By Lélia Rousselet and Jackson Webster
The Iran Deal – former American President Barack Obama’s defining diplomatic accomplishment – may soon be coming to an end. The “Joint Comprehensive Plan of Action” (JCPOA) was signed in July 2015 and marked the end of eight years of intense multilateral diplomatic efforts, conducted by the Permanent Members of the UN Security Council (UNSC), Germany, and the EU, and spearheaded largely by Secretary of State John Kerry.
This central piece of the Obama legacy has been endangered by President Donald Trump, who repeatedly expressed his disdain for the agreement on the campaign trail, and has now officially ‘de-certified‘ Iranian compliance with the deal’s conditions to Congress on Friday, October 13. European diplomats had tried for months to convince the Trump administration to avoid de-certifying the deal. Much has already been said about the potential political fallout in Washington, most strikingly the possibility that US Defence Secretary James Mattis and others could be pushed out of the administration following a decertification of the Iran Deal. This article will review the knock-on effects of these possibilities in Europe, both politically and for business, and to evaluate how Europe might respond.
Its important here to note that Trump’s de-certification does not necessarily lead to the end of the JCPOA. The US Congress now has less than two months to decide whether or not to reimpose sanctions. Though Obama faced trouble in getting the agreement past Congressional muster, it’s uncertain if Congress will reimpose sanctions, effectively killing the deal. Kicking the ball to Congress creates more unpredictability in the coming weeks, all in the knowledge that the process might repeat itself in three months for the next certification. To stop this cycle, Congress must pass a new law ending Washington’s internal certification process, so that the only organization which has the legitimacy to assess Iran’s nuclear capabilities would be the IAEA. And since the deal’s signing, all of the IAEA’s reports are clear: Iran is respecting its part of the deal.
Political consequences for Europe
As is often the case, there will not likely be a unified “European response”, rather several “European responses”. Now that Trump has “de-certified” the deal, Europeans must react in three different dimensions.
First, France, Germany, and the UK must clearly and continually state their disagreement with Trump’s decision and support for the deal. As French President Emmanuel Macron did in his “Make our planet great again” speech after Trump’s withdrawal from the Paris Climate Agreement, the European members of the JCPOA will have to employ a strong rhetorical rebuke of Trump’s policy. This seems to be the path chosen thus far by European leaders — shortly after Trump’s announcement, German Chancellor Angela Merkel, British PM Theresa May, and Macron released a joint statement reaffirming their support to the JCPOA. Similarly, the Chief of the EU External Action Service, Federica Mogherini, issued a strong declaration in support of the deal and against a unilateral American withdrawal.
Second, the most significant concern would obviously be the reaction towards Washington, as Europeans must express a clear disagreement without endangering transatlantic relations. That is exactly what Macron did during a TV interview on October 15, when he reaffirmed the necessity to maintain dialogue with Trump to avoid entering a “zero-sum game”, to be open to broader negotiations on Iran, and to recognize the deal’s importance to regional security and stability. Macron stated that European governments should look more closely into Iran’s role in the region. This approach could help Europeans to convince Trump that controlling Iranian nuclear enrichment actually means being tough on Iran and having full access to its nuclear facilities. Furthermore, should this approach preserves diplomatic ties with Tehran, Europeans could agree to re-negotiate only on specific aspects of the deal such as the “sunset clauses”. A title change, and the use of tougher language, with minimal substantive modifications might even be enough for Trump to take political ownership of the agreement.
Third, the bilateral reaction towards Iran. Europe’s main objective should be to contain escalation. European leaders, in particular those in Paris and London, have invested significant time and resources into the deal and opening the Iranian economy. To de-escalate, Europeans will need to reaffirm their commitment to dialogue to keep the door open for diplomacy with their Iranian counterparts.
As for now, the main long-term risk to the agreement would be an Iranian withdrawal in response to US threat, achieving in the process a victory for hard-liners in Tehran. This key factor is, unfortunately, out of European policymakers’ control. Iranian Foreign Minister Javad Zarif took to Twitter after Trump’s announcement, taking two interesting positions. First, he singled out Trump personally. He claimed that “Trump’s friendship is for sale to the highest bidder”, but did not seem to associate the overall American government with Trump’s personal vendetta against Iran. Second, he reiterated an oft-used line of President Hassan Rouhani, calling Trump’s actions worthy of the label of a “rogue state”. The Iranian government also reacted strongly by promising a “crushing response” to Trump’s designation of the Islamic Revolutionary Guard Corps (IRGC) as a terrorist organization. There is no word thus far from Tehran as to how Iran might respond to broader Congressional sanctions, particularly where it endangers relations with Paris, London, Berlin, and Brussels.
