The Iran Deal Might Be Dying, But Europe and Iran Look Closer Than Ever

So far, the main global impacts of Donald Trump’s decision to pull the U.S. out of the Iran nuclear deal have been higher oil prices, a promising opportunity for China’s state-owned oil company, and deepened European-Iranian solidarity.

The EU’s foreign policy chief and the foreign ministers of Britain, France and Germany met earlier this week with their Iranian counterpart, Javad Zarif, to discuss how to keep the 2015 deal alive despite the U.S. withdrawal. “If I can use the metaphor that some raised around the table, we all have a relative in intensive care and we all want to get him or her out of intensive care as soon as possible,” said the EU’s Federica Mogherini.

The patient is not looking so good today. That’s because keeping the deal alive will likely require finding ways for European companies to continue to do business with Iran. But if those companies also do business in the United States, as many do, they can be subject to U.S. sanctions. The U.S.
can also bar foreign companies that do business in Iran from accessing the U.S.
financial system. Danish shipping company Maersk and the German insurer Allianz also say they will wind down their operations in the country for this reason.
As Maersk’s CEO put it, “With the sanctions the Americans are to impose, you can’t do business in Iran if you also have business in the U.S., and we have that on a large scale.”

French energy giant Total this week announced it will pull out of a major gas project in Iran by this fall unless U.S. sanctions are waived. If Total pulls out of Iran, its 50.1 percent stake in the Pars natural gas field will be transferred to the second largest partner, the state-owned China National Petroleum Corporation. Total has already spent $90 million—and won’t be compensated—to help develop the field that will be transferred to Chinese ownership before it begins producing. Not a bad deal for Beijing!

To prevent European investors in Iran from rushing to the exits, which could lead to Iran pulling out of the deal, the president of the EU commission, Jean-Claude Juncker, announced todaythat the EU would reactivate a 1990s-era “blocking statue,” which would effectively bar European companies from complying with U.S. sanctions. It would also allow European companies hurt by these sanctions to sue in European court. This is far from ideal: the statute’s  enforcement mechanism is ambiguous, and if it were actually enforced, it would put European companies in the tough position of choosing between punishment from the U.S. or punishment from the EU. Most will no doubt choose to avoid getting involved in Iran in the first place. But the idea is to gain leverage to force the U.S. to compromise.

That’s actually worked before: The law was initially drafted in 1996 to push back against U.S. sanctions on companies doing business with Iran, Libya, and Cuba. The two sides eventually reached an agreement under which the U.S. did not actively enforce these secondary sanctions. Now that  Trump has decided, after discussions with President Xi Jinping, to reverse penalties on the Chinese telecom company ZTE, which was sanctioned for selling to countries including Iran, European governments may sense that they too can win concessions for their companies by playing hardball.

Whether the Iran deal can be saved or not, the fact that European leaders are proudly touting the fact that they’re working to protect the Iranian economy from U.S. sanctions is remarkable, and an indication of the level of frustration with Trump. European Council President Donald Tusk yesterday unleashed what was, by Brussels standards, a blistering rebuke of the U.S. president, tweeting,  “with friends like that who needs enemies…frankly, EU should be grateful. Thanks to him we got rid of all illusions.”

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