Sod off

Germany to US: We’re ready for your sanctions and we’re staying in Iran

Iran Revolution Anniversary US
German companies are also protesting. Source: AP

The new US ambassador to Germany, Richard Grenell, had a tough night on social media. After US President Donald Trump decided that his country would be pulling out of the Iran deal and re-imposing sanctions, Mr. Grenell posted on Twitter that: “US sanctions will target critical sectors of Iran’s economy. German companies doing business in Iran should wind down operations immediately.”

The reaction was fast and furious. His message to Germany was retweeted almost 6,000 times (and counting) and there were close to 1,500 comments, many of them from angry Germans basically telling the ambassador, a longtime critic of the Iran deal, to butt out.

As it stands, neither Mr. Grenell nor his critics need bother. German companies doing business in Iran have been preparing for this moment for months, said Michael Tockuss, head of the German-Iranian Chamber of Commerce, based in Hamburg.

“We’re not shocked,” he told Handelsblatt. “For some time now, companies doing business in Iran have been trying to find substitutes for any US-related aspects of their supply chains.” For example, European companies in Iran do not work with dollars at all; they prefer euros or perhaps dirhams. “Any US staff members are excluded from Iran-related business,” Mr. Tockuss noted. “There have been a wide variety of preparations and many companies have been building a fence around their Iran business.”

“As long as the German government leaves us alone, we’re staying.”

Matthias Rüdiger, Samson

Before the last lot of sanctions was imposed, Germany was Iran’s biggest trading partner. After the Iran deal was reached in 2015, German exports there grew by 27 percent. In 2017, German exports to Iran were worth an estimated $3.5 billion and today many of Germany’s biggest businesses are working with Iran, as are hundreds of the country’s medium-sized firms.

“As long as the German government leaves us alone, we’re staying,” said Matthias Rüdiger of Samson, sounding upbeat and rather defiant in an interview at an oil and gas trade fair in Tehran. Samson, which specializes in control valves, has been active in Iran for 40 years. Bigger companies might be wary of the attention, Mr. Rüdiger says, but for family-owned firms, Iran has been and remains lucrative.

Some US sanctions will come into effect immediately, including those on civil aviation. Others – known as secondary sanctions – won’t take effect until November. Many German companies have a long history in Iran and already have plenty of experience dealing with sanctions, Mr. Tockuss said, having had to work within those limits until 2015.

“The biggest difference now is that we won’t have to deal with EU sanctions as well,” he explained, adding that his organization believes that European governments will continue to support the Iran deal and not re-impose sanctions of their own. “I have already spoken with our biggest members this morning,” he said. “For the time being, it is business as usual.”

