New U.S. Sanctions on Iran and Europe’s Response

by Tyler Cullis

It’s not dark yet, but it’s getting there. This week, the Trump administration announced a new set of sanctions against some of Iran’s major industrial companies and financial institutions. This included Bank Parsian and Sina Bank—two private Iranian financial institutions with which foreign banks had often engaged to facilitate legitimate trade between Iran and the outside world. The designations signal the onset of a far broader economic war against Iran than existed prior to the negotiations that produced the Joint Comprehensive Plan of Action (JCPOA)—the nuclear accord between the U.S., Iran, and other major world powers—and are intended to show that all business with Iran—however apparently legitimate—carries with it the risk of sanctions.

Meanwhile, hawkish outside groups are urging the Trump administration to take steps to ensure that SWIFT—the international payment messaging system for financial institutions—cuts Iran’s banks off from its services. Such steps include, most radically, imposing sanctions on the representative financial institutions that make up SWIFT’s board of directors, including JPMorgan Chase and other Tier-1 financial institutions, which would cause untold harm to the health of the global economy.

Iran has yet to react to these provocations, holding out hope that Europe and other major world powers can provide enough economic benefit to allow Iran to hold out against the Trump administration. But Europe’s response thus far has been—plainly speaking—inadequate, and it is unclear whether Europe is prepared to engage in the gamesmanship that the Trump administration appears willing to play.

That’s not to argue that Europe has simply acceded to U.S. whims. To the contrary, Europe has taken some important steps, including amending its blocking regulation to account for those U.S. sanctions formerly lifted under the JCPOA and now being re-imposed following the U.S. withdrawal from the nuclear accord. This blocking regulation ostensibly prohibits European home companies from voluntarily complying with U.S. sanctions against Iran and permits European firms to recover damages against any companies that comply with U.S. sanctions.

Europe has also pointedly signaled its intent to create a special purpose vehicle (SPV) to facilitate permissible trade between Europe and Iran. Europe has also invited other JCPOA participants—such as China and Russia—to use the SPV on an as-needed basis. Although the SPV remains in the developmental stages, its announcement should highlight the dangers inherent in the U.S. approach to Iran. Enforcing its sanctions against the will of the international community, the United States risks engendering alternative payment channels over which Washington has little leverage, thereby undermining the utility of sanctions in future.

But none of these items establishes a line in the sand that the Trump administration must not cross—or else.

It is one thing, for instance, to threaten European home companies with penalties for compliance with re-imposed U.S. sanctions. It is quite another to penalize American companies for the sins of their home government. Likewise, it is one thing to propose the creation of alternative payment mechanisms to facilitate legitimate trade with Iran. It is altogether another to send a clear signal to the Trump administration that the enforcement of sanctions against European home companies—including the SPV itself—for engaging in legitimate trade with Iran will invite a robust political response directed at the United States.

Europe, in other words, must make a high-level political statement establishing a clear red line for the Trump administration and specifying the consequences to the United States from failing to observe this red line. Right now, the Trump administration is winning the battle over Iran. It is creating just enough risk to foment an ongoing exodus of international companies from Iran and rendering the country a commercial pariah. But a clear statement of intent from Europe could help move the needle, particularly if the Trump administration appears to accede to Europe’s line in the sand.

As has long been true, Europe must find ways to absorb the risks being imposed on their home companies for engaging in legitimate trade with Iran own. It must let the European private sector know that any harm that comes to it through such trade with Iran will become an issue of diplomatic concern. It must make clear to the Trump administration that there will be severe consequences for any sanctions imposed on European companies.

In less than a month, the Trump administration will re-impose all sanctions formerly lifted under the JCPOA. The administration will likely add further measures that compromise Iran’s economic stability and create ever greater risk for foreign companies continuing to trade with Iran. If Europe is to preserve the nuclear accord, it must act quickly and with force. Otherwise, the most important diplomatic achievement in a decade will be forever lost, Europe will stand humiliated on the world stage, and a new war in the Middle East will begin to rage.