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 the globalized world.

At the beginning of May, 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 have recorded steady growth of up to more than 20 per cent. 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.

However, German banks continued to be hesitant about financing projects in Iran. Since its withdrawal from the JCPOA, the United States has announced that it not only wishes to reintroduce sanctions against Iran, but to further intensify them. The first round of U.S. sanctions entered into force in early August 2018. Early November , the United States reimposed a second round of sanctions, reintroducing previously-lifted sanctions on Iran’s energy, shipbuilding, shipping, and banking sectors.

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.

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 expressly condemns the extraterritorial application of sanctions.
  • Europe’s deployment of the “blocking statute” makes sense as a political signal. However, its effects and potential externalities have to be studied closely in order not to harm European companies.
  • The Federal Government and the European Union (EU) should examine how payment transfers with Iran can be maintained.