The EU’s “Blocking” of US Sanctions on Iran is Entirely Toothless

As the first wave of US sanctions against Iran go into effect after Donald Trump’s unilateral withdrawal from the 2015 JCPOA (aka Iran nuclear deal), European Union (EU) officials have vowed to block any US sanctions against European companies that continue to transact deals with Iran. The EU’s Blocking Statute is a legal notice from Brussels to EU companies that they are under no obligation to cease business with Iran because they will be guaranteed protection from so-called second party US sanctions. The elephant in the room remains: what protection can the EU guarantee its companies against US sanctions? The short answer is none

 

 

Rhetoric rather than results 

Traditionally, the US and EU cooperate in the field of sanctions whether against Russia, Syria or the DPRK. This means that EU and US financial institutions and companies tend to simultaneously cut off all ties with the sanctioned party in a harmonious manner in keeping with the protracted illusion of a “western global alliance”. In the case of Iran, the familiar trans-Atlantic attitude to sanctions has experienced a profound schism as the European Union as a whole as well as Germany, France and (to a lesser extent) Britain all favour maintaining ties with Iran according to the terms set out in the JCPOA.

Because of this, the EU has decided to protect its companies from US sanctions. But while the EU has the power to allow its own companies transacting with Iran to continue operating freely within Europe, Brussels has no say in the status of these companies when it comes to doing business with the United States.

To put the matter bluntly, while a German company continuing its operations in Iran could also continue its banking with a Frankfurt based financial institution, it would not be able to do so with a New York based company. Making matters more grim from the European perspective, if the Frankfurt bank in question does not want its branches in the US to be punished by Washington, it may well decline to do business with a German company with ties to Iran, even though the company is fully European owned and operated.

Therefore, what it comes down to is this: If a European company does business with Iran and has no desire to do business with the US or US affiliated European companies, it can continue to transact with Iran as normal. However, if a European company has any ties with the US, it will likely feel the pressure to make the choice between business with Iran and business with the US. For many such companies, the US will be the clear choice, even though ‘one of each’ would be the ideal option.

 

 

Trump makes his final decision 

While many in Europe had self-evidently hoped that the US might respect its position due to longstanding friendships between Washington and most European nations, in the Trump era this was always a frivolous hope. Now, Trump has confirmed the new reality of US-EU relations in 2018 in the following Tweet.

In saying that “Anyone doing business with Iran will NOT be doing business with the United States“, Trump is addressing Europe more than any other Iranian business partner. To some extent he is also addressing Washington’s new Asian partner India while to a much lesser extent he may be trying to provoke Russia and China. In reality though, Russia has been so thoroughly sanctioned by the US that Moscow’s business community has more or less planned for a future without the US while in respect of China, it is a matter of calling the US bluff as a total US embargo on Chinese goods could bring about a new great depression in the US economy.

Therefore, while the US isn’t particularly receptive to India’s need for Iranian oil, Donald Trump is uniquely resentful of the EU and its institutions and has made little secret about it. Therefore, the primary intended audience for his Tweet is clearly the EU leaders whose blocking mechanism against US second party sanctions is a dog that is all bark and no bite.

 

 

Conclusion 

Today marks the beginning of a major test of will between the US and the EU. If the EU was willing to diversify its own geo-economic portfolio away from its traditional US partner there is a small change that the EU could gain enough leverage against Washington to continue trading with Iran while engaging in dialogue with Washington to prevent the most harmful sanctions against European companies.

In reality though, the EU’s reticence to opening up new avenues of trade with the multipolar world as a whole and with China in particular has meant that Trump has effectively backed the EU into a corner where there is little wiggle room available. In the next weeks if not days, it will become clear that the EU’s “blocking mechanism” is mostly a rhetorical device that can do little to shield European companies from the protectionist wrath of Donald Trump who now has a fresh excuse for opening up a new front in his trade war with Europe.

 

 

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