Argument

Europe Must Fight to Preserve the Iran Deal

If Washington walks away from the nuclear accord, it will undermine Europe’s security and business interests. Brussels should flex its muscles now with diplomatic and legal threats.

Former U.S. Secretary of State John Kerry, Iranian Foreign Minister Mohammad Javad Zarif and the EU's foreign policy chief Federica Mogherini arrive to announce an agreement on the Iran nuclear talks on April 2, 2015 in Lausanne.
Former U.S. Secretary of State John Kerry, Iranian Foreign Minister Mohammad Javad Zarif and the EU's foreign policy chief Federica Mogherini arrive to announce an agreement on the Iran nuclear talks on April 2, 2015 in Lausanne. (Fabrice Coffrini/AFP/Getty Images)

The last time Europe was tested so heavily by a U.S. president was prior to the 2003 invasion of Iraq. Ever since, members of the European foreign-policy elite have questioned whether the continent failed to adequately push back against this disastrous decision, which proved so costly for European interests. European leaders should heed past experience and take a firmer stand against Donald Trump’s dangerous policy toward Iran that risks another confrontation in the Middle East.

In his latest attack on the Iran nuclear deal, Trump delivered an ultimatum to his European allies: either fix the accord or he would walk away from it in less than four months. This public cornering of European allies, together with Washington’s increasingly hostile trajectory on Iran, should serve as a wake-up call for Europe.

This month, Trump issued the latest round of sanctions relief required by the nuclear deal, but it was accompanied by a poison pill. He threatened to withdraw the United States from the agreement unless Europe and the U.S. Congress agreed to work on a supplemental deal (seemingly without Iran’s involvement). In other words, Trump wants Europe to agree to reimpose joint sanctions on Iran based on triggers that did not exist in the 2015 nuclear agreement. This includes “snapping back” sanctions after certain provisions approach their predetermined expiration dates. Trump also asserted that nuclear-related sanctions should be reimposed in response to Iranian missile testing — an issue that the Europeans have clearly stated should be delinked from the nuclear deal.

Iran has repeatedly rejected any backdoor attempts to reopen the nuclear agreement. Knowing this, Trump has set a trap for Europe to help collectively kill the nuclear deal and absolve him of responsibility.

So far, Europeans have been willing to contradict Trump over Iran policy. The nuclear agreement enabled Europe to address its overriding concerns with Iran’s nuclear program while averting another military conflict in the Middle East. The deal is a success story for Europe and its global influence. Protecting it, and the decadelong process that achieved the deal, also preserves Europe’s fundamental belief that diplomacy is preferable to confrontation.

Europeans spent much of last year trying to convince Trump to do no harm to the nuclear deal. But Trump’s policy toward Iran is now clearly at odds with European interests. Even if Trump can be persuaded to renew the U.S. sanctions waivers next due in May, he is very likely to continue the charade of unpredictability. This uncertainty has chilled the business appetite of European companies doing business with Iran.

Some European officials state in private that the best option is for Europe to muddle through in the hope that Trump will eventually shift his position. But muddling through just won’t do. Trump is likely to continue increasing his maximalist demands unless Europe flexes its political muscle.

In order to protect its economic and security interests, Europe must not only reject Trump’s ultimatum — which would be a kiss of death for the nuclear deal — but also push back. Europe should put in place a viable contingency plan if the United States continues backtracking on the deal and let Washington know it’s ready to use it.

As parties to the nuclear deal, France, Germany, and Britain are best placed to coordinate such a strategy. Europe will need to present a package (together with China and Russia) that can entice Iran to continue abiding by the core elements of the current nuclear agreement.

Iranian officials have signaled that Tehran would consider remaining in the nuclear deal even if the United States walks away so long as it serves the country’s national interests. The Iranian leadership is likely to carefully consider if Europe can offer a pathway for Iran to continue its gradual political and economic reintegration with the world.

The most fundamental aspect of such a deal will rest on whether non-American companies are able and willing to do business with Iran. If Trump refuses to reissue the next sanctions waivers required by the nuclear deal, U.S. secondary sanctions that impact non-American companies would snap back into place. Should such sanctions be reimposed, European companies with commercial interests in the United States would be significantly impaired from importing Iranian oil and undertaking financial transactions with the country. Should they decide to ignore such secondary sanctions — their assets in the United States (which far outweigh existing business with Iran) would be subject to penalties.

To prevent such an event, European governments will have to take steps to shield their companies from the punitive reach of these sanctions and create an environment where companies such as Total, Airbus, Shell, and Siemens can continue their business in both Iran and the United States. To do so, Europe should focus on four priorities.

