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Is Europe Sleep-Walking Into A Diplomatic Disaster With Iran? – Analysis

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Iran charges Brussels for serving US interests in the Middle East. The accusations are the net effect of Europe’s failure to protect the nuclear deal, amid Trump’s auto tariff threat. US credibility in the region has plunged. Brussels should avoid following in the footprints.

During remarks at a GOP fundraising event on the weekend, President Trump bragged he assassinated “two for the price of one.” The reference was to the January 3 drone assassination of Iran’s top commander, Major General Qasem Soleiman, and the Iraqi militia leader Abu Mahdi al-Muhandis. 

In turn, Iran’s Foreign Minister Mohammad Javad Zarif says Europeans “sold out” the nuclear deal under Trump’s auto tariff threat. Unfortunately, Zarif has a point. 

Decades of foreign interventions

Iran’s struggle for existential survival intensified in the early 1950s, when the country’s democratically-elected liberal prime minister Mohammad Mosaddegh was overthrown in a coup by US and British secret services. Mossadegh wanted to use Iran’s oil for country’s economic development, whereas Washington and London wanted to control oil and geopolitics in the region.

What followed was quarter of a century of Shah’s “modernization,” which benefited the royal family, its brutal security apparatus Savak, a circle of oligarchs, and a small urban middle class, but not the overwhelming majority of Iranian people. 

The economic polarization and brutal terror led to the Shah’s escape and the Islamic Revolution in 1979. In an effort to weaken Iran and replace its leadership, the West supported Saddam Hussein’s Iraq in the subsequent Iran-Iraq War that cost Iran an estimated $627 billion and Iraq more than $560 billion, respectively. Some 500,000 Iraqi and Iranian soldiers lost their lives, in addition to tens of thousands of civilians. 

That paved way to the Persian Gulf War in the early ‘90s, and the misdirected Iraq War in the early 2000s. Meanwhile, several rounds of economic sanctions, which devastated Iran’s economy, were enacted by Washington and its allies against Tehran between 1979 and 2015.

After years of diplomacy, a comprehensive nuclear accord (JCPOA, July 2015) was achieved between Iran and the five permanent members of the UN Security Council -China, France, Russia, UK, and the US – plus Germany and the European Union (EU). Under the deal, Iran agreed to eliminate its stockpile of medium-enriched uranium. In return, it finally got relief from US, UN and multilateral sanctions.

After stabilization, Iran’s oil exports returned to pre-sanctions levels, boosting 7% growth in 2016. Broadening to the non-oil sector, real GDP growth was projected to rise toward 4.5% over the medium-term. 

But then came the Trump U-turn. In May 2018, the White House had the US withdraw from the JCPOA deal setting an illicit precedent. Brussels was shocked, but the White House’s actions did not come out of the blue. 

How JCPOA and EU firms in Iran were undermined

Before the US exit from the JCPOA, EU leaders still stressed the importance of the full implementation of the nuclear deal. As the Trump administration began its exit, French President Emmanuel Macron warned that “the nuclear non-proliferation regime is at stake.” Germany’s Foreign Minister Heiko Maas argued that the JCPOA “makes the world safer.” UK Foreign Minister Boris Johnson pledged the “UK remains strongly committed to the JCPOA.” And the top EU diplomat Federica Mogherini promised the EU will remain committed to the deal.  

But as the Trump administration proved unlikely to change its stance, a subtle shift ensued. Now Macron said that “we will work collectively on a broader framework, covering nuclear activity, the post-2025 period, ballistic activity, and stability in the Middle East, notably Syria, Yemen and Iraq.” The idea became to “redefine” the EU approach by leaving the JCPOA intact, but coupling the deal with new and broader conditions, which would undermine the deal, however. 

Brussels hoped to reason with the Democratic Congress but that proved naive. After the 2016 US election, it was the Congress with its Democratic majority – not Trump – that paved the way for a U-turn. Following the House of Representatives, the Senate unanimously extended the Iran Sanctions Act for a decade. President Obama’s legacy deal was shot down fast as most Democrats reversed their Iran stances. 

To neutralize European opposition, the Trump administration targeted European businesses that had done business in and with Iran since the Iran deal. It also pledged to extend sanctions over to companies that represented other JCPOA parties – China, France, Russia, UK, Germany and the EU – thus raising risks to their US access. As Treasury Secretary Steven Mnuchin put it at the time, European-Iran business agreements will be voided as “the existing licenses will be revoked.” 

