Europe Loses if the Iran Deal Collapses

by Tarja Cronberg

Iran is not the only loser if the Iran nuclear deal (the Joint Comprehensive Plan of Action or JCPOA) collapses. A collapse may be near given the U.S. exit from the deal, and U.S. sanctions not only affect American banks and companies but also prevent Europeans from trading with Iran. The U.S. policy is to cripple Iran´s economy and to force Iran to accept U.S. conditions for a new deal. The Iranians, in turn, need to see the economic benefits of the JCPOA in order to stay in.

The EU is between a rock and a hard place. “We stand committed to the JCPOA and its full implementation by all sides. Preserving the JCPOA is in our shared national security interest” stated the European leaders of France, Germany, and the United Kingdom (E3) as the United States exited the deal. The EU wants to maintain its credibility as a global actor but also preserve transatlantic relations, the backbone of its foreign policy.

The Military Option?

The EU adopted its European Security Strategy in 2003, after an Iranian dissident group revealed undeclared nuclear facilities that fueled suspicions of Iranian noncompliance and prompted inspections by the International Atomic Energy Agency (IAEA). This security strategy, however, was less a reaction to Iran’s nuclear activities than it was to the US-led Iraq War and the fear that Iran would be next. “Effective multilateralism” in 2003 was an explicit critique of the U.S. unilateral behavior in Iraq.

The most important legacy of the 12 years of EU coordinated negotiations is to have taken the military option in Iran off the table. Military interventions do not take place when most of the superpowers—the EU, China, France, Germany, the United Kingdom, and the United States—sit at the negotiation table. In 2003, to avoid the military option, three EU foreign ministers decided to “talk to Iran” and start negotiations, providing both carrots and sticks to persuade Iran to abolish its nuclear program. The EU was very close to an EU-Iran agreement in 2005 when the United States decided to enter the negotiations and Iran was reported to the Security Council. Nevertheless, the E3 initiative and the later EU framing of the 12 years of negotiations did prevent the implementation of the military option.

With the U.S. exit from the JCPOA, the military option is again possible. The United States promotes regime change in Tehran—more or less indirectly—and may attempt to repeat the Iraq experience in Iran although with new allies. Alternatively, change may be initiated by internal turbulence. Aggravated economic problems may lead to further protests against the government and increase support for the hardliners in Iranian politics.

The Iran deal has so far brought more nuclear stability than nuclear turbulence to the region. Although restrictions in the deal expire, there is a continuous commitment from Iran to remain a non-nuclear member of the Nuclear Non-Proliferation Treaty with the Additional Protocol ratified. A study by Robert Einhorn, a U.S.  expert, confirmed that by sharply diminishing Iran’s capacity to produce fissile material for nuclear weapons for at least 10-15 years, the JCPOA has reduced incentives for neighboring states to acquire nuclear weapons or at least a hedging fuel cycle capability. But, he adds, it has not eliminated those incentives.

A nuclear-armed Iran in the Middle East is not in Europe’s security interest nor is the spread of nuclear weapons in the Middle East. So far, the Iran agreement has worked on both accounts. The European focus on the JCPOA does not mean that the Europeans are not concerned about the regional military conflicts in the Middle East or the missile question. The Europeans have clearly expressed their willingness to negotiate regional stability and peace but outside the agreement.

If the security environment gets worse, it will have dramatic consequences for Europe. Iran leaving the deal could mean a nuclear arms race in the Middle East. Saudi Arabia has already expressed its interest in nuclear weapons if Iran restarts its program. Furthermore, Europe may face a new refugee crisis. As the nuclear conflict seems to have no end, Iranians are already leaving the country, with doctors and scientists moving to Canada and refugees flowing into Serbia in hopes of reaching Europe. A new wave of refugees to Europe would have catastrophic consequences for European politics and stability.

Credibility as Global Actor

The raison d’être of the EU and the fundamental pillar of both the European Security Strategy of 2003 and the Global Strategy of 2016 is a rule-based global order with the United Nations at the core and multilateralism a central principle. In order for international organizations, regimes, and treaties to be effective in confronting threats to international peace and security, the international community must react when agreements are breached. These core European values were also built into the Iran negotiations. The U.S. exit was a violation of these values.

First, the US exit challenged multilateralism. In January 2018, when President Trump decided not to certify the Iran deal as required by U.S. law, he demanded that Europeans “fix” the Iran deal—meaning to renegotiate certain aspects of it—or else the United States would withdraw in May 2018. The offer was not about a renewed negotiation by the P5+1, the group comprising the five permanent members of the Security Council plus Germany. The multilateral context of the deal that had worked for 10 years collapsed, leaving room only for a bilateral U.S.-European approach.

Second, the exit violated UN agreements. The Iran deal was and still is a UN resolution approved by the Security Council. In reality, the US exit was not a withdrawal but a violation. EU High Representative Federica Mogherini has criticized this unilateral U.S. action most clearly by underlining that this was not a bilateral agreement but a UN Security Council Resolution with an annex. As such it belonged to the international community, not one country.

