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.

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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. Actually Ali Mostofi, the Ayatollahs rescued the Iranians from Shah’s and western tyranny. May they survive and bring prosperity to Iran! Amen!!

    Ironically, Ali Mostofi frequently ends his posts with appeal to Ahuramazda the Zoroastrian deity. Yet his own name is based on the two of the most important figures in Islamic history: Ali was the son-in-law of Prophet Muhammad. And Mostofi is a title of Prophet Muhammad! LOL!

  2. All the pro Ayatollah writers criticize anyone who is a real nationalist.

    A real nationalist puts Iran above politics, economics, religion. The die hard nationalists are the poor old Zoroastrians who have been persecuted by Ayatollahs for 1400 years.

    Many in Iran like me have chosen Zoroastrianism. All names existed before Arabs came to Iran.

    Islam itself and the Koran were created by Salman Parsi. Most of the ideas are from other dogma that existed well before Islam.

    The roots of this bitter feud actually go back to General Kartir who killed many Christians who were proselyting Iranians.

    There is a lot more to say.

  3. Which channel have you been watching Mr Mostofi? “Zoroastrians who have been persecuted by Ayatollahs for 1400 years”? Really? Didn’t know The Ayatollahs sect went so far back or that it was made before Islam even entered Iran. Do you even know when Muslims entered Iran? For your information, The Safavid dynasty made Shi’a Islam the official state religion in the early sixteenth century.
    You say: “A real nationalist puts Iran above politics, economics, religion.” So do it. Put Iran above your political views. Stop harassing anyone who doesn’t want a revolution and cheering for those who would split the country if they could.
    And if your hopes were to come to fruition, what would you do with Iran when 90 percent of its citizens are Shi’a Muslims and 8 percent Sunnis? The remaining two percent are mostly Christians and Jews. The many (“Many in Iran like me have chosen Zoroastrianism”) you speak about ,with all due respect towards them, are not even one percent of the population.

  4. Mr Mostofi, actual Zoroastrians don’t appreciate you speaking on their behalf.

  5. “A real nationalist puts Iran above politics, economics, religion.”
    Yet you promote Zoroastrianism above Islam!

    “Islam itself and the Koran were created by Salman Parsi.”
    Salman-e-Farsi came to Islam in its early days but after it was already in action. He could not have been the creator. However if you have reliable, scholarly references to support your claims please do provide them. I will be happy to study them. Thanks in advance.

    May Almighty protect and give prosperity and peace to Iran under the guidance of the Ayatollahs! Amen.

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