The clock is ticking: Tehran is pushing Europe to come up with a package of measures to offset the economic impact of Washington’s decision to pull out of the nuclear deal. And the EU has responded by getting inventive.
It wants to help Iran keep at least part of its oil export revenues, its most important source of income, by enlisting the help of central banks. At present, oil sales are settled exclusively in dollars, mostly in cooperation with US banks. But that’s no longer possible since the US pulled out. Using dollars to settle Iranian deals is now prohibited and US banks are also forbidden from getting involved. European banks have followed suit.
So the EU is considering bypassing the US financial system by handling oil purchases from Iran in euros, without the aid of commercial banks. To achieve that, it wants central banks in Europe to transfer large sums of euros to the Iranian central bank.
“A number of models are being reviewed in the European central banking system. We’re talking about sums in the billions,” said one EU diplomat.
Europe's national central banks fear the arrangement could aid money launderers or fund terrorists.
It was the EU Commission’s idea. “We should consider if this is the right way,” Energy Commissioner Miguel Arias Canete said during a visit to Tehran in mid-May. It could demonstrate to the Iranians the serious efforts to preserve economic relations between the EU and Iran, he noted.
The Iranian central bank isn’t directly targeted by the US sanctions. The Commission wants the money to be transferred to Tehran as soon as possible – in weeks rather than months.
But it’s proving tricky. The European Central Bank has already refused, saying such money transfers would be incompatible with its mandate. That leaves the national central banks, particularly in countries that import Iranian oil – mainly Italy, France, Spain, Greece and the Netherlands, which together take the lion’s share of the EU’s annual import of 548,000 barrels of crude oil. Germany only buys 17,000 barrels a day, according to EU figures.
The German government has declined to comment on the matter, with sources in Berlin only noting that the Bundesbank, Germany’s central bank, is independent. EU diplomats said Germany backed the plan, but sees less need for the Bundesbank to act than the central banks of France, Italy or Spain.
The central banks, though, are deeply skeptical. They fear they are being pulled into an arrangement that could lead them to aid money laundering or even fund terrorism.
No one can say for sure where money transfers to the Iranian central bank will end up, said central bank sources. Hezbollah, the Lebanon-based political party and militant group backed by Iran, is viewed as a terrorist group by the US, and the EU has put its military arm on its terrorism blacklist. Central banks could get in hot water if they transfer money that could, in theory, end up in Hezbollah’s hands, said one EU diplomat.
Besides, Iran has yet to fully implement international rules on capital adequacy and money laundering.
There is one alternative way to pay for oil: The EU could copy China, the biggest buyer of Iranian oil, which settles deals by parking yuan in China that Iran purchases Chinese goods with. But so far, Iran doesn’t want to use that system in Europe, insisting that Donald Trump’s decision to quit the nuclear pact wouldn’t affect Tehran’s exports. That seems unlikely: During the last round of sanctions prior to the nuclear deal, Iran’s oil supplies fell by around one million barrels per day.
Ruth Berschens is Handelsblatt’s bureau chief in Brussels, while Jan Hildebrand leads coverage of tax, budget and economic policy from Berlin. Mathias Brüggmann is the publication’s international correspondent. David Crossland adapted this story into English for Handelsblatt Global. To contact the authors: email@example.com, firstname.lastname@example.org, and email@example.com