German firms are seeking legal clarity in the wake of this week’s nuclear deal with Iran to make sure they do not incur steep U.S. penalties for trading with its regime.
The big question for many remains: Does the historic pact to limit Iran’s nuclear ambitions effectively give western businesses the all-clear to invest again with the Iranians? Or will German businesses still face prosecution for trading with a terrorist regime?
The German business community broadly welcomed the deal announced Tuesday – which will see Iran ditch almost all of its weapons-grade nuclear material in exchange for the easing of economic sanctions. “German companies are eager to play their part in modernizing the country and integrate it into the global community,” said Ulrich Grillo, head of the BDI Federation of German Industries.
He forecast German exports to Iran could leap to more than €10 billion ($11 billion) in the medium term from €2.4 billion last year, and said sectors particularly likely to benefit would include cars, chemicals, healthcare and renewable energy.
“The modernization of the oil industry in particular opens big opportunities for German machinery and equipment makers,” Mr. Grillo said.
Much depends on when and how sanctions are dropped – trade is not expected to really develop until 2016. If sanctions are phased out quickly, conservative estimates say bilateral trade could grow to €6 billion or €7 billion in 2016.
“I see an issue primarily with money transfers.”
But many European companies are hesitant to invest until the full details of the lifting of sanctions are made clear. This is because they are concerned about the administrative difficulties of conducting financial transactions, and remain wary of the penalties imposed by the United States on companies that breached its trade sanctions in the past.
Commerzbank, Germany’s second-largest bank, was fined last year for trading with Iran. The bank reportedly paid $650 million for violating sanctions conditions. The bank had been accused of conducting business deals with the Iranian state shipping line, Irisl, between 2002 and 2007.
The sum paled in comparison to the $8.9 billion fine paid by the French bank BNP Paribas to U.S. authorities. Other European banks investigated for their dealings with Iran included Deutsche Bank, Germany’s largest bank, and Unicredit subsidiary HypoVereinsbank (HVB).
“I see an issue primarily with money transfers – a problem that has existed for a long time in German-Iranian business relations,” said Daniel Bernbeck, executive director of the German-Iranian Chamber of Industry and Commerce.
“These problems will stay the same even as there is an expected increase in trade. For businessmen, this means that they sometimes don’t know where their money is, everything takes a lot longer because third parties need to get involved and there is no insolvency insurance.
“The second main hesitation that I see is the unclear position of the United States regarding Iran. For many German firms it is unclear whether they are liable under U.S. law. It would be desirable for German firms to have more clarity on that front,” Mr. Bernbeck said.
There are two main issues for German firms regarding their business dealings with Iran, said Klaus Friedrich, an expert on foreign trade at the engineering industry association VDMA. “Firstly, if they enter the market for the first time, these companies will have difficulties in finding a German bank which will support money transfers to and from Iran.”
“Secondly, if an individual export is currently prohibited because of the embargo, it is difficult to assess the legal implications of a contract for this future export.”
Many observers fear that a rush to do business in Iran could prove disruptive in the medium term and might also be based on assumptions that have yet to be born out.
“What we know is that over the last few months, German companies have been aiming to get back to the market in Iran,” said Mark Hibbs, senior associate in Carnegie’s Nuclear Policy Program. “But negotiators on the German side have urged business leaders not to race into Iran. Countries of course want industries to benefit from the removal of sanctions and governments feel pressure from their industries.”
But he added that the risks were lower for mid-sized companies doing transactional business, an advantage for export-dependent countries such as Germany.
Allison Williams is Handelsblatt Global Edition’s deputy editor in chief. Sarah Mewes is an editor with Handelsblatt Global Edition in Berlin. To contact the authors: email@example.com, firstname.lastname@example.org