Hard Days for Europe’s Interests in Iran

Last month, Iranian President Hassan Rouhani announced that the Islamic Republic is to stop following two limits on its nuclear capabilities, as envisaged by the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal concluded between Iran and major world powers in 2015. This action comes exactly one year after the plan was abandoned by the US, a measure which resulted in the gradual reimposition of US economic sanctions on Iran. In what is widely seen as a retaliatory measure, the Iranians will now consider stockpiling over 300 kilograms of low-enriched uranium and over 130 tonnes of heavy water. Iran further threatened the other signatories of the JCPOA – the UK, Germany, France, Russia, China and the EU, all of which regard the deal as remaining valid – that it will resume production of higher-enriched uranium in 60 days, if more protection against US sanctions is not provided. The imminent demise of the JCPOA which is heralded by this potential Iranian action is a major challenge to the EU’s claims to be a global actor.

The EU and the bloc’s three member states which are signatories (the E3 countries) are in a difficult position. For Washington, the policy towards Tehran is underpinned by a deeply ideological divide and years of strategic rivalry in the Middle East. The Europeans, however, are bound by cooperative structures which adopt a much more consensual and inherently pragmatic approach in their diplomacy towards Iran. And, while the current US administration sees the nuclear deal as an abomination, the Europeans view the JCPOA as ‘a key achievement of the global nuclear non-proliferation architecture, which is in the security interest of all’, an architecture that they consider threatened by other US policy decisions.

But the JCPOA has always been much more than just a nuclear non-proliferation agreement. It remains – as far as the Europeans are concerned – also an instrument of global economic stability, an example of cooperation between key European states, proof that major questions can be handled not only by the UK and France – the two EU states with veto power at the UN Security Council, but also by Germany. And, despite their acknowledgements of the security risks posed by Iranian activities outside the JCPOA, from Europe’s perspective there is a substantial economic policy value in the stabilising effects of the JCPOA in the Middle East.

Still, in the year which followed the US’s withdrawal from the JCPOA and despite various ringing declarations, the EU has done remarkably little to offset the negative consequences of the US-imposed economic sanctions by making them less painful for Iran, in order to uphold the nuclear deal’s validity. Initially, EU states declared that they will facilitate the trade flows necessary to maintain Iran’s commitment to the JCPOA, but it was not until early this year that the E3 countries launched INSTEX (Instrument in Support of Trade Exchanges), a clearing house-type mechanism providing an alternative to SWIFT, the inter-bank clearing system, and allowing European companies to carry out transactions with Iran in denominations other than the US dollar, in order to circumvent US sanctions.

But even at this late stage, it soon transpired that the new vehicle will not be immediately useful for operations other than those involving food or medicine, which are in any case considered humanitarian necessities and are not sanctioned by the US. As has now become apparent, any initiatives undertaken by the EU in the past year are deemed insufficient by the Iranian political establishment. And the Iranians have a point: the Iranian economy, according to the IMF, shrank over 3% in 2018 and is set to continue to dip by a further 6% in 2019. The overall negative impact of the new US sanctions has been widely reported, for example by the Financial Times.

Furthermore, the EU is still sanctioning Iran for human rights violations, including all those stemming from Iran’s theocratic political system, such as the lack of religious freedom, freedom of speech or restricted political rights, to name just a few. More recently, several European states including Denmark, the Netherlands and France thwarted covert assassination attempts led by Iranian agents on their territories, and subsequently advocated additional EU sanctions in response. The EU policy towards the JCPOA is further undermined by the importance of trans-Atlantic trade with the US. European economic incentives to assist Iran cannot practically be provided while a majority of Europe’s multinational companies are unwilling to bear the risk of conducting business in Iran only to endanger their trade with the US. Some, such as the Italian railways company Ferrovie dello Stato Italiane, have already engaged in major projects on the ground in Iran, and cannot easily disengage. As a result, they face potential US fines in the future. Other European companies which decided to invest in Iran following the signing of the JCPOA agreement are now at risk of having to pull out from the country in order to save their core businesses elsewhere in the world from the danger of US sanctions. The deep alignment of interests in the Euro-Atlantic zone might yet prove decisive in limiting the capability of the EU and its three leading members states to save the deal with Iran on their own, regardless of what limited assistance they might get from Russia and China.

The JCPOA is nonetheless a global security matter, and the EU should act to retain support for it. A good start would be to expand INSTEX’s operability and ensure that major trading entities in Europe remain regularly updated on how businesses can make use of it; at the very least, that would testify to the EU’s sincerity in upholding its commitments under the JCPOA framework. While it might be inconceivable to think that European companies would risk trading strategic commodities with Iran, INSTEX should at least conceptualise such a possibility. There are also other economic sectors, such as services and industrial products, which might partially relieve the struggling Iranian economy and keep the Iranians involved in the JCPOA process.

Ultimately, without an efficient mechanism bypassing the US sanctions, it will be very difficult for the Europeans to provide adequate economic incentives to Iran without picking a bigger economic fight with Washington. If the EU truly hopes to achieve a success in maintaining the JCPOA, its maximum diplomatic commitment should not waiver. It needs to keep sending a clear message to all the parties of the framework, but most importantly to Iran and the US, that it has a determined position as a transnational bloc. The ball remains in Brussels’s court, and time is short.

Wojciech Pawlus is the Counter-Proliferation Coordinator in the Proliferation and Nuclear Policy group at RUSI.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.