May 9, 2018 / 11:47 AM / 5 months ago

Breakingviews - Europe has uphill fight to keep Iran trade flowing

LONDON (Reuters Breakingviews) - European politicians have ways of coping with U.S. President Donald Trump’s withdrawal from the Iran nuclear deal. Their options are, however, not very good ones. The so-called Joint Comprehensive Plan of Action (JCPOA) – signed between Tehran, Britain, China, France, Germany, Russia, the United States and the European Union in 2015 – made it possible for European firms to work in Iran without getting sanctioned by the United States. Trump’s blunt action reverses this in a way that will be hard to face down.

FILE PHOTO: Iranian President Hassan Rouhani attends a meeting with Muslim leaders and scholars in Hyderabad, India, February 15, 2018. REUTERS/Danish Siddiqui/File Photo - RC141051F3A0

There’s a precedent for the EU contesting such “secondary sanctions” that have not been imposed by the bloc. In 1996 it deployed regulation that effectively blocked European companies from complying with U.S. strictures over Cuba and Iran. In 2007 the Austrian government used the same rules to legally challenge domestic bank BAWAG’s attempt to cancel Cuban accounts.

This might offer some comfort to European companies that have returned to Iran. These include Total, which in 2016 struck a $4.8 billion deal to help develop the Islamic Republic’s South Pars gas field. Ultimately the U.S. Office of Foreign Assets Control gave BAWAG dispensation to keep the accounts. Total could win a similar reprieve.

Yet European groups may focus on a different precedent. HSBC, Credit Suisse, ING, Standard Chartered and Commerzbank received combined fines running into billions of dollars for transgressing U.S. sanctions, while BNP Paribas alone was hit with one for $8.9 billion. Given Trump’s tough rhetoric on Tuesday, new entrants into Iran would have to find a watertight way to avoid the U.S. financial system.

That isn’t easy. Even if the EU capitalised a bank to handle Iran trade exclusively in euros, the sanctions apply to U.S. products and technology as well as dollars cleared through New York. The alternative – not doing business in Iran – will seem more attractive.

Ultimately, the EU’s problem is political as much as procedural. Its member states are for the time being excluded from Trump’s steel tariffs, but pushing back hard on Iran would complicate attempts to win a more permanent exemption. That leaves the bloc with an uncomfortable choice: either use a 180 day grace period before sanctions apply to toughen the JCPOA – which Iran may not accept – or grudgingly comply with Trump’s red lines.

Breakingviews

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