Is Europe Able to Protect its Businesses from US Sanctions?

In a decision that could deepen the transatlantic rift, President Trump announced his withdrawal of presidential “certification” of the Iran nuclear deal Friday ahead of a Sunday deadline. Trump previously called the 2015 agreement disastrous and has argued that it isn’t in the United States’ best interests, though he has reluctantly certified Iran’s compliance in the past.

The deal’s decertification is expected to put Congress in charge of attaching new conditions that could either strengthen the deal or lead to its dismantlement. The latter scenario would probably result in the reimposition of US sanctions on Iran. Even within Trump’s administration, however, many top officials agree with European leaders and businesses that preserving the deal would be the smarter choice.

So why are European leaders — who unlike some top officials within the Trump administration are more easily able to argue their cases — in favor of upholding the deal?

Europe thinks that a flawed deal is better than no deal.

Even though there might be flaws, the current deal is better than no deal, European governments are arguing. “We have no indication of Iran violating its JCPoA commitments,” said an official in the German Federal Foreign Office, referring to the Iran deal, the Joint Comprehensive Plan of Action, by its abbreviation. French officials recently reached the same conclusion, and even US officials have made the case that Iran is in compliance.

“It is essential to maintain it to avoid proliferation. In this period when we see the risks with North Korea, we must maintain this line,” French Foreign Minister Jean-Yves Le Drian said in mid-September. The UN watchdog tasked with monitoring compliance has reached a similar conclusion.

Intelligence agencies have recorded a decrease in Iranian proliferation efforts in Europe.

Germany’s intelligence service said that Iranian “proliferation efforts for its nuclear program” significantly decreased following the deal’s implementation. Officials did not respond to questions about the details of that decrease, but authorities in Germany’s most populous federal state, North-Rhine Westphalia, said that attempts to try to obtain resources that could be used to pursue its nuclear program had dropped from 141 in 2015 to 32 the following year. German officials argue that the slackening Iranian efforts are one indication that the 2015 deal is working.

The lifting of sanctions under the deal prompted a rush of European corporations to do business in Iran. These are now lobbying their governments to prevent the dismantlement of the deal and are hoping that Iran may continue to adhere to its conditions if Europe refrained from reimposing sanctions.

Theoretically, the deal’s non-US signatories, which include Britain, France, Germany, China, Russia and Iran, could agree to stick to the deal without US participation. Asked about such a possibility at a European-Iranian investment conference last week, Philippe Delleur, senior vice president of public affairs for transport company Alstom, said: “I suppose that they will not put again the European sanctions. [In that case], we should be able to continue to work.”

Such a decision could still have severe implications for transatlantic relations at a time when Trump has already faced open disagreement and anger from many of his allies there over defense spending, trade, climate change and other issues.

Existing trade connections and investments make the deal’s dismantling increasingly difficult.

Iranian exports to the European Union increased by 375 percent from 2015 to 2016, and European companies have already invested a significant amount of money in the country, raising the stakes of any decision that could result in the deal’s collapse.

The surge in trade volume has been facilitated by the reintroduction of banking connections between Iran and the West, although major European banks have so far refrained from directly dealing with Iranian institutions. European credit agencies have stepped in to provide export guarantees to companies willing to trade with Iran.

The Danish Export Credit Agency has so far approved eight Iranian banks for credit lines or guarantees. “If snapback [sanctions] make it illegal to transfer money out of Iran, we would cover their losses. We offer banks this risk,” said the agency’s director, Jørn Fredsgaard Sørensen.

Such a model to save the Iran deal could unravel, however, if the United States decided to punish European companies, banks or agencies cooperating with Iran. Officials are examining options to protect European companies and individuals from US sanctions.

Some European business leaders doubt whether such efforts would provide sufficient protection. “Our stance and the stance of international companies is that we need to be compliant with international law, applicable law. And if sanctions come back and that means we cannot do our work inside or outside Iran, then we will stop,” said one senior executive at a major multinational corporation who spoke on the condition of anonymity to discuss the sensitivity of decertification.

“People have discussed the idea of protective legislation [EU blocking sanctions]. I think in practice, with real multinational companies, they wouldn’t want to rely on that to do Iran investment,” the executive said.

In any case, European governments would still face an awkward decision: Would they side with a regime they frequently accuse of human rights violations, or with the United States?