EU to ban companies from complying with US sanctions over Iran nuclear deal

Source: THE TELEGRAPH 

James Crisp, Brussels

Brussels has moved to ban European companies from complying with US sanctions on Iran and protect them from American court judgement, as relations between the bloc and Donald Trump deteriorate further over Washington dumping the nuclear deal.

The European Commission on Friday began the formal procedure to update its “blocking statute”, the most powerful response it can muster in response to Mr Trump, to protect EU investments in Tehran after EU leaders backed the plan at a summit on Thursday.

The move risks infuriating the unpredictable president and could escalate a looming trade war with the US, which has threatened tariffs on EU steel imports in a separate dispute.

Meanwhile Angela Merkel, the German chancellor, will hold talks with Vladimir Putin in the Black Sea resort of Sochi, over the fate of the nuclear deal, which is co-signed by Russia.  

The statute will ban EU companies or people from observing the sanctions that Mr Trump vowed will be reintroduced as he ditched the Iran nuclear deal.

While it will give protection to small and medium sized EU businesses active in Iran, prospective investments by larger multinationals such as Airbus and Total remain exposed to considerable risk.

Any US court punishment for ignoring the sanctions will be nullified on European territory. EU companies will be able to claim damages against any harm caused to them by, for example, pulling out a deal because of Washington’s actions.

Sources said that, theoretically, the president’s plane Air Force One could be impounded as part of a claim for damages if it landed on EU soil. In practice, given that damages are decided at national level, that is highly unlikely.

One scenario could be that a multinational company could face legal action in the US if they ignored the sanctions, and punishment in the EU if they complied with them.

There are ongoing talks with national governments about one-off bank transfers to the Central Bank of Iran to protect the country’s oil revenues. Negotiations are expected on paying for oil in euros rather than dollars to get around the sanctions.

The commission also said it would step up public support for EU companies in Iran through the European Investment Bank and bolster cooperation in sectors such as energy.

The announcement was intended to bolster the confidence of smaller businesses active in Iran and send a signal of the EU’s support for the Iran nuclear deal, which gradually lifts sanctions in return for the country’s denuclearisation.  

96 per cent of Iran’s economy is based on SMEs and small to mid-ranking sized business from Germany, Italy, Austria, Sweden and Denmark have invested in the country since the deal was signed in 2015.

Iran nuclear deal | The sanctions explained

Q: What sanctions are being imposed?

A: The US was due to decide whether to continue waiving sanctions on Iranian oil exports and its Central Bank on May 12. A further decision on waiving specific sanctions against an array of Iranian business sectors, companies, and individuals had been due in July. Mr Trump decided to put all the sanctions in place.

Q: Do the sanctions come into effect immediately?

A: No. There is a “wind down” period. There are myriad different sanctions and the “wind down” varies between 90 and 180 days. It is intended to allow companies doing business with Iran to finish up. It applies to existing contracts and not new ones.

Q: Are European companies affected?

A: A US administration official said any companies involved in “out jurisdiction” could be. So European multi-nationals that use the US banking system might face problems. The European Union has said it is looking at steps to protect its companies doing business with Iran. Such business boomed following the signing of the nuclear deal in 2015. Those measures could include using non-dollar lines of credit and a European Union law to insulate its companies.

Q: Can the deal survive, or could a new one be negotiated?

A: The UK, France and Germany have said they want the deal to continue, although some experts have suggested it would be “on life support” without the US. A shrewd diplomatic response for Iran would be to remain in the deal, trying to drive a wedge between the US and its European allies. Mr Trump made clear he is “willing and able” to negotiate a new deal which would mean “great things could happen” for Iran.

Q: Could this lead to nuclear proliferation and war in the Middle East?

A: A complete collapse of the agreement could see Iran starting up uranium enrichment again and freezing out inspectors from the International Atomic Energy Agency. Saudi Arabia could then start developing nuclear weapons, and Israel could launch unilateral airstrikes against Iran.

EU sources said that last year Iranian exports to the EU were worth about €11 billion euros and imports were roughly the same. Since the nuclear deal was signed, trade between the EU and Iran has increased considerably.

The blocking statute has never been used, but the threat of its use forced Washington to back down over enforcing sanctions on EU companies trading with Cuba in 1996. That dispute was solved 30 years ago to the day at the summit of London in 1998.

The commission has begun the process to update the dormant regulation. National governments in the European Council and the European Parliament have two months to object to the move, which will see the law ready on August 4 – one day before US sanctions are due to be applied.