Business consequences for Europe
Economic fallout from reinstated American sanctions would follow an initial political shockwave. However, this would likely have limited impact on Europe with greater political implications than economic ones.
Following the signing of the 2015 deal, and the ensuing lifting of sanctions, a flurry of foreign investment was expected to rush into Iran. Despite the country’s attempts to lure European investors, takers were few and far between. Doing business in Iran remains costly and dangerous, mainly due to targeted sanctions on Iranian nationals with certain political or organizational ties. Particularly surprising has been the near-complete absence of banks investing in Iran. BNP Paribas, for its part, has been shy in recent years, owing to a €9B (£8.1B) fine imposed by American authorities after the bank’s connections to Iran, Sudan, and Cuba were exposed.
Most of the companies which invested were either French, most notably PSA Citroën and Total, or have a significant amount of their manufacturing base in France. This second case refers to Airbus, who signed deals in December 2016 and July 2017 for 170 of their A321 and A330 aircraft, a deal worth over $11B (£8.5B). These deals underscore France’s economic self-interest in keeping Iranian markets open.
The Airbus deal is particularly vulnerable in the face of potential American sanctions. Were Trump to pull the US out of the deal, re-imposing sanctions on Iran, the Airbus deal would inevitably be off. Airbus aircraft are made using parts from all over Europe and the globe, including the US. Under US Treasury Department rules, because at least some components of the A320 family of airframes are made in the US, Airbus must obtain authorization for every deal it makes to export. This authorization can be revoked at any time. Furthermore, the Airbus deal is especially tenuous, given the manufacturer’s recent quarrels with American regulators. Moreover, the US is increasingly important to Airbus’ supply chain, given its recent acquisition of the Bombardier C-Series assembly process based in Alabama.
Despite European resolve to maintain the deal, there will not likely be a single ‘European’ response in the long-term. Governments and companies have begun engaging with Iran in different ways and to varying degrees since 2015. For example, the EKF, Denmark’s export credit agency, signed an agreement with the Iranian Finance Ministry, providing a 100% guarantee for financing exports of Danish goods to Iran. Austrian and Italian creditors have followed suit. By contrast, with the exception of German stake in Airbus, German companies have generally stayed away from Iran, perhaps due in large part to the precarious fiscal and regulatory state of many major German banks.
A second key factor in play is the question of Iran’s reaction. Tehran has not indicated how much it values European economic involvement in a context of escalation with Washington. The Guardian’s Saeed Kamali claims that “other Iranian officials have hinted that Iran may continue adhering to the deal provided that the US does not obstruct European investments.”
The White House has already announced new sanctions on the IRGC. Despite being a military organization, the IRGC also has a significant stake in the Iranian economy and its leadership is filled with political hard-liners. Sanctions on this organization may impact European companies engaging in Iran. In compliance with existing prohibitions on conducting business with the IRGC, these companies do not work directly with the IRGC itself, but it is highly likely that they engage with companies at least partially controlled by them; 35-40% of the Iranian economy is estimated to belong to the “semi-state-controlled” category, a large portion of which falls under various wings of the IRGC.
Once again, the Iranian reaction is key. Should Tehran flaunt its missile program in the face of what it perceives as American deception, it will likely scare away European business.
Lélia Rousselet is a research and program coordinator at the German Marshall Fund of the U.S., Paris Office. Her work includes research on security and defense issues, French and American foreign policy, and Middle-Eastern and North African affairs. She holds master’s degrees from the Doctoral School of Sciences Po and and La Sorbonne University. She is the author of Négocier l’atome (L’Harmattan, 2017). You can follow her @LeliaRousselet
Jackson Webster is a native of Southern California and a graduate of the Department of War Studies, where he was President of the King’s College London United Nations Association. He is currently reading for a master’s in International Security with a focus on Russian/Eastern Europe and cyber security from Sciences Po Paris. You can follow him @joliverwebster
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