Although the EU’s global role in foreign and security policy is contested, it certainly helped to prevent Iran from developing nuclear weapons. As a former White House advisor told me in May 2015, right before the conclusion of the JCPOA:

There would today be no deal without the EU. The United States was deep in the morass of Iraq, damaging transatlantic relations. This led to the E3 initiative. Washington was opposed to these negotiations but had no way to block them. Most were against the EU initiative; some hoped it would be successful. The EU was successful in 2003–2005. The EU protected Iran in the IAEA, blocked it [from] being sent to the Security Council in the Board of Governors together with Russia and China. The United States could not force a vote.

A year after the JCPOA agreement, with the approval of a new global strategy called “Shared Vision, Common Action: A Stronger Europe” in June 2016, EU sees the Iran case as a model for its involvement in foreign and security policy. The EU is building the foundations of its future role as a global actor, particularly in the realm of  nonproliferation.

The Iran deal teaches Europeans that they lose autonomy by giving into the United States. This happened in 2006 when the Europeans under U.S. pressure agreed to report Iran to the Security Council. The European desire for strategic autonomy, as underlined in the Global Strategy, cannot be a goal for European foreign policy if the EU decides to wait for a new U.S. president.

The Transatlantic Challenge

When the first signs of a possible U.S. exit emerged, EU Ambassador to the United States David O’Sullivan underlined in an interview in The Atlantic that, although it was legitimate to contemplate sanctions on issues not related to the nuclear deal, it was not legitimate to re-impose sanctions clearly related to the nuclear program. The EU would certainly explore all means to protect the legitimate interests of European companies.

On November 5, the United States re-imposed the package of sanctions removed by the UN resolution in 2015. Sanctions on Iran entered into force, prohibiting bank transactions with dollar transfers and oil sales to third countries. These followed on the first wave of sanctions in August dealing with currency restrictions, shipping, and the transfer of gold or precious metals, among others. In 2011-2013, when the United States introduced unilateral sanctions on Iran, the EU was a partner. Today, the United States is alone in imposing extraterritorial sanctions, and Europeans are the target.

The EU has tried its best to protect banks and companies working in Iran from U.S. sanctions. The obvious choice was to revive blocking regulations—designed in 1996 against U.S. sanctions on Cuba—that prohibit European companies from following U.S. sanctions. The European Investment Bank (EIB) has designed a special credit line for companies investing in Iran. State credit lines from national banks in member states have been an option that doesn’t require EU unity.  Furthermore, the EU has provided 50 million euro to help Iran cope with its economic problems. None of these seems to provide the economic benefits to Iran required by the deal. The catastrophic answer so far is that the EU lacks financial autonomy.

The ultimate test of the European capacity to deliver was the financial cross-border messaging system SWIFT, which is a Belgian firm and thus subject to EU blocking regulations. Fearing U.S. sanctions, SWIFT is now closing its financial messaging system for most Iranian banks. This has already provoked a discussion about autonomous European financial instruments to circumvent U.S. sanctions.

Both the German and French foreign ministers supported the idea. Consequently, the EU is making the final adjustments to a Special Purpose Vehicle (SPV), an instrument to facilitate payments related to Iran’s exports and imports, so long as the firms involved carry out legitimate business under EU law. The SPV would work as a clearinghouse for non-dollar transfer payments and potentially avoid U.S. sanctions.  Nevertheless, fearing U.S. sanctions, none of the European states has so far agreed to host this instrument. The current proposal is for Germany and France to collectively administer it. Federica Mogherini has indicated that the SPV could be ready by the end of the year. The Iranians are holding their breath.

A Compromise?

No transatlantic compromise on nuclear policy for Iran is possible. By exiting the JCPOA, the United States has challenged the fundamental values of the EU, both multilateralism and respect for a rule-based international order. By re-imposing sanctions against a UN resolution, the United States has exposed the EU’s total lack of financial autonomy and prevented it from carrying out its commitments according to the deal.

A compromise would humiliate the Europeans, in the same way as the European efforts to “fix” the deal in the spring of 2018 did. The E3 tried, was close to an agreement but President Trump exited the deal anyway. A common policy would force Iran to leave the deal, endangering European security and creating a possible nuclear arms race in the Middle East.

The EU must first put transatlantic relations on hold and accept that there is a serious conflict of both values and interests. Second, the EU must explore a new relationship with the emerging world order. In concrete terms, this means working with China and Russia to protect the JCPOA and to defend multilateralism in opposition to  U.S. unilateralism. During this two-year (or six-year) pause, the EU must then redefine its global role in a turbulent world.

Tarja Cronberg is an academic and a politician in security and defence. As a member of the European Parliament’s Foreign Affairs Committee and subcommittee for Security and Defence, she worked with the Iran nuclear issue as the chair of the EP’s delegation for relations with Iran. She is a Distinguished Associate Fellow at the Stockholm International Peace Research Insitute and a member of the Board of European Leadership Network working for nuclear disarmament and European security.