Europe Races to Save Iran Deal, But Does The U.S. Hold All the Cards?

By Dale Sprusansky

PRESIDENT DONALD TRUMP’S May 8 decision to violate the multilateral Iran nuclear deal by announcing plans to reimpose sanctions on Iran has left Washington’s European allies scrambling to salvage the agreement. In the weeks following Trump’s announcement, European leaders have attempted to convince Tehran that it will continue to see the economic benefits promised in the deal—but it’s not clear that Europe will be able to deliver on this promise.
As part of its plan to place, in the words of Secretary of State Mike Pompeo, “unprecedented financial pressure on the Iranian regime,” the Trump administration announced its intent to exploit U.S. dominance over the global financial market by deploying secondary sanctions designed to punish international corporations that do business with Iran. Herein lies the problem for Europe: its major corporations are heavily reliant on access to the U.S. dollar and the large American market, and are thus unlikely to challenge U.S. sanctions, even if the European Union enacts legislation to shield companies from secondary sanctions.
“The reality is that the reputational and the commercial risk of infringing on U.S. policy interests in Iran, for most companies, are not going to be worth the price of admission,” David Mortlock, former State Department deputy coordinator for sanctions policy, told an audience at the Atlantic Council in Washington, DC on May 14. The U.S. has given companies notice that sanctions will be fully reimposed within six months. “I think that the reality is that what we’ll see from companies over the next six months is a pretty rapid winding down and respect for what those sanctions are,” Mortlock said.
Major European companies already have announced plans to withdraw from Iran. French energy giant Total, which signed a billion-dollar deal to develop a gas field in Iran, announced that it intends to abandon the project. “Total has always been clear that it cannot afford to be exposed to any secondary sanction, which might include the loss of financing in dollars by U.S. banks for its worldwide operations,” the company said in a statement. Total said it will seek a waiver from Washington to continue the project, but it’s not clear if the Trump administration will be willing to grant significant exemptions.
The announcement by Total and other corporations came as the EU said it is considering a so-called blocking regulation that would prohibit EU companies from complying with U.S. sanctions on Iran. While such a regulation would send a strong message to Washington, independent experts and EU officials alike concede that such a measure would have a limited impact, given the exposure of large European companies to the U.S. market and U.S. banks. “Indeed, the EU blocking regulation could be of limited effectiveness, given the international nature of the banking system and especially the exposure of large systemic banks to the U.S. financial system and U.S. dollar transactions,” European Commission Vice President Valdis Dombrovskis told the European Parliament in May.
Writing on the Atlantic Council’s blog on May 21, Brian
O’Toole, a former Treasury Department official who worked on economic sanctions, speculated that Europe could use the threat of the blocking regulation as a negotiating tool to get the U.S. to grant some exceptions to the sanctions. “Ultimately, [Europe] may well prefer to use the threat of such a regulation as leverage for getting a reasonable accommodation on oil or individualized accommodations,” he wrote.
The blocking regulation could also incentivize smaller European companies without U.S. exposure to remain in the Iranian market. “What this measure could do is…encourage investment by smaller companies and smaller banks to keep some economic activity going with Iran,” Axel Hellman, a policy fellow at the European Leadership Network, said at the Atlantic Council event. “I think the hope among policy makers in Europe is that this will be enough to tell Iran ‘look you’re better off staying with the deal with us than you were under the sanctions regime.’”
It’s unlikely, however, that this reduced level of commerce will satisfy Tehran, which prior to Trump’s announcement expressed repeated displeasure with the economic dividends it was receiving from the nuclear deal. Iranian officials have made it clear that the onus is now on Europe to counteract any ill effects of U.S. sanctions. In a May 23 speech, Ayatollah Ali Khamenei said Europe must “explicitly stand up to the U.S. sanctions” and compensate Tehran for any loss in oil sales caused by the U.S. Failure to do so, he warned, would force the Islamic Republic to declare the deal dead and its terms non-binding.
President Trump has thus left Europe in an extremely precarious situation: comply with U.S. sanctions and risk the immediate and long-term consequences of tearing up a landmark arms control agreement, or sheepishly try and convince Iran to settle for the few economic rewards Europe can deliver due to U.S. pressure.
It’s no wonder that Trump’s decision has left European leadership fuming.
Donald Tusk, president of the European Council, took to Twitter on May 16 to rebuke the U.S. president. “Looking at latest decisions of Trump, someone could even think: with friends like that who needs enemies?” he wrote. “But frankly, EU should be grateful. Thanks to him we got rid of all illusions. We realize that if you need a helping hand, you will find one at the end of your arm.”
At the Atlantic Council event, a clearly agitated David O’Sullivan, EU’s ambassador to the U.S., expressed his “extreme disappointment and regret at where we now are.” Trump, he added, has “put us in a very difficult situation.”

