In a Thursday, May 17 news conference at the EU-Western Balkans Summit in Sofia, Bulgaria, French President Emmanuel Macron ruled out a trade war with the United States following its abrupt withdrawal from the Iran nuclear deal on May 9, Reuters reports. The announcement came as European companies look to drop business ties with Tehran in the face of the global reach of US sanctions.
With America’s withdrawal from the deal, officially known as the Joint Comprehensive Plan of Action (JCPOA), European companies native to JCPOA participants found themselves having to choose between trade with the wealthiest nation in the world and doing business with Iran. While acknowledging this dilemma, President Macron made clear that there were bigger concerns at stake:
“We won’t start a strategic trade war against the U.S. about Iran,” he said on arriving for a second day of a European Union summit in Bulgaria. “We’re not going to take counter-sanctions against U.S. companies, it wouldn’t make sense.”
French energy group Total said on Wednesday it might quit a multi-billion-dollar gas project in Iran unless it secured a waiver from the sanctions. Tehran had repeatedly hailed the project as a symbol of the nuclear accord’s success.
“The French president is not the CEO of Total,” Macron said. “My priority is not trade or finance in Iran. It’s geopolitics, avoiding escalation, doing everything to open up Iran’s economy and society.”
Pressure on these companies mounted in recent days when Trump national security adviser John Bolton and Secretary of State Mike Pompeo both left open the possibility of US sanctions on EU companies who continue to conduct business with Iran.
“I think the Europeans will see that it’s in their interests to come along with us,” Bolton predicted in a Sunday appearance on CNN’s “State of the Union.” When asked if that meant sanctions, he clarified that “It’s possible. It depends on the conduct of other governments.”
Pompeo declined on Fox News Sunday to rule out the possibility of sanctions, going only as far as to say that “The sanctions regime that is in place now is very clear on what the requirements are.”
Under the 2015 deal, major European corporations have signed billions of dollars in contracts with Iran, which the U.S. once again labeled the world’s foremost state sponsor of terrorism in 2017. As The Guardian reported over the weekend, alarm has been especially high in France, home of energy giant Total, who last year signed a $5 billion deal with Iran to extract natural gas. Airbus, a major plane manufacturer based in France, also has a multibillion-dollar contract in place, and has already begun delivering jets to Iran Air.
Officials at the European Commission, the executive arm of the EU, have already begun making plans to shield their industries from the effects of US sanctions, invoking a blocking mechanism for the first time since 1996, when President Clinton agreed to waive sanctions aimed at discouraging investment in Cuba, Iran, and Libya. (The Economist)
However, as Bloomberg notes, European leaders have stressed that such a mechanism won’t be able to curb the effects of US sanctions:
German Chancellor Angela Merkel, who will meet with Russian President Vladimir Putin on Friday, warned that it wouldn’t be possible to shield entire industries from U.S. measures and said that she didn’t want to “encourage any illusions.” Juncker reiterated the stakes of standing up to the Americans, saying “we have to understand that the effects of the U.S. sanctions will be felt.”
In addition, the EU could also impose retaliatory tariffs targeting US exports should the Trump administration choose to sanction European firms. But according to The Economist, many people are skeptical of whether Europe would be that zealous:
“In my wildest dreams, I can’t imagine Europe doing it,” says Amos Hochstein, who, as a member of the Obama administration, led the move to put sanctions on Iranian oil in 2012. Patrick Murphy of Clyde and Co, a law firm, says the proposed Iranian sanctions are too different from the Cuban ones for a similar remedy.
Moreover, says Mr Murphy, in an increasingly dollarised world, businesses and banks are so worried about being shut out of the financial system that there is in fact “over-compliance” with the legal requirements imposed by America. He says this explains the sluggish pace of European investment in Iran in 2016-18, even though European sanctions had been lifted.
For a more in-depth look at what these blocking measures might entail, check here.
So far, Iranian President Hassan Rouhani has said Tehran will remain committed to the deal as long as remaining signees ensure Iran was protected from sanctions.
Why It Matters
EU President Donald Tusk expressed his concerns about America’s talk of sanctions at a dinner with EU leaders last week, observing that “The real geopolitical problem is not when you have an unpredictable opponent or enemy or partner, the problem is if your closest friend is unpredictable. This is the essence of our problem today with our friends on the other side of the Atlantic.”
According to the Office of the US Trade Representative, the European Union is America’s largest trading partner, accounting for over $680 billion in trade in 2016:
The United States had $686 billion in total (two ways) goods trade with the European Union during 2016, its largest Goods trade partner. Goods exports totaled $270 billion; Goods imports totaled $416 billion. The U.S. goods trade deficit with the EU was $147 billion in 2016.
Strained financial relationships between these two entities would hurt businesses within both the United States and the EU, and it will also make them both more reliant on countries like China for international trade. President Tusk summed it up concisely when he rhetorically asked “With friends like that, who needs enemies?”
So the news today of Europe’s reluctance to battle the US comes as somewhat of a lucky break for America and the Trump administration. Unfortunately, getting off light might come at the expense of future carelessness down the road involving economic ties with ally nations.
There is also the fact that the International Atomic Energy Agency Director Yukiya Amano announced in March 2018 that the IAEA had verified that Iran was maintaining its commitment to the deal. Additionally, all remaining signatory nations of the JCPOA insist that the deal is working. That means, at least from their perspective, the US is unilaterally damaging their businesses’ financial outlook and taking the pressure of compliance with the deal off of Iran. Iran, meanwhile, has said it will resume its enrichment of uranium if talks with the EU fail and it sees no economic benefit to remaining party to the deal. That spells danger for everyone.
Europe’s reaction is also important because for the US withdrawal from the JCPOA to have any hope of achieving the desired effects, European nations doing business with Iran would have to also be on-board with America’s decision. This is a condition which has yet to be fully realized, though it becomes more likely with every EU company that pulls out of Iran.
As the fallout of America’s withdrawal from the JCPOA continues, multiple questions remain. Was the deal effective in its intent of preventing Iran from developing nuclear weapons? Was withdrawing from the deal, rather than declaring Iranian noncompliance and penalizing them accordingly, the prudent move? Are the remaining signatories thoroughly evaluating the deal’s performance or merely trying to further their own financial interests?
In any event, the best Americans can do at this point is trust the judgment of the Trump administration. Whether that’s reassuring or not is for the reader to decide.