4th Aug 2020

EU Iran sanctions “most far-reaching ever agreed”

European Union diplomats on Thursday agreed to a fresh package of sanctions against Iran going well beyond those imposed by the UN Security Council in early June.

The measures, also going further than what had been expected following the decision to extend EU sanctions taken by EU leaders in the same month, target the country's energy industry as well as its transport, banking and insurance sectors and will hurt not only Iranian firms, but European companies as well.

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  • Centrifuges used in uranium enrichment (Photo: Wikipedia)

"This is the most substantive and far-reaching set of sanctions the EU has agreed to on Iran or indeed on any country," said one EU diplomat.

The UN sanctions regime obliges countries to ban the transfer of nuclear and missile technology, and it was thought that EU measures going further would still be relatively limited, targetting a small number of Iranian firms thought to be involved with the nuclear programme.

However, the tough new EU regime will bring an end to new European investment in oil and gas in the country, homing in on Iran's bread-winning energy sector, and slap harsh restrictions on shipping, air freight, insurance and banking.

The EU sanctions will block export to Iran of ‘dual-use' items, those that have no explicit nuclear or missile-related purpose, but could be used in such processes. Products that could also be used in the manufacture of biological and chemical weapons will be banned as well, although exceptions for humanitarian and medical use will be put in place.

Learning the lessons of sanctions on Iraq in the 1990s, responsible for the death of up to 500,000 Iraqi civilians, ambassadors also say they endeavoured to avoid, in the words of one diplomat, "collateral harm" to ordinary Iranians.

"Obviously oil industry individuals will lose jobs, that is a factor, but we have tried to tailor the measures to avoid members of the public."

European firms will no longer be able to sell equipment for use in oil and gas exploration, refining and the production of liquified natural gas.

Banks will not be able to establish new "banking relations" with Iranian financial institutions, and Iranian banks for their part will not be able to set up any new branches here in Europe. Insurance contracts for more than two years are to end, and those under two years are discouraged.

"Enhanced vigilance" will be imposed on Iranian banks operating in Europe and insurance and re-insurance companies will not longer be able offer their services to government bodies. Cash transfers of €10,000 and above will require notification of domestic authorities and transfers of €40,000 and above will require prior authorisation.

Trade supports, including export credit guarantees, will be proscribed.

Ships at port in the EU suspected of transporting forbidden items will be inspected, as will those at sea, but pending permission of the nation the boat is registered in. Air cargo flights to EU airports will also be prohibited.

EU foreign ministers to sign off sanctions

Some 40 top officials will be added to an existing travel ban and an asset freeze will be broadened substantially.

Ambassadors from the 27 EU member states signed off on the package on Thursday, but foreign ministers must yet give the green light to the move. As soon as they do so, many of the measures will immediately go into effect. Others require national executive or legislative decisions, but diplomats expect the full package to be implemented no later than September.

It is understood that a number of EU firms will be significantly affected by the measures. The full list of firms will only be known upon publication in the EU's ‘Official Journal' on Tuesday.

There are however exemptions for prior business commitments. "The EU has non-retroactivity requirements, so it is very difficult to stop these pre-existing contracts," said another EU diplomat.

Europe's measures, which must be signed off by finance ministers on Monday and then implemented by EU member states in the coming weeks, are aimed at matching Washington's level of restrictions.

"The US does not really do any business at all with Iran, so they need to get their high-level technology from us," said a diplomat.

"They can of course get low-level tech from China, but it is much less effective for developing their oil and gas sectors."

Economic interests overcome

The EU's additional measures go further than had been originally expected.

Last month it was still expected that the new European restrictions would be somewhat limited, targetting just a small number of Iranian firms thought to be linked to the nuclear programme, and no significant sanctions were envisaged for the energy sector.

Some diplomats had expected the package, strongly backed by the UK, to get a rough ride from other EU states.

Sweden's foreign minister, Carl Bildt, in particular, had strongly argued that sanctions would not work, although Swedish industry is not as heavily exposed as that of other EU member states. France's Total had partnered with Behran Oil, an Iranian lubricant and kerosene to supply Iran's severe lubricant shortage, while Italy's Eni, until April had operated the Darkhovin oilfield and Edison, an Italian energy company, had an exploration contract with the National Iranian Oil Company in the Dayyer area.

Greece, Cyprus and Malta, also were reportedly initially not enthusiastic at further sanctions.

But UK interests were also in play. Until June, Shell, an Anglo-Dutch firm, alongside Spain's Repsol had been in talks with Iran to develop the South Pars region, home to the richest gas field in the world.

However, these concerns were largely dealt with by foreign ministers and EU leaders the same month.

Sweden, the lead opponent of the new strategy was won over under the proviso that the new move is expressly intended to bring Iran back to the negotiating table. Sweden furthermore is home to a significant Iranian expatriate community and the relatively high level of bank transfer restrictions were agreed largely to assuage Stockholm's concerns that the measures might harm family remittances.

"In the end, however, all states realised now was the moment to apply further measures and swallowed the costs to economic interests," said another diplomat.

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