-producing American heartland and Trump’s political base could be profound. Importantly, Europe would not necessarily seek to use sanctions in order to enforce such a move. Sanctioning European companies that trade American oil would inhibit the ability of these multinational companies to pick up supply from other producers worldwide. A much more elegant way to impose a cost on the Americans would be to take a page out of the tariffs playbook. Imposing a hefty oil-import tariff would make it commercially unattractive for refiners to important American crude, and so the decision to cease importing American oil would technically be a voluntary decision rather than a decision requiring legal enforcement.

Sanctioning Trump

Finally, European entities could target Trump’s personal assets as damages for the costs incurred due to his prohibition on Iranian oil imports. Congressman Keith Ellison (D-MN) and Vox editor Matthew Yglesias have both recently argued that sanctioning Trump personally may be the best way to change his behavior. As Ellison puts it, “Sanctions targeting Trump’s own companies will sting in a way that he cannot ignore.”

But there may be a more elegant solution already at Europe’s disposal. The EU has initiated the revival of the so-called Blocking Regulation, a 1996 EU law designed to prohibit compliance with US sanctions by EU companies. The regulation includes a “clawback provision” that provides a mechanism for EU entities to sue for damages for costs arising from sanctions. The recovery of damages “may be obtained from the natural or legal person or any other entity causing the damages or from any person acting on its behalf or intermediary.” This broad definition could clearly be extended to Trump.

Moreover, the “recovery could take the form of seizure and sale of assets held by those persons, entities, persons acting on their behalf or intermediaries within the Community, including shares held in a legal person incorporated within the Community.” In short, Trump’s property and assets in Europe could be seized and sold. Given that the assessed costs related to a complete cessation of Iranian oil imports could easily amount to billions of dollars, Trump could ostensibly be threatened with the total seizure of his Europe-based wealth. Of course, the legal action probably would not need to go that far. Dragging the Trump Organization into European court would probably wake up Trump. He has a history of settling in the face of legal challenges, so a threat to his personal empire may force him to rethink his abuse of the American empire.

If Europe can muster the political courage to pursue these measures in the face of catastrophic security and economic risks introduced by the total oil embargo, it can gain the necessary leverage to push the United States to a more reasonable position. Europe must not rely on China or India or Turkey to skirt the U.S. sanctions. Given the immensity of the threat to global security arrangement represented by the abrogation of the JCPOA, and the global economic arrangement underpinned by the current composition of the oil markets, Europe must match Trump’s “nuclear option” with its own. Perhaps this kind of mutually assured financial destruction can bring the world back from the brink.

Esfandyar Batmanghelidj

Esfandyar has spent the last 5 years working on projects related to "business diplomacy" between the West and Iran. He is the founder of the Europe-Iran Forum, the leading annual gathering for business, government and civil society leaders committed to Iran's economic development, and the executive editor Bourse & Bazaar, a digital business publication with a focus on Iran. He is a graduate of Columbia University.



  1. Esfandyar

    Not one word in your article, about the horrendous sanctions the wretched Ayatollahs have placed on Iranians. Just look at the protests and strikes in the bazaars. Look at the list of banned imports.

    Whose side are you on? Are you choosing the Ayatollahs because you do not like Trump?

    This menace must go.

  2. The Trump Administration knows that they cannot reduce Iranian oil exports to zero.

    They want to force the Iranians to sell their oil at a steeper discount to their remaining customers. They have already tanked the rial driving up inflation and they don’t care how much suffering they inflict on the Iranian people that they claim to love so much (how nauseating is that?).

    Your point that Iran might treat this as an act of war is well taken because it is an attempted blockade. Iran will not likely respond but unprovoked act of aggressions are always risky.

    If the EU has a brain cell, they should develop a spine and oppose the U.S. because the U.S. is increasingly acting against EU interests. Being vassals states of the U.S. simply has no payoff for the EU.

    1. Sanctions against Russia hurt the EU economy by orders of more magnitude more than the U.S. economy. The sanctions against Russia were led by the U.S. and not the EU.

    2. Iran is not a security threat against the EU (or the U.S.). Sanctioning Iran hurts the EU more and while the U.S. can play the ‘trade with us or them’ card now, eventually the EU for its own good must get out of that game.

    The EU should cooperate with Russia, China, and Iran to break out of the dollar tyranny. I say this as an American because it is not good for the U.S. to be intoxicated on power and dictate terms to the rest of the world all the time. We need to be forced to compete again.

  3. Yes, there are two issues here – 1) how Iran should be dealt with – and, vastly more important for the world, 2) how the “vassals” of the US empire should deal with the US. The US is indeed treating Europe, Japan et al as vassals. Very nakedly, publicly for arguably the first time. They profoundly disagree with the US, but the US is saying “Who cares? Just do what you’re told.” They also of course profoundly disagree with the US about trade sanctions and wars.

    Clearly, ideally, Europe and the rest of the world should resist the US. This is a potentially self-defining moment. Personally, despite their rumblings, I don’t get the least sense that they have the courage to seriously resist – or indeed the will to exist without a US nuclear & military “umbrella”/straitjacket. But presumably if the rest of the world were to gang up on the US, they could thwart it. The future of the US empire question, here, is vastly more important than Iran.

  4. This guy Mostofi has been systematically trashing every author of this website with his anti Iran rant.

  5. Well, here comes the Mostofi guy who has not missed a single post to repeat his now too old mantra over and over again. Its like it does not matter who writes an article and what the opinion is all about, he knows only one response and that is to trash any reasoning that people of Iran are going to biggest losers in all this. But that is the least concerns of him! as he has shown, his only concerns is to get the message of his employers across. His constant message has been to say he’s on Iranian people side and against the Ayatollalhs but he fails to realize one needs to kill many Iranians(by starvation, or even by bombing them) when no one is sure that Ayatollahs would be effected by all this shenanigans the least. He seems he is ready to sacrifice the life and well being of Iranian people just because he is on Trump side and against the Ayatollah rulers. but he sees no other alternatives but to destroy the life of people he so miserably pretends to be defending. Any reasonable and decent human would see that you cant separate the People and put them in a efferent box than the government. Can anyone destroy the ruling class with economic warfare without destroying the same people lives first? But he has shown over and over that his goal just like his masters is only one thing,which is to destroy Iran and Iranians at any cost just because he is allegedly want to free Iranian people from the repressive regime. He doesn’t mind at all to be advocating for bringing even more misery to same people he pretends to be defending.

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