Unlicensed parts Airbus The international focus is on Airbus, and rightly so. The Franco-German planemaker and its US rival Boeing face perhaps the biggest challenge. About 10 percent of its plane parts come from US suppliers, like United Technologies, Rockwell Collins and General Electric. That puts the delivery of 95 planes in its order books in jeopardy. Airbus said it will carefully analyze the effect of US sanctions before making a decision, but short of delivering 90 percent of a plane, there may not be much they can do. Source: Reuters
A 150-year relationship Siemens It’s stated proudly right on Siemens’ country website: “Siemens has been a contributor to key infrastructure projects in Iran for almost 150 years.” That relationship isn’t going to end just because the United States says so. Just last year, the engineering conglomerate booked €130 million worth of business with Iran. “We will complete what we have started, within the legal guidelines,” CFO Ralf Thomas said. The question is whether Siemens will be able to secure future contracts – and more importantly whether Iran will have the money to pay for them. Mr. Thomas said the US decision to introduce sanctions five years ago had a major effect on the investment climate. This time around, he’s not so sure. Source: DPA
Don't bank on it Commerzbank + Deutsche Bank Search for Commerzbank Iran and you’ll find a simple message on their website: “In accordance with the restrictive policies of the bank, Commerzbank currently has no business relationship to customers in this country.” Germany’s second-largest bank was badly burned the last time it did serious business with Iran – it was fined €1.45 billion in 2015 by US authorities. Deutsche Bank was fined a smaller €258 million for its own Iran operations. Like many international financial firms, both banks quietly explored whether to re-enter the country in 2016, but remained extremely cautious. Deutsche Bank has “no interest in Iran transactions… this hasn’t changed,” a spokesperson told Handelsblatt. Commerzbank wouldn’t comment. Mr. Tockuss of the German-Iranian Chamber of Commerce says there are plenty other banks to take their place. Perhaps. But don’t expect them to be German ones. Source: DPA
Business as usual, just less Daimler For Daimler, it’s business as usual despite Donald Trump’s announcement. The problem is it didn’t have much business here to begin with. Hopes were high at the Mercedes-maker, which has been in Iran for 60 years, when sanctions were formally lifted in 2016. Teaming up with Iran Khodro Industrial Group, the region’s biggest carmaker, it set a goal of becoming a market leader in commercial vehicles and trucks. But financing dented those concerns even before Trump’s latest decision. Analysts say Daimler sells no more than a few hundred vehicles per year, compared to 10,000 in its Iranian heyday. Source: Reuters
On Tehran streets since 1950 VW Volkswagen has some history too: Its Beetle cars have been a sight on the streets of Iran ever since the 1950s, but it was slower to the game this time around. In mid-2017 Volkswagen announced its return to the Iranian market after a 17-year absence, selling its Tiguan and Passat passenger car models. Its local partner Mammut Khodro sold 2,000 in pre-orders in January, instantly giving it a 4 percent market share. Like Daimler, VW doesn’t necessarily have to stop selling cars to Iran just because of Trump’s decision, assuming Europe doesn’t impose sanctions of its own. A spokesperson for the German automotive association VDA called on the EU to take a “clear position” – and quickly – to help carmakers plan their next move. Source: Reuters
Don't tell us where to build tunnels Herrenknecht It’s not just about major listed companies. It’s also about the Mittelstand – Germany’s term for family-owned businesses. Herrenknecht, the world leader in mechanized tunneling technology, exports 90 percent of its machinery and has been closely associated with business in Iran – as well as its regional rival Saudi Arabia. Two of its machines were used to build Tehran’s metro system, a decade-long project that carried on even through the last round of sanctions. A spokesperson wouldn’t comment directly on Trump’s decision, but said Herrenknecht has always followed relevant national and European rules, “and we will continue to do this in future.” Source: DPA
If you build it, they will come Trade fairs You’d be surprised how famous Germany is for running trade fairs and that also applies to running them in Iran. The first German-organized trade fair since the imposition of sanctions happened in 2015, and after sanctions were formally lifted in 2016, business picked up significantly. By 2017 there had been seven. Munich’s trade fair organization and its subsidiary Imag has been in Iran the longest, since 1994. But business had slowed again even ahead of Tuesday’s announcement, because of Donald Trump’s generally critical attitude. Companies feared being put at a disadvantage in the US if they were successful in Iran, according to the German trade fair association. Source: Messe Muenchen

Still, some sectors will be more affected than others. If the US decides to start sanctioning European companies as in the past, the focus will be on so-called “bottleneck sectors” – areas in which there is no way to avoid an American connection. That includes aviation, banking, insurance, shipping and logistics.

The crux, however, lies in banking. Even with sanctions lifted, international financing for Iran has been slow to return in the past few years. Unlike European businesses, Europe’s banks have been more reluctant to enter the Iranian market since 2015. Heavy potential fines, a lack of transparency, an isolated and outdated financial system and fears of mistakenly financing terrorism were among the reasons for that reluctance. There was also considerable apprehension about sanctions being imposed again after Mr. Trump was elected.

As a result, Iran has been forced to finance projects largely on its own dime. This has hindered a number of major projects with engineering firms, said a spokesperson for the German machinery association VDMA. This will only get worse as a result of Mr. Trump’s latest decision.

“For companies it will become even harder to finance projects in Iran through banks. The banks don’t want to endanger their usually larger business operations in the US,” said Dieter Kempf of the business association BDI. “It is urgently critical that our companies are meaningfully protected from the impact of the US sanctions.”

There’s another way in which the new US sanctions could impact German-Iranian business ties – and that is psychological. Even before the Iran deal, consumer goods company Henkel had almost completely withdrawn due to political considerations, CEO Hans Van Bylen noted. A moment later in his press call on Wednesday may explain why: Mr. Van Bylen is hoping US business will pick up in the second quarter.

Cathrin Schaer and Christopher Cermak are editors with Handelsblatt Global based in Berlin. Various Handelsblatt and WirtschaftsWoche correspondents contributed to this story. To contact the authors: cermak@handelsblatt.com and  schaer.handelsblatt@gmail.com

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