Last Tuesday, Donald Trump announced the U.S. are withdrawing from the Iran nuclear deal, putting the future of Tehran’s nuclear ambitions at stake. The pull out decision did not only leave Iran crippled by the reapplication of sanctions but also damaged the trade deals of other signatory countries, especially from the EU. At the moment, European leaders are brooding over Trump’s decision, trying to reduce the effect as much as they can. But how did we end up to this point and why does the Iran nuclear deal matter for the EU?
In 2015, the Joint Comprehensive Plan of Action (JCPOA), which is also known as the “Iran nuclear deal” was signed between Iran and the P5+1 (China, Russia, United States, United Kingdom, France + Germany). Additionally, the EU as whole subscribed the agreement. The deal imposed very limiting restrictions on Iran to control its nuclear development program in exchange for lifting the economic sanctions imposed on the country. The President of the United State had the prerogative to examine and certify compliance with the agreement. In case of failure to respect the negotiated provisions, sanctions would have been reintroduced. President Trump has given signals of the withdrawal for a while. Yet, after last Tuesday, he made it certain that the U.S. will no long take part in the agreement. Trump scorns the deal as “the worst deal ever” and thinks its provisions are not strict enough. According to him, it should be replaced with a better one, even though he doesn’t have an explicit alternative plan. Admittedly, there has been various pronouncements about the generosity of the deal and surely some modifications could have been implemented. Nevertheless, it was a crucial agreement by whom each country had its own benefit. Especially with respect to such a sensitive issue, and with lack of alternatives, the pull out decision may harm all the participating states. “What is a better option? I don’t see it. What is the what-if scenario or the plan B?” declared worried the French President Macron, criticising Trump’s decision.
The US withdrawal has a critical impact on subscribing countries of the Iran nuclear deal, especially on EU Members. To understand this impact, it’s worth having a look at the trade history of the last few years between Iran and the EU. Before the imposition of sanctions on Iran in 2012, the EU was the country’s biggest trade partner. Sanctions undermined economic exchanges between two sides. However, trade flows started recovering after the 2015 deal. In 2017, EU exports to Iran amounted to €10.8 billion and imports were worth €10.1 billion. The value of imports was nearly the double of 2016 figures. The majority of imports from Iran were energy-related commodities (such as oil and other fuels), whereas the exports were mainly represented by machinery and transport equipment.
Still, the most important impact is observable on big size transactions between Iran and the EU. Among them, it is important to mention how:
- Total (French) signed a deal worth up to $5 billion to help Iran develop the world’s largest gas field, South Pars;
- Norway’s Saga Energy signed a $3 billion deal to build solar power plants;
- Airbus concluded a deal to sell 100 jets to IranAir;
- Germany’s Siemens signed contracts to upgrade Iran’s railways and reequip 50 locomotives
- Italy’s state rail firm Ferrovie dello Stato signed a $1.4 billion deal to build a high-speed railway between Qom and Arak
- France’s Renault signed a joint venture deal to boost Renault’s production capacity in Iran to 350,000 vehicles a year.
Even though primary sanctions restrict American companies to do business with Iran – thus, not undermining EU companies – secondary sanctions discourage US firms from doing business with non-US companies which do business with Iran. If these sanctions are applied aggressively, then all the deals stated above and many more may be at stake.
The EU is unwilling to abandon the agreement and it is currently trying to rescue it without the presence of the U.S.. The French Minister for Economic Affairs, Bruno Le Maire, said Europe has to defend its economic sovereignty. He called on the European Comission to look into possible retaliatory measures. The EU is also in contact with the U.S. Treasury Secretary Steven Mnuchin to seek exemptions for European companies and secure the deals that they have already undertaken in Iran.
It is early to predict the future of the Iran nuclear deal but the signatories of the agreement have been enjoying the outcomes of the developing diplomatic relationships with the country. This happened thanks to the nuclear deal and they are willing to continue without the US. It’s matter of facts that the business deals will be at stake under the current level of uncertainty undermining the validity of the deal. Still, the EU is keen on softening the impact of the withdrawal decision of Trump.