Along with Renault, PSA Peugeot Citroen and Sanofi, French companies had huge stakes in the Iran deal, thanks to the Airbus contract to provide Iran Air 100 airplanes for $21 billion and the oil giant Total’s $2 billion deal to develop the South Pars oil field. Some 120 German companies, including Volkswagen and Siemens, operated in Iran and another 10,000 did business with Iran. Royal Dutch Shell discovered it, too, would be adversely affected. In particular, economic pressure threatened Iran’s largest oil importers, such as China, South Korea, Turkey, Japan, Italy and India. 

US pressure outweighed efforts to sustain European credibility.  

JCPOA under the Trump attack

Russia and China were expected to stay behind the Iran nuclear deal. The real question was whether the EU Big Three – Germany, France, the UK – would defend it. In January 2019, after lingering talks, the three did create INSTEX, a special mechanism to salvage the JCPOA by helping EU companies do business with Iran and facilitate non-dollar transactions to bypass and avoid breaking US sanctions.

In late 2019, six European countries -both neutral states, such as Finland and Sweden, and NATO countries like Belgium, Denmark, Netherlands, and Norway -joined the INSTEX attaching “the utmost importance to the preservation and full implementation of the JCPOA by all parties involved.” In Brussels, the chatter was that other European countries had expressed interest in joining the mechanism. 

However, Brussels urged Iran to return to full compliance with the terms of the JCPOA. It also expressed readiness to consider the JCPOA’s dispute resolution clause, which allows previous UN sanctions to be re-imposed on Iran without a vote in the UN Security Council (to neutralize opposition by Russia and China).

Iran and its supporters argued the trigger mechanism was illegal as long as Europe failed to fulfill its obligations under the nuclear deal. Yet, while European powers pledged to continue to trade with and in Iran, large corporations began to exit the country. More recently, from January to the end of October 2019, the volume of trade between the EU and Iran has plunged 75% year-on year. In the period, European exports to Iran fell by 53% compared with the same period in 2018, while Iranian exports to Europe slumped by 94%. 

Worse, there have been reportedly “no transactions” through the INSTEX so far. And as Washington is effectively threatening to sanction anyone using the mechanism, Brussels is not seen to defend the JCPOA. That’s why Iran’s supreme leader Ayatollah Seyyed Ali Khamenei has expressed mistrust of European powers charging them for acting as if they are “lowly and US servants.” 

Khameini is pushing Iran to rely more on its domestic capacities and to look to the East to defend its economy.

Toward diplomatic disaster

Iran has proved right about Trump’s trade threat to Europe over Iran policy. In mid-January, German defense minister Annegret Kramp-Karrenbauer was asked about an article in the Washington Post that claimed Trump had secretly warned France, Germany and the UK the US would impose a “25% tariffs on European cars” if the EU Big Three did not activate the JCPOA’s dispute mechanism.

The net effect is a huge double standard that now threatens to erode Europe’s credibility as a presumably independent international actor. Compliance with the Trump tariffs will only encourage more misguided trade policies.

Reportedly, the Trump assassination of Soleimani had nothing to do with the alleged “imminent attacks.” Rather, according to Iraq’s Prime Minister Adil Abdul-Mahdi, Soleimani was on a peace mission. Abdul-Mahdi was to meet the Iranian commander to discuss a diplomatic rapprochement Iraq was brokering between Iran and Saudi Arabia. 

Such de-escalation would have been very much in line with European hopes in the region, whereas the US reportedly has its own long-term interests in Iran and Iraq. The two countries hold some of the world’s largest deposits of proved oil and natural gas reserves. Combined, those reserves are bigger than those of Venezuela, which has the world’s largest proved reserves.

Iranians feel strongly that oil and geopolitics are the real reasons for decades of foreign interventions. As the conflict in Libya shows, such efforts tend to result in regime change, institutional fragmentation and proxy wars in which “Europe stands to lose the most,” as Italy’s Foreign Minister Luigi Di Maio recently put it.

As a result of US offensives and EU’s reluctant compliance, the Middle East is coping with the most dangerous escalation in decades. The international implications could prove even worse. If the status quo is permitted to still deteriorate, a global contraction could ensue in the coming months.

The original commentary was published by The European Financial Review on Jan 21, 2020; the print version will follow soon.



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Dan Steinbock

Dan Steinbock

Dr Dan Steinbock is an recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the leading advanced and large emerging economies. He is a Senior ASLA-Fulbright Scholar (New York University and Columbia Business School). Dr Dan Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond). Altogether, he monitors 40 major world economies and 12 strategic nations. In addition to his advisory activities, he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). As a Fulbright scholar, he also cooperates with NYU, Columbia University and Harvard Business School. He has consulted for international organizations, government agencies, financial institutions, MNCs, industry associations, chambers of commerce, and NGOs. He serves on media advisory boards (Fortune, Bloomberg BusinessWeek, McKinsey).

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