Trump, Iran, Europe: A Rebellion of the Lambs?

by François Nicoullaud

Donald Trump’s decision to pull his country out of the nuclear deal with Iran arrived with a brutality that took Europeans by surprise. Of course, in the previous days, they had lost whatever illusions they still entertained. But there was still hope for a grace period that would allow them to obtain some gestures from Iran, or sanctions eased in return for their efforts. “One more minute, Mr. Executioner,” they pleaded. But the blade of the guillotine fell nonetheless.

The US sanctions suspended by the agreement of July 2015 have now been restored in all their effects. Those who are already in business with Iran have, depending on the case, three or six months to wind down. Americans were already not permitted to trade with Iran, except in a few cases. Now, everyone is prohibited from buying, selling, or investing in Iran. But Germany has more than 100 companies established in Iran, and 10,000 which trade with it. The Italians are very present; the French have Peugeot, Renault, Total. And the European Union buys 40% of the oil exported by Iran. Airbus had just sold more than 100 planes. All of this will have to stop. 

The first European reaction was to declare this reintroduction of sanctions “unacceptable.” The second has been to explore how to counter such a decision. Two examples came to the fore. In Reagan’s day, the nine European member states successfully resisted an American attempt to prevent the construction of a gas pipeline from Siberia to Europe. In Bill Clinton’s time, the 15 member states obtained waivers from a law preventing any investment in the Iranian oil industry. In order to extract this concession, the Europeans had adopted a regulation blocking the application of this law on their territory, and the European Commission went to the World Trade Organization.

But since then, things have become more complex. The Europeans are no longer nine, or fifteen, but 28 member countries. Globalization has made immense progress. Any sizable European company has interests in the United States and is therefore subject to US law. Any even modestly complex product is likely to incorporate American parts. When those parts make up 10% or more of the total, the product falls under U.S. law. This is the case, for example, for Airbus aircraft. Moreover, at least 80% of international trade uses the dollar as currency, oil contracts in particular, which makes it also subject to US law. This is why the main European banks, hit by heavy fines, have refused, even when permitted to resume their business with Iran.

What To Do? What To Do?

To meet these challenges, several ideas, which can be combined, are circulating among the Europeans. The first is to update the 1996 regulation blocking the effect of some US laws on European territory. The principle has just been adopted at the European meeting in Sofia. It’s a welcome signal of resistance. But it won’t settle the case of companies holding interests in the United States, which will be caught in contradictory obligations. In addition, the US laws punish not only corporations, but also individuals. What business executives will take such a risk if, when setting foot in the United States, they are immediately handcuffed and presented to a judge for allegedly supporting terrorist activities?

The second idea would be to set up financial circuits that operate without the dollar. But this will take time, so ingrained are existing customs. A third would be to adopt retaliatory measures against American companies in Europe. But it would be difficult for Europeans to unanimously endorse such a principle, fraught as it is with consequences. Another idea would be to bypass the recalcitrant European banks by creating channels of public financing for business with Iran. But its realization will inevitably be complex, if it ever succeeds.

A possible silver bullet: the European Commission could sue the United States at the World Trade Organization. Unfortunately, a final decision would take a long time. In the short term, European companies have no other choice than to apply to Washington for as many waivers as possible allowing them, on a case-by-case basis, to maintain ties to Iran.

But, even supported by their governments, they are likely to be rejected. Indeed, Donald Trump is convinced that Obama wrongfully negotiated too soon with Iran, so that the wave of sanctions adopted by the United States and Europe between 2010 and 2012 had not produced its full impact. Tehran could still stand up. Reinstating the sanctions in all their harshness, Donald Trump expects to bring the Iranians to their knees in two or three years, and get everything that was denied to Obama. But the reasoning is only valid if the multiplication of waivers does not create a bounty of loopholes for the Iranians. The positions, therefore, seem irreconcilable.

Pulling Iran to the Right Side

Europeans have almost always been timid and divided in dealing with America. Now that they have a bad shepherd, will the sheep revolt? Nothing suggests so. Since the European Union has expanded to Central and Eastern Europe, its new members, having experienced the Soviet yoke, yearn above all for American protection. And they are not the only ones. Some states— Germany, France, Britain, Italy—remain sufficiently committed to the relationship with Iran to tiptoe on a tightrope between Donald Trump’s America and Hassan Rouhani’s Iran, hoping to salvage the nuclear agreement.

There is still, however, a strong initiative within reach of the Europeans to pull Iran to the right side.

Europe could offer to launch, without delay and on an equal footing, an ambitious, multifaceted partnership to fight against air pollution, protect water resources, advance agriculture and the food industry, as well as enhance and improve urban management, medicine and public health, and also academic excellence. These are all matters critical for Tehran’s sustainable development and outside the scope of US sanctions. If the initial results of such a program aroused the interest of other countries in the region, why not invite them to follow the same path?