by Esfandyar Batmanghelidj
On July 26th, the French foreign ministry issued a declaration about the package of new sanctions targeting Russia and Iran making its way through Congress to President Trump’s desk in the Oval Office.
In the estimation of the French foreign ministry, “the extraterritorial scope of [the sanctions] appears to be unlawful under international law.” The statement outlined the need for the Europeans to “adapt our national mechanisms and update European mechanisms” to protect themselves from the U.S. legislation. The French foreign ministry called for coordination with European partners to address American overreach.
Although Germany is likely to lead the fight against additional Russian sanctions because of its reliance on Russian energy supplies, the French are likely to lead on the European pushback on new Iran sanctions, and even more urgently, to advocate for the preservation of Iran nuclear deal, otherwise known as the Joint Comprehensive Plan of Action (JCPOA).
In a recent interview with the Wall Street Journal, Trump stated, “If it was up to me, I would have had [Iran] noncompliant 180 days ago.” Subsequent reports suggest that the administration may be seeking additional access to Iranian nuclear sites. The combination of Trump’s statement and the rumored actions has put the survival of the JCPOA at risk.
France as Lead Investor
For the French, the timing of the new Iran sanctions and Trump’s statements on the nuclear deal are especially troubling. French companies have reached important milestones in the past few weeks that could be jeopardized if political uncertainty begins to undermine business confidence.
On July 3, French energy giant Total signed a landmark $5 billion contract to develop Iran’s South Pars Gas field. Twenty days later, French transportation company Alstom signed a major joint-venture agreement to produce metro carriages in Iran. French carmaker Renault is expected to conclude its long-awaited contract defining the operation of a full-fledged Iran business unit in the next week. At the same time, a steady stream of smaller French investments have brought activity to other corners of Iran’s economy. Sushi Shop, a French fast-casual restaurant chain, opened its first branch in Tehran this week. Add to this Airbus and ATR’s sale of aircraft to Iranian airlines, the mooted market entry of telecommunications giant Orange, and the local expansion of hospitality giant Accor, and the scope of French enterprise is quite large. For France, Iran is a cornerstone market, a rare country where French companies have market-leading positions in strategic sectors.
The success of French enterprises in Iran is a crucial part of France’s program to boost its global competitiveness. In a recent interview, French Minister of Foreign Affairs Jean-Yves Le Drian, noted France’s dismal trade deficit, amounting to 48 billion euros in 2016. Le Drian drew a comparison to France’s European neighbors: “France suffers from a lack of exporting companies: there are only 125,000—half of which work with only one country. We aren’t competitive enough in this respect.”
Le Drian was no doubt referencing the export prowess of Germany. This prowess also explains the differing positions of Germany and France vis-a-vis Iran. Despite being Iran’s largest trading partner prior to the imposition of sanctions, Germany sees Iran as only a part of a wider portfolio of trade partners, one of which is the United States. Tellingly, the value of German exports to the US was $114 billion in 2016, whereas French exports were valued at just $47 billion. The respective 2016 export figures for Iran are 2.9 billion euros for Germany and 1.7 billion euros for France. So, although French trade to the US dwarfs the total value of French trade with Iran, in relative terms, Iran is a more important market for France than for Germany.
This is especially true for foreign investment. French companies are increasingly establishing majority-owned business units in Iran. These units, when they become revenue generating, will deliver significant shareholder value. The best example of this is Peugeot, whose sales in the first half of 2017 dipped in both Europe and China, only to remain positive overall because of strong performance in Iran. Importantly, Peugeot does not sell cars in the United States. Although Peugeot may be an extreme case of reliance on the Iranian market, Iran-based revenues can certainly deliver increased shareholder value to French companies.
For Emmanuel Macron, who faces a massive task in revitalizing French business, the economic boon of the Iran deal will prove strong incentive to advocate for its preservation over and above the fundamental security gains that the deal was able to achieve.
France as Deal Saver?
Although coordinated action from all European allies will be necessary to convince the Trump administration to stay the course with the deal, which the international community believes to be working, France may be the country best positioned to lead on the issue. There are a few reasons why.
First, Macron has spent a considerable amount of time with Trump both in Washington and Paris, and has developed a personal relationship that constitutes, if not out-and-out rapport, then at least a kind of understanding between two self-styled “alpha males.” This relationship should give Macron the chance to appeal to Trump more directly, not necessarily relying on communications via his fractured circle of advisors, for whom Trump has “great respect” but to whom he may not listen.
Second, the timing for French leadership on the issue is right. Macron remains energized by his recent election triumph, and one recent study has seen France rise from fifth to first in a world-ranking of soft power, due to both Macron’s popularity and the influence of France’s diplomatic network. Both qualities would be brought to bear in any multilateral outreach to preserve the Iran deal in Washington. Moreover, Germany’s Angela Merkel and her government are set to enter an election contest in September, monopolizing attention during this critical period of equivocation from Trump. It would also be wise to separate the advocacy on Russia and Iran sanctions issue given the complicated ways in which the political circumstances of the two countries are both related and unrelated.
Finally, France could prove the most credible advocate for the Iran deal in Europe, since it was the toughest of the European negotiating parties of the JCPOA. Laurent Fabius, the then-French foreign minister, was seen as a potential spoiler of the deal given the firmness of French demands. The French insistence on strict Iranian adherence to the deal was underscored when Macron emphasized the point in his phone call congratulating President Hassan Rouhani on his reelection. Moreover, to the extent that the conversation around Iran’s non-compliance has been conflated in Washington with a discussion of regional security issues like support for terrorism, French intervention could be key. France is the European country most engaged on confronting global terrorism and could credibly mediate between Iranian and American political and military leaders around some of these issues.
Whether or not Macron and his team are ready to spend the time and energy to safeguard the deal is yet to be seen. But like Trump, Macron needs to show that he is “winning.” French businesses are winning in Iran right now, and the loss of the deal could mean the loss of a significant market once more.
Photo: Emmanuel Macron and Donald Trump (Wikimedia Commons)