Honoring A Commitment

O’Sullivan hit back at the oft-repeated notion that European dismay with the U.S. decision is based solely on the continent’s economic concerns. While Europe does value having access to the Iranian market, he said the EU’s primary concern is maintaining the legitimacy of the nuclear deal. “We Europeans believe that we are bound to continue to deliver on our commitment if we want Iran to stay in the deal,” he said. “We want the economic dividends of compliance to be felt by the people of Iran.”
He also noted the vital role the EU’s decision to support the nuclear sanctions played in bringing Iran to the negotiating table. “It was European sanctions that brought Iran to the table in the end,” he said. “We took some of the toughest economic hits.”
It’s also important to note that any war conjured up by the U.S., Israel and the Arab Gulf states in the wake of Washington’s violation would have a far more devastating impact on Europe than on the U.S. Already struggling to absorb refugees from Syria, Iraq and elsewhere, any such war would likely result in the arrival of another wave of desperate individuals that could further disrupt the continent’s tenuous social order and drain the resources of its humanitarian agencies. It’s also safe to assume that under President Trump the U.S. would be unwilling to accept many refugees from Iran.
Trump’s utter disregard for the opinions of allies who helped bring the deal to fruition was on display in late April, when French President Emmanuel Macron and German Prime Minister Angela Merkel used their visits to Washington to make a last-minute attempt to change the president’s mind. Instead of entering talks with an open mind, Trump used their visits to tease the revelation of his decision in the fashion of a reality television producer.
Despite his long-standing strong opposition to the Iran deal, Trump repeatedly failed to provide European leaders with a “Plan B” to the 2015 nuclear deal, officially known as the Joint Comprehensive Plan of Action (JCPOA). O’Sullivan said Europe is still waiting to hear Trump’s plan. “We do not see a credible, peaceful alternative to the JCPOA,” he said. “Frankly, the United States has not yet suggested a credible alternative…and we wait to hear what this administration thinks such a credible alternative could look like.”
Secretary of State Pompeo attempted to outline the administration’s new Iran policy on May 21 but, to the surprise of few, his speech was more of a demand for complete Iranian capitulation than the beginnings of a credible diplomatic process. Pompeo made 12 demands of Iran in his remarks, among them: the cessation of ballistic missile development, the withdrawal of troops from Syria, and the end of threats to countries such as Israel and Saudi Arabia. Few if any credible observers of Iran believe the country would give in to such demands, especially after the U.S. demonstrated its unwillingness to abide by the 2015 deal.
The new secretary of state also conveniently and unsurprisingly failed to mention that, just a month earlier, he had testified before Congress that Iran was in compliance with the nuclear deal. This view is shared by independent international inspectors and every U.S. government agency.
Europe and the world now face a dilemma. Few would dispute that the U.S. has become a rogue state as it pertains to the JCPOA. At the same time, few would suggest that there is a clear path to sidestepping the global financial reach of the U.S. In the short term, it appears Europe will have to endure U.S. belligerence and work on the margins to mitigate the damage to the compliant state, Iran. Longer term, it is becoming increasingly apparent to observers from Brussels to Washington that, for the sake of global security, the U.S. can no longer be permitted to act as a bully whose power and resources shield it from serious reproach. Europe must begin imagining a world in which it is not beholden to the whims of the United States.