U.S. U-Turn Creates Uncertainty

Skyline Teheran © 123RF.com/Borna Mir

Skyline Teheran © 123RF.com/Borna Mir

When the Iran agreement was concluded in January 2016, hopes were high around the world – including in German industry. The U.S. withdrawal from the agreement inflicts economic damage and, moreover, raises questions about the credibility of the West in its aim to establish a regulatory framework for a globalized world.

Early May 2018, U.S. President Donald Trump announced that the United States was withdrawing from the Joint Comprehensive Plan of Action (JCPOA). All diplomatic attempts to find a compromise with the United States failed. The U.S. decision to go it alone shows, once again, that cooperation with the United States on foreign and foreign economic policy issues has become more difficult.

American criticism of the JPCOA is nothing new. Under the Obama administration, Republican members of Congress criticized the concessions made by Iran as insufficient and warned about the security risk for Israel. The Obama administration, for its part, gave the president the power to suspend sanctions at regular intervals based on the reports of inspections carried out by the International Atomic Energy Agency (IAEA). In this way, the certification process that the Trump administration has now discontinued came into being.

This is all deeply regrettable, considering the agreement was an important first step towards preventing nuclear armament by Iran. Together with Germany, the five permanent members of the UN Security Council (United Kingdom, France, United States, China and Russia) reached a consensus and committed Iran to a comprehensive control regime to keep its nuclear ambitions in check. Through the Security Council, the agreement was incorporated into international law. Since the U.S. withdrawal from the JPCOA, the remaining parties have been trying to keep the deal alive without the United States.

Business with Iran: Improvements Despite few Financing Opportunities

German industry has benefited from the opening of Iran, albeit not as much as originally hoped. German exports recorded steady growth of more than 20 percent. While German companies delivered goods worth €2.4 billion to Iran in 2015, that figure rose to €2.9 billion in 2017. The strongest demand has been for machinery, motor vehicles, electrotechnology, and pharmaceutical products. The total value of bilateral trade was around €3.4 billion. In 2018, sales fell to 3.1 billion euros due to the current economic situation. 

After the unilateral withdrawal of the United States from the JCPoA, the United States not only reinstated the sanctions against Iran, but further tightened them. The first round of U.S. sanctions against Iran came into force at the beginning of August 2018. The next round was implemented at the beginning of November 2018. After the drone attacks on a refinery of the Saudi Arabian state oil company ARAMCO in September 2019, the United States announced further sanctions.

Against this backdrop, German companies now fear that they will fall under the so-called secondary sanctions. Sanctions regimes normally apply only to citizens, companies domiciled in the country and companies operated by citizens or business persons with permanent residence. But U.S. secondary sanctions are applied extraterritorially: that is, they enforce U.S. law outside the territory of the country and without reference to U.S. citizens. In this way, the United States is capitalizing on its position as the world’s largest and deepest financial market.

As a direct consequence, German exports to Iran have drastically fallen. In the first quarter of 2019, German exports fell by 49 percent year on year to 450 million euros. Iranian exports fell in the same period compared to the previous year by 39 percent to 80 million euros.

Setback for International Cooperation

For German industry, there is more at stake than merely business with Iran. Companies require sound rules for all worldwide transactions.

Therefore, German industry adopted the following position:

German industry sharply criticizes the United States’ withdrawal from the nuclear agreement. In a global and interconnected world, partners must be able to rely on each other and comply with previously concluded agreements.

  • German industry sharply criticizes the withdrawal of the United States from the nuclear treaty. In a global and connected world, partners must be able to rely on each other and contracts that have been signed must be observed.
  • German industry strongly condemns the extraterritorial application of sanctions.
  • The use of the EU’s blockade statute is understandable as a political signal. It makes sense to examine the effects carefully so as not to harm European companies in the end.
  • German industry welcomes the efforts of the German government and the EU to examine how payment transactions with Iran can be maintained.