First and foremost, European governments and businesses should privately consult with U.S. officials and Congress on creating exemptions to the enforcement of any nuclear-related secondary sanctions that may impact them. The model of the Russia sanctions package last year can be adopted to urge U.S. lawmakers to put in place a warning and waiver system to exempt European companies from enforcement. If Washington refuses this approach, European governments should publicly warn that in any instance where the U.S. Treasury actively enforces secondary sanctions targeting European companies dealing with Iran, the European Union will revive measures similar to its “blocking regulation.”

The EU blocking regulation was introduced in 1996 in response to attempts by the Bill Clinton administration to extraterritorially enforce U.S. sanctions prohibiting certain trade with Libya, Iran, and Cuba. Europeans resisted these attempts, which were very costly for their energy interests. They did this first through political channels and then through legal pushback (which finally worked, and Clinton issued waivers suspending the impact of these sanctions on European companies).

The blocking regulation essentially made it illegal for European companies to adhere to U.S. extraterritorial sanctions (and thereby provided them with some legal cover not to pay their U.S. fines). The EU regulation was accompanied by measures that allowed European companies to claw back costs imposed on them by U.S. regulators. Today, attempting to use these mechanisms will not be cost-free for European companies (many of which have considerable assets in the United States that could be subjected to Treasury Department penalties). Nor will it be cost-free for transatlantic relations. European companies are not likely to do business with Iran at the possible expense of forfeiting their market share in the United States. But this sort of legal pushback can boost Europe’s political leverage in negotiating with the Trump administration and making it think twice. It is worth it given the alternative costs of expansion of Iran’s nuclear program and rising possibility of military confrontation.

Put simply, EU officials must tell Trump: If you fine our companies’ assets in the United States, we will reclaim those costs by penalizing U.S. assets in Europe. This would cause a major trade conflict that the Europeans want to avoid by all means. But the option and the precedent exist.

Second, to bolster the EU’s bargaining position, European governments should increase their coordination with China, Russia, and Asian economic powers such as India, South Korea, and Japan. All share a concern about the overreach of U.S. secondary sanctions. France and Britain should coordinate with Russia and China at the U.N. Security Council, particularly on how to prevent the reimposition and enforcement of U.N. nuclear-related sanctions against Iran so long as Tehran is fulfilling its obligations.

Third, Europe and Iran must resolve the banking and financial deadlocks that have significantly impaired economic ties. This has become a problem even for major European companies such as Airbus. European governments can step up efforts to provide companies with paths to financing deals with Iran that are an alternative to current banking structures exposed to the U.S. financial network. Some European countries have already issued credit lines and started to consider how to introduce banking mechanisms exclusively for deals with Iran. The EU can also lay the groundwork to allow the European Investment Bank, founded with the mission to contribute to EU policy objectives, to extend financing to medium-sized European companies struggling to undertake projects inside Iran. The EU can offer greater technical assistance and expertise to Iran in this effort. But the tough decisions must be made in Tehran. And as the recent protests in Iran showed, the country is in urgent need of economic reforms, particularly in its banking sector.

Finally, as a recent report from the European Council on Foreign Relations outlines, it is critical for Europe to address remaining concerns related to the ongoing conflict in Syria, the stabilization of Iraq, transfer of missile technology, and de-escalating tensions with Saudi Arabia.

There is a danger that in trying to persuade Washington to stand by in the nuclear deal, Europeans will take harmful steps aimed at appeasing Trump. For example, in recent months France and Germany have reportedly both pressed for the EU to introduce new sanctions targeting Iran’s missile program. This approach is unlikely to persuade Tehran to negotiate over its missile program. Nor are such steps likely to gain support from China and Russia as the nuclear-related sanctions did. This is especially true now due to rising U.S.-Iranian tensions and increasing Western arms sales to Saudi Arabia, the United Arab Emirates, and Israel. A more pragmatic approach would be for the EU to facilitate a dialogue with all regional powers with the goal of limiting the range of ballistic missiles and their transfer under existing international arms control regimes.

The fallout over the nuclear deal is taking place against the backdrop of increasing unpredictability in the Middle East. Trump’s anti-Iran rhetoric, coupled with his unequivocal support for Saudi Arabia, has only added to regional polarization. French President Emmanuel Macron recently warned that the current rhetoric of the United States, Saudi Arabia, and Israel is pushing the region toward conflict with Iran. Instead of joining this disastrous approach, European governments must step up their efforts to defuse tension through relentless diplomacy with all regional actors, including Iran.

 

Ellie Geranmayeh is a senior policy fellow at the European Council on Foreign Relations.

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