Iran sanctions

Europe looks to protect trade with Iran in defiance of Trump

Autohaus in Teheran
Give ’em Beemers and Benzes. Source: Picture Alliance.

Donald Trump’s administration isn’t even close to being done with Iran. In November, the second phase of American sanctions kicks in, directly targeting the country’s oil and gas industry. The aim is clear: to bring the Iranian economy to its knees.

For European governments, US policy is deeply misguided. It will undermine progress on limiting Iran’s nuclear activity and strengthen hardliners in Tehran, who are opposed to any concessions to the West.

So Berlin and other European capitals are scrambling for ways to mitigate the worst effects of Washington’s crackdown on Tehran.

Already, the first round of sanctions has had a real impact on the Iranian economy, with shortages of food and basic raw materials. The Iranian currency, the rial, has collapsed in value against the dollar.

“Rockets but no diapers”

In recent weeks, rumors of rationing have led to panic buying, most recently of baby products. “This country has rockets but no diapers,” one trader at Tehran’s Grand Bazaar told Handelsblatt.

Worried by the threat of instability, the German government is coordinating closely with its European partners, seeking ways to minimize the impact of American sanctions, both on Iran, and on European companies which continue to trade with the Middle Eastern nation.

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The plan under review in Berlin and Brussels would involve establishing a kind of clearing house for all European trade with Iran, Handelsblatt has learned. A form of commercial entity known as a “special purpose vehicle” would be established, with European governments as shareholders.

The new company would act as an intermediary for cross-border payments to and from Iran, with no involvement from European commercial or central banks, which are frightened of becoming the target of American counter-measures.

The clearinghouse is likely to be based in Luxemburg, but its capitalization remains unclear. The European Investment Bank and national development banks, like Germany’s KfW, may be involved, although here too there is genuine fear of American retribution.

Coercing compliance

European governments have rarely acted so decisively in opposition to American foreign policy. Their action is partly motivated by the fear of instability in the Middle East. But there is also real anger at what is viewed as an American attack on European sovereignty. Mr. Trump’s government is seen as coercing compliance rather than working out agreed policy.

A determined effort to get around U.S. sanctions would also encourage European businesses to stay the course in Iran. Although many international companies have pulled out of Iran, a few smaller German firms have significant investments in the country. If Iran cannot export oil, it will run short of foreign currency to pay for these contracts.

Although India, China and Turkey have pledged to maintain economic relations with Iran, these may inevitably be reduced. European imports of oil from Iran have already fallen, not least because European-based oil tankers are no longer transporting Iranian oil.

But there may be another issue underlying Berlin’s Iran policy. Mr. Trump’s government has also imposed sanctions on Russia and has publicly complained about German trade with that country.

In the first half of this year, German-Russian trade amounted to €30.4 billion ($35.5 billion) — many times larger than Germany’s links to Iran. For Berlin, founding a go-between company to facilitate trade with Iran may be a sort of test-run, in case the United States goes on to intensify its sanctions against Russia.

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Several Handelsblatt reporters contributed to this article. Brían Hanrahan adapted it into English for Handelsblatt Global. To reach the authors: berschens@handelsblatt.com, brueggmann@handelsblatt.com.

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