US President Donald Trump’s announcement of US withdrawal from the the Iran nuclear deal, despite Tehran’s compliance with it, strongly increases the political and legal uncertainties for European firms in Iran.
It remains unclear to what extent secondary sanctions targeting firms conducting business with Iran in violation of US sanctions will be implemented. The degree of support they would then enjoy from EU governments is also still ambiguous.
Fears of long-arm US enforcement action and measures to counter money-laundering have already curtailed European bank services to major European firms and projects in Iran. In Germany, Austria, France and Switzerland, only second- and third-tier banks with limited US exposure have been willing to provide services to their local companies in Iran.
Mr Trump’s decision would probably curb the desire of several European energy companies to invest in Iran. Some European and Asian refineries may relatively quickly reduce their purchases. Lack of access to freight insurance may again prove a hindrance to crude exports.
Can European policymakers present a strong economic and political package that preserve many of the deal-related benefits for European firms? Rob Malley, who heads the International Crisis Group, has written that such a package should include short-term and medium-term measures. His suggestions merit attention by European policymakers and business representatives.
The EU could design legal shields against secondary US sanctions threatening European companies. For example, it could publish a general licence describing an acceptable standard for due diligence and regulatory compliance to conduct legitimate business with Iran.
The EU would then protect energy companies with a small footprint in the US to continue purchasing Iranian oil and gas. The EU would also empower European central banks to process related payments to pay for Iran’s imports from Europe.
There may be a joint effort by the state-owned export credit or investment agencies of EU member states to cover political risks incurred by their companies. The EU as a whole could also negotiate with the US to acquire special protection for a set of its companies. The EU could threaten to impose tariffs on US exports to the EU if such carve-outs are not granted.
As the regional expert Graham Fuller has stated: “Turkey and Iran represent the only two serious, developed, advanced, stable states in the region, with broadly developed economies, serious “soft power,” and flexible policies that have gained the respect of most Middle Eastern peoples, even if not of their governments.”
European business should continue to build local relationships and explore the opportunities indicated in McKinsey’s report “Iran: The $1 trillion growth opportunity?”. They will also need to monitor – and influence – the commitment of European governments to chart a path independent of the US on Iran. Division between EU member states on this issue is very possible. If forced to choose between the economic advantages of the USA and Iran, most European governments would try to appease the USA.
In such an environment, only those European companies and their financial institutions with limited US business interests may eventually be able to expand their Iranian options. However, even they now need to pay even more attention to their political, reputational and operational risk management, while the Trump presidency stays in power.
Dr Heinrich Matthee is a political risk analyst for companies and a guest researcher at the University of Amsterdam
Photo: European Parliament