By John Whelan
US president Donald Trump’s decision to rip up the Iran nuclear restraint deal has created quiet fury in Brussels, where unilateral action by the US is once again ignoring the wishes of the EU and forcing it into knee-jerk reactions.
This it did last Friday in Brussels when the European Commission hastily released a package of measures to counter US sanctions on Iran. However, based on prior disputes over US sanctions, the EU moves are unlikely to be effective in coming to the aid of Irish or other European exporters who have rebuilt their businesses following the trade accord signed with Iran in 2015.
The US sanctions regime, signed into force by Trump earlier in the month, effectively forces European companies, such as Airbus, and Irish companies, such as Glanbia, into choosing between doing trade with America or Iran. Both companies have extensive trade links to the US compared to the minnow size of trade with Iran.
Last year Irish exporters to Iran sold €143m worth of goods and an estimated similar amount of services and were on track to double sales in the current year. Within the 90-day period before the US sanctions kick in, Irish exporters will be scrambling to get paid and close down their Iran contracts.
The EU’s attempts to circumvent the US sanctions have failed in the past to protect exporters and are unlikely to be successful on this occasion. Despite the EU’s blustering blocking measures, it will be well nigh impossible for Irish exporters to continue to trade with Iran now that Donald Trump has torn up the Iran nuclear restraint deal.
In the decades of sanctions prior to the Obama administration’s accord with Iran, heavy fines and arrest if executives travelled to the US, were commonplace. In addition, foreign banks who did business with Iran at the time found themselves shut out of the US financial system, unable to trade in dollars and subject to prosecution and massive fines.
Under the former US sanctions regimes AIB, Bank of Ireland and Ulster Bank were unable to handle payments received from Iranian banks in payment for Irish goods and services sold to Iran, leaving exporters with a payment that no one could cash in.
On this occasion, the EU countermeasures announced last week are aimed mainly at supporting SMEs, including freeing up the European Investment Bank to offer euro credit lines to avoid sanctions on the dollar. The conundrum for the EU and other major trading blocs such as China, Japan and Russia is their dependence on the dollar for international trade. The dollar is the de facto global currency, accounting for 64% of all central bank foreign exchange reserves.
The European Commission’s planned ‘blocking statute’ to shield EU-based companies that continue to trade with Iran despite Trump’s decision to quit the international nuclear agreement and reintroduce sanctions, is understandable.
However, the most significant measure announced last Friday — that EU companies could face European Commission penalties if they choose to cut ties with Iran — could put European companies in an impossible legal bind.
The move, which has the support of the Government and the other 27 EU states, is part of an effort by Germany, France and the UK to salvage the 2015 deal that promised Iran economic benefits in return for a promise that it would limit its nuclear programme.
Whereas the commission objectives are laudable, the EU can’t guarantee continued international trade and investment, unless the US plays ball.
John Whelan is an Irish consultant on international trade