Uncertainties Remain in Iran Trade

Skyline Teheran © 123RF.com/Borna Mir

The conclusion of the Iran Agreement in January 2016 was awaited with high hopes. When the United States withdrew from the agreement in May 2018, these hopes were dashed. Neither the blockade statute of the European Union nor the special purpose vehicle Instrument in Support of Trade Exchanges (INSTEX), which was founded in January 2019, has so far been able to stabilise trade with Iran.

In mid-July 2015, the five permanent members of the UN Security Council (Great Britain, France, United States, China, and Russia) and Germany agreed on an agreement with Iran, the Joint Comprehensive Plan of Action, JCPoA. This agreement entered into force in mid-January 2016. As a consequence, all sanctions associated with Iran’s nuclear programme were lifted. However, some restrictions remained in force: restrictions on the transfer of proliferation-sensitive goods, embargoes on weapons and delivery systems, and restrictive measures against some people and entities. Embedded in Security Council Resolution 2231, Iran committed itself to a comprehensive control regime of its nuclear ambitions. Through the Security Council, the agreement was also integrated into international law.

Withdrewal of the United States

Although Iran complied with all the requirements of the treaty, in early May 2018 U.S. President Donald Trump announced the U.S. withdrawal from the JCPoA on the grounds that the country was violating the spirit of the treaty. The International Atomic Energy Agency in Vienna could not find any violation of the agreed measures, in particular in the dismantling of reactors, the reduction of enrichment, and the amount of enriched material. Germany, France and the United Kingdom therefore decided to honor the agreement.

With its withdrawal from the JCPoA, the United States not only announced that it would reinstate the sanctions against Iran but would also further tighten them. The first round of additional U.S. sanctions against Iran came into force at the beginning of August 2018; a second round followed at the beginning of November 2018 and was further tightened in April 2019 when the exemptions granted by the United States until November 2018 expired, allowing business to continue with Iran for six months.

As a reaction, the Iranian leadership in turn began to enrich uranium, which was not permitted under the JCPoA, and exceeded the contractually permissible limits on the quantities of uranium that could be processed.

Responses from the EU

In order to allow European companies to continue to trade legally (i.e. primarily in humanitarian goods) with Iran, the European Union initially used the so-called blockade statute. Regulation (EC) 2271/96 was adopted in late November 1996 to protect European companies from extraterritorial applications of legal acts adopted in third countries. Under this regulation, decisions of U.S. courts and authorities in connection with U.S. sanctions are not recognised and not enforced in the EU. Companies are prohibited from complying with requests or prohibitions based on such decisions.

In addition, in January 2019, Germany, France and the United Kingdom founded in cooperation with Iran the special purpose entity Instrument in Support of Trade Exchanges (INSTEX), which is intended to enable payment transactions for Iranian business without private banks running the risk of violating U.S. sanctions law. Although there is great interest in the instrument and Belgium, Denmark, Finland, the Netherlands, Norway, and Sweden joined the special purpose entity in November 2019, it has not yet been possible to conduct a successful transaction.

As a result of the targeted killing of Iranian General Qasem Soleimani by a U.S. drone in early January 2020, the Iranian government terminated all enrichment limitations to which the country had committed itself in the JCPoA. In addition, a first retaliatory measure was taken by Iran. A few days later, Iranian Revolutionary Guards attacked two U.S. military bases in Iraq. U.S. President Trump then announced further economic sanctions against Iran.

Trade Collapse

German Iranian trade in goods had already suffered a massive collapse in 2019. From January to November 2019, the volume of mutual trade in goods added up to 1.5 billion euros – a decline of around 50 percent compared to the previous year. German exports of goods to Iran decreased by 48.1 percent to 1.3 billion euros, Iranian exports of goods to Germany by almost 55 percent to 190 million euros (Federal Statistical Office 2020).

Position of the German Industry

Companies need reliable rules for all global transactions. The German industry has therefore submitted the following recommendations:

  • The German industry criticizes both the withdrawal of the United States from the agreement and the subsequent violation of the treaty from Iran on the enrichment of uranium. In a globalized world, partners must be able to rely on each other and contracts once concluded must be honoured.
  • The German industry strongly condemns extraterritorial applications of sanctions.
  • The use of the EU’s blockade status is an important political signal. It is beneficial to examine the effects in detail in order not to harm European companies in the end.
  • The German industry welcomes the efforts of the German government and the EU to maintain payment traffic.