EU countermeasures against US sanctions on Iran may fail

With the re-imposition of US sanctions on Iran expected to come into effect in autumn, plans by the European Union (EU) to protect companies still trading with Tehran from being penalised by Washington is proving to be a struggle.

Final touches are being made to the EU plan to mitigate the punitive measures as the Trump administration prepares to impose a new wave of sanctions next month and in November. The first batch is expected to target trading in cars, gold and other metals; the second Iran’s oil exports and transactions with the central bank.

The main weapon devised by the EU is said to be an updated version of what is known as a “Blocking Statute” originally drawn up in the 1990s to counter US sanctions on Iran, Libya and Cuba. The EU announced that it plans to launch the formal process to activate this law in an effort to try to ensure the survival of the nuclear deal.

READ: Trump: We would ‘absolutely’ sanction EU companies who trade with Iran

The Blocking Statute prohibits European companies from complying with the US measures and allows them to recover damages arising from the sanctions. If enforced, the statute will make compliance with the US illegal. Furthermore it will make it possible to nullify judgements of US courts on European companies.

Iran Deal – Cartoon [Sabaaneh/MiddleEastMonitor]

A key issue is the fact that the European countries are unwilling to enter into a trade war with the Americans; a position that may be tested to the limit once sanctions come into effect. What companies decide to do will depend on economic forces, say experts, and not which political side they belong to.

The countermeasures adopted by the EU may have limited impact in protecting and persuading multinational companies to continue trading with Iran with the threat of fines and criminal prosecution in the US hanging over their head.

READ: Major world powers make last ditch effort to save Iran nuclear deal

The biggest trading companies, the FT pointed out, have operations in the US that are far more important to their businesses than their dealings with Iran. Not only does this make them ultra-cautious but it also means they will prioritise adherence with the US sanctions over anything the EU might offer.

One business executive cited by the FT said: “Previously when major non-US companies have had to choose between complying with the EU blocking statute or complying with US sanctions they have chosen the US sanctions almost every single time.” Companies have tended to opt for the “lesser of the two evils.”

Given that there is no real appetite in the EU to escalate this rift with the US – French President Macron for example said he had no wish to  target US companies, nor force French companies to stay in Iran if they wanted to pull out – the main arsenal in the hands of the EU seems to have been blunted before the battle has begun.