EU Walks Tightrope on Dealing with US Anti-Iran Sanctions

If it wants to keep the nuclear deal alive, the EU will need to reduce the impact of US sanctions on its trade with Iran.

As an initial step, European governments are offering legal advice to companies and seeking exemptions from US sanctions in the hope that they can continue to do business with Iran, although they are highly unlikely to obtain them.

The EU could also attempt to revive its blocking statute. Introduced in 1996, following the adoption of new US sanctions on Cuba, the statute prohibits EU-based companies from complying with certain US extraterritorial sanctions.

European countries could also set up credit lines for businesses to make it easier to make payments in Iran, without going through the international payments system, as Italy has done. However, these steps will not be enough to mitigate the impact of US sanctions.

The EU’s blocking statute did not stop European companies following US law: Firms were more fearful of US sanctions than of the statute. Likewise, if businesses have to choose between the US and the Iranian market, only companies that do limited business in the US are likely to choose Iran, reads an article published on the website of the London-based think tank Center for European Reform. Excepts follow:

In theory, the EU could take more ambitious steps to curtail the impact of US sanctions. For example, the EU could offer trade liberalization to Iran. The EU could also agree to indemnify European businesses for the costs of US sanctions and offer euro-denominated loans to Iran through the European Investment Bank.

Finally, the EU could also threaten to retaliate against US sanctions imposed on European companies by sanctioning US companies in Europe. However, all of these steps would lead to a sharp rupture in transatlantic relations and it seems doubtful the EU will have the appetite to implement them.

If US President Donald Trump thinks that the EU is sabotaging US policy and helping Iran, he is highly likely to immediately impose the so-far delayed steel and aluminum tariffs, and to hit European firms with sanctions.

Mindful of the risks inherent in starting a trade war with the US, the EU will probably not be able to provide Tehran with extensive support. The risk is that the JCPOA will unravel over time, as business dries up and the Iranian economy suffers.

The EU can take steps to preserve the deal while keeping confrontation with the US below the critical threshold of tit-for-tat sanctions. It will also have to continue the diplomatic efforts of the past few months, trying to iron out the contentious elements of JCPOA with Iran and the US.

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