Friday

3rd Feb 2023

Analysis

EU has no 'magic bullet' against US Iran sanctions

  • Tehran. Oil represents over 88 percent of Iran import to the EU (Photo: peyman abkhezr)

How to keep the nuclear deal with Iran alive, and protect European economic interests in the country? The double challenge posed by Donald Trump's decision to leave the agreement last week will be on the menu of the EU leaders' dinner in Sofia on Wednesday evening (16 May).

"We know it is a difficult task, but we are determined to do that," EU diplomacy chief Federica Mogherini said on Tuesday after a meeting with the foreign ministers of France, Germany, the UK and Iran in Brussels.

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  • Maintaining the Iran deal will be a difficult task,' admitted Mogherini (Photo: consilium.europa.eu)

But while the future of the deal itself can be discussed with Tehran as well as China and Russia - the other two signatories - EU leaders will be on their own in designing measures to counter the US threat of sanctions against EU companies doing business in Iran.

On Wednesday morning, the college of EU commissioners will discuss the different options available.

In the evening, commission president Jean-Claude Juncker and Mogherini will brief leaders, but no decision is expected.

"We are not in a panic," a senior official said. "We are not working under extreme time pressure."

He admitted however that "there is no one magic option that can be applied."

"It will be a complicated and comprehensive pattern of options, both at EU and national levels," he said. "It might take some time."

In 2017, according to EU commission figures, Iran represented 0.6 percent of EU trade, with €10bn worth of exports, mainly in machinery, transport equipment, chemistry and manufactured goods.

Meanwhile, EU imports from Iran increased by 83.9 percent last year. The EU represented over 16 percent of Iran's trade, with petroleum products representing some 88 percent percent of Iran imports to the EU.

France, Germany and Italy were the most active EU countries in Iran, and investment from big companies, especially in the oil sector is increasing.

Blocking statute

"What is important is to safeguard the current contracts," a French presidency source said earlier this week.

The official said that the EU wanted to avoid "any logic of confrontation" with the US, but that the issue was a "sovereignty test" for the bloc.


Options under consideration include measures described as "confidence-building and trust-enhancing" to reassure companies and Iran that business can continue.



They also include the so-called 'blocking statute', an EU regulation dating back from 1996 that says that EU companies "should not" take into account decisions by non-EU jurisdictions on some issues - mainly the US embargo against Cuba.

The blocking statute is considered by some countries, mainly France, as a way to address US extraterritoriality - the principle under which the US can sanction companies for activities in other countries.

The regulation, which has never been applied, would need to be modernised to take into account the evolution in the business environment, and US sanctions related to Iran would need to be added to the list of issues.

Some countries, like Italy, are also preparing national measures, such as special financial vehicles to help their companies dealing with Iran.

Cutting ties with the US

"I cannot talk about legal or economic guarantees but I can talk about serious, determined, immediate work from the European side," Mogherini said.

Even if the commission and EU leaders agree that the blocking statute should be used in the current situation, "it will be difficult to have workable solution in particular for big companies that still have activities in the US," an EU source admitted.

"We have a major problem," said Karine Berger, a former French MP, who was in 2016 the rapporteur of a French National Assembly report on US extraterritoriality legislation.

She told EUobserver that "from an economic point of view, there is no solution" to protect EU companies against US measures.

"We are facing a very complicated issue where even if Europeans consider that the deal continues to work, the companies that would want to protect themselves would have to cut all their ties with the US," she said.

She explained that to escape US sanctions, companies would have to stop using the dollar, which is used in about 90 percent of global transactions. They would also have to stop using data that go through the US, or to close their US subsidiaries.

"I don't know many companies that would be capable to cut ties with the US to keep that Iranian market," she pointed out.

'Major problem'

In her 2016 report, Berger concluded that the only answer to US extraterritorial sanctions would be to sanction US companies the same way.



"But in the case of Iran, it would be impossible because US companies will now stop doing business there," she noted.

"We have a major problem," she said, regretting that the EU did not succeeded in making the euro a currency for global transactions.

In the short term, she said, the EU should focus on diplomacy and reaffirm its positions on the Iran deal.

In the long term, she insisted, the EU would need to "build a mechanism for extraterritoriality, with mechanisms for economic intelligence that are as strong as in the US."

Until now, she said, "many EU leaders didn't see to what extent the issue would become so important."

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