President Trump’s decision to reimpose U.S. sanctions, after pulling-out of the Iran Nuclear Deal (JCPOA) has deepened the divide with the EU. On 07 August 2018, the EU announced that its blocking statute entered into force. As I predicted earlier, as a reaction to the U.S.’s decision to pull-out of the JCPOA, the EU has implemented a blocking statute. Time will tell whether both moves are wise.
The consequence of this sad state of affairs is that anyone contemplating to enter the Iranian market, should consider the risks very carefully.
Both measures are in stark contrast in how to approach Iran. In essence, the U.S. approach is the classic “fire-and-fury,” method. President Trump is putting all his eggs in one basket. The re-imposition of sanctions aims to force Iran to cease its nuclear enrichment efforts, curb its weapons program and end its support of brutal governments or uprisings in the Middle East.
In contrast, by updating it’s blocking statute, the EU’s approach, which believes that maintaining the JCPOA is vital to it’s security, the statute seeks to protect European companies from any penalties imposed by the U.S. for continuing to do business with, or in, Iran. The measure threatens companies with penalties if they comply with American sanctions.
A Recipe for Disaster
I predict that both approaches will not work. Notwithstanding the futility of torpedoing the JCPOA, albeit an imperfect agreement, the arrangement is still working, so why break something which is still working?
It’s questionable whether the U.S. fire-and-fury method will work. If we only stick to global trade issues, the post-JCPOA U.S. sanctions lack coherent international support. Although the U.S. has stated it’s aim to garner support for the latest round of sanctions, this has fallen on deaf ears. In effect it resembles a coalition of the unwilling. This might change if and when Iran itself would decide to withdraw from the JCPOA.
The aggressive approach to enforce U.S. sanctions, in effect forces companies to choose between the U.S. and the EU. From a commercial perspective, many companies will choose for the former, as the exclusion from the lucrative U.S. market is too costly. However, I still have to see to what extent U.S. sanctions will affect Chinese state-owned companies who can easily insulated themselves from the intrusive U.S. extra-territorial sanctions.
The EU’s approach will also probably fail. The blocking statute, originally passed in 1996 to protect European companies against U.S. penalties imposed for doing business in Cuba, Libya and Iran — has a poor record. I’m not aware of any prosecution ensuing from this legislation.
In regard to Iran, given that EU sanctions were closely aligned with those of the U.S., the statute was largely ignored. For years, the U.S. largely ignored European investments in Cuba to avoid friction. Furthermore, it’s unclear why the European Commission and relevant member states did not activate the statute in highly sensational U.S. sanctions enforcement cases.
Finally, it’s questionable whether the EU can effectively prosecute companies for violating the statute. This is a murky area, and potentially controversial. But most importantly it’s the wrong instrument to fix the standoff with the current U.S. administration. The current problems are of a political nature, which need a political solution. This is especially true if we wish not to repeat the mistakes of the Siberian Pipeline incident.
This is another example of the widening trans-Atlantic divide. The U.S. decision to leave the JCPOA and the EU’s decision to update the blocking statute, is the latest topic to bedevil US-EU relations. This now includes disputes regarding the role and integrity of international organizations, multilateralism, NATO, relations with Russia and efforts to defuse tensions over trade. Most importantly, it’s another self-inflicted wound by Western leaders unable to project unity and leadership in a troubled region.
To be continued…