The European Union is pushing companies to defy the US over its unilateral imposition of sanctions against Iran, with Brussels working to set up a special purpose vehicle to act as a conduit for deals that would otherwise fall foul of Washington.
The plan, also backed by China, France, Germany, Russia and the UK, comes as the so-called E3/EU+2 powers seek to uphold the hard-won Iran nuclear deal after the US decided to pull out of the 2015 agreement and impose fresh sanctions on Tehran.
But it also marks a new phase in the EU’s battle against what it sees as US extraterritoriality. European companies have long complained that they are unable to do deals that are legal under EU laws because of the risk of retaliation from the US.
Even the EU’s own plans to invest in Iran have fallen victim to such extraterritoriality. The European Investment Bank had been set to fund several EU projects in Iran - but the prospect of breaching US sanctions has put such plans on hold.
EIB President Werner Hoyer said in July that the EIB was unable to operate in Iran, despite EU sanctions having been mostly lifted. People at the EIB are concerned about the risk that it might lose access to the essential dollar funding market.
“There is no European bank which is presently able to do business in and with Iran,” said Hoyer in July. “We have to take note of the fact that we would risk the business model of the bank if we were active in Iran.”
FEW DETAILS
There are few details of how the SPV plan will work, but E3/EU+2 foreign ministers have pledged to work together to develop payment channels and facilitate trade with Iran for companies “pursuing legitimate business” with the country.
“EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue trade with Iran, in accordance with European Union law,” said EU High Representative for Foreign Affairs Federica Mogherini, who chaired the meeting.
The EIB’s problems are not unique. Several European companies have halted activity in Iran since the US pulled out of the deal in May. Airbus, Renault, and British Airways are among dozens of corporates that have cut commercial ties with the country.
That is despite their activity there being completely legal under EU law. But companies are concerned about breaching US sanctions - and the risk Washington might fine them, ban them from the US, or ban them from using the dollar system.
Four years ago, US authorities fined BNP Paribas US$8.9bn after the French bank pleaded guilty to breaching US sanctions against Sudan, Iran and Cuba. As well as the fine, the bank was slapped with a ban on clearing US dollar payments for a year.
QUESTION OF SOVEREIGNTY
The withdrawals echo what has been happening in Russia, where European banks pulled out of perfectly legitimate deals – including a potential Eurobond for the sovereign – after US authorities indicated they would look badly on such transactions.
In April, European exchanges and clearing houses had to halt processing trades in the London-listed energy producer EN+ after the US imposed sanctions against its owner Oleg Deripaska – despite him not being included in the EU’s own sanctions.
“The rising unilateralism by the US is encouraging its long-standing partners to question the dollar domination in global markets,” said Elina Ribakova, an analyst at thinktank Bruegel, who added that the issue was on several countries’ radars.
For some, the SPV is a first step towards addressing that issue of extraterritoriality. European Commission President Jean-Claude Juncker has even floated the idea of EU countries no longer paying for trade in dollars, but in euros.
“It’s basically a question of our foreign policy sovereignty,” tweeted Carl Bildt, a former prime minister and foreign minister of Sweden. “We decide our Iran or whatever other policy. Good or bad. But not the US Treasury.”
However, it remains to be seen whether any companies or banks sign up to the SPV – or even whether it will be enough to shield them from Washington’s wrath. Even trading via the SPV might be considered by the US to be a breach of sanctions.
John Bolton, US national security adviser, responded to the mooted mechanism to bypass US sanctions by saying that the US will be “aggressive and unwavering” in its enforcement of sanctions.
“The European Union is strong on rhetoric and weak on follow-through,” he said. “We will be watching the development of this structure that doesn’t exist yet and has no target date to be created. We do not intend to allow our sanctions to be evaded by Europe or anybody else.”
