The withdrawal of the US from the JCPAO didn’t come as a surprise. There were European concerns that the US would implement what had been one of Donald Trump’s electoral promises. This has led European leaders, such as French President Emmanuel Macron, attempt to lobby the US President to abandon such promise.

The Europeans have then been left with a pressing challenge on two fronts: first, maintaining their security interests with Iran by retaining what they hoped through dialogue leading to denuclearization; second, safeguard their commercial interests in Iran, threatened by the use of US sanctions as well as the potential negative reaction of Iranian authorities, if leading European companies were to comply to US requirements. 

EU-US Divergences

The current divergences between the EU and the US on the Iranian question rely primarily on a methodological and strategic understanding of what tools might be most effective to keep control of Iran’s nuclear ambitions. Both parties that Iran is not to be trusted on the nuclear agenda and has to be brought under control: the US thinks that the current multilateral agreement is just providing a window of opportunity for Iran to reap the benefits of a revival of trade relations without committing really to a long term abandonment of nuclear ambitions; Europeans on the contrary believe that the current agreement with all its flaws, is the only and most effective non-confrontational way of keeping a vision of Iran’s nuclear agenda, ultimately reining it with perspectives of economic cooperation. 

The current disagreement relies on a deep divergence in understanding global governance. Since the election of Donald Trump, the US administration has favored a realistic neo-bismarckian approach, openly rejecting multilateralism, as it felt it was used to watering down US interests for the sake of partners and competitors. On numerous occasions, the US has pulled out of regional or global multilateral agreements, in order to be able to express its own agenda with more independence. That was the case with Paris agreement on Climate, which the US left in 2018 or the TPP (Trans-Pacific Partnership trade pact), which the US left on January 30 2017, 10 days after Donald Trump was sworn in officially as US President. This comes in sharp contrast with the European’s approach, which is de facto, in view of the fundamental principles of the EU and regional negotiations, a multilateral one. Contrary to the US, none of the key European countries is powerful enough, economically or militarily, to be able to enter international negotiations on their own, without a multilateral framework to support their soft agenda. As the EU, despite its economic weight, is not a player speaking with a single voice, it cannot express the same degree of cohesion and potential coercion as  China, Russia or the US would. To some degree, as is the case in NATO, Europeans still depend very much on their relations with the US to assert their views globally. 

This is what happened with the JCPAO. Though all countries, including key European nations, had contributed to setting up the framework to control Iran’s nuclear ambitions, the key partner in the deal, had been clearly the US. As a matter of fact, the added value of the agreement for the Iranians came from the perspective of a lifting of US sanctions, which would liberate the economy and normalize the country’s position on the world stage. Europeans had played a key but intermediary role to help ease the US into a transition in its relation with Iran. As Iran’s economy was gradually opening due to the implementation of the agreement, European companies, have been benefiting most of the opening of the Iranian markets. Following the 2015 signature of the agreement, French consulting offices have opened local branches to help French firms perform market research and facilitate future local transactions. French and German trade delegations, despite occasional diplomatic tensions over Syria, Yemen, Iraq and Lebanon, had been become a usual feature of the newly shifting Iranian trade environments, not to mention Turkish companies and financial institutions, whom the US has been taking increasingly under scrutiny. Meanwhile, the US companies, who didn’t have the flexibility their Europeans counterpart enjoyed, were losing high ground on the expected opening of the Iranian markets. Such market opportunities would prove key to increase European companies’ global competitiveness in comparison to the US. Such a deal was the December 2016 USD 20 billion order of 100 Airbus jets by the Islamic Republic. Iran had also ordered 80 Boeing and 20 ATR, another European, French, aircraft producers. But the majority of the total estimated USD 38 Billion aeronautics deal would have benefited European companies most.^[i] Similarly, French Energy Giant Total signed a USD 5 Billion deal to extract natural gas. German carmaker Volkswagen had resumed exporting to Iran. 

In that regard, it comes as no surprise that from the current US administration’s perspective the current deal was neither balanced nor effective in its representation of US interests: while bearing most of the weight and risk, due its strong engagement to protect its allies in the Middle East, its efforts were benefiting mostly the economies of its partners. 

Europeans Maneuvers

As the US withdrew from the agreement, the situation turned into a litmus test for the European’s ability to actually operate without the support of the US, or even in defiance of the US. The primary question is whether the Europeans will be able to maintain the agreement afloat in a useful way, that is curbing Iran’s nuclear ambition. Despite strong assurances on all remaining parties, including Iran, China and Russia, that the deal would go on even without the US, nothing is less sure. What value does the agreement retain for the Iranians if the US is not part of the deal? The main value added that Europeans could have achieved was their capacity to bring the US into the agreement, leading to an easing of the US position, which seems impossible now. The remaining asset the Europeans could bring would be their capacity to pursue their economic development projects with Iran, despite US pressures and sanctions threats. 

As a matter of fact, Iranians made it very clear that they would not support the agreement if the Europeans were to comply with US demands.^[ii] In this perspective, to safeguard both their economic interests and their diplomatic leverage with Teheran, EU officials and European leaders are trying to find ways to minimize the impact of US sanctions. It is in this spirit that the European Commission encouraged the use of the Council Regulation No. 2271, the so-called “blocking status”, prohibiting EU entities and courts from complying with and enforcing the foreign sanctions laws listed in its annex, raising the prospect of financial penalties for those companies that do comply. It was drafted in 1996 to react to extra-territorial US threats on companies dealing with Cuba, Iran and Libya. As it had limited effect when used, recent discussions at EU level focused on the effective use of the claw back clause, under which European companies targeted by US sanctions could sue in Europe the US entity that brought the case against them, leading to potential freezing and seizure of assets of the US entity. 

In the 1996 case, enforcement of such measures has been extremely limited and it remains to be seen whether Europeans would be more prone to implementing such retaliations. Yet so far, Europeans shows signs of giving in. Donald Tusk, the President of the European Council, at the May 17, 2018 EU Western Balkans summit in Sofia stated that EU leaders “agreed unanimously that the EU would stay in the agreement as long as Iran remains fully committed” and that the “Commission had given a green light to be ready to act whenever European interests are affected.” Nevertheless French President Macron clearly stated at the same summit, that he didn’t want a trade war with the US and would not hold back Total from leaving Iran.^[iii]As the sanction bars foreign firms doing business in Iran from accessing the US banking and financial system, European companies who indeed have massive interests in the US or extensively using the US financial system are unlikely to risk playing around the sanction regime. This is the case of UK’s Pergas International Consortium, which signed a deal with National Iranian South Oil Co entailing a USD 1 billion investment in the Keranj oil field.^[iv]Though significant, it is likely to remain an exception.

In that regard, to offer new ways of circumventing US sanctions, EU leaders agreed to allow the European Investment Bank (EIB) to facilitate European Companies’ investments in Iran.^[v]  The tool, though innovative in the light of previous regimes, seems to be limited to companies with no US exposure. In that regard, the EIB would provide loans to projects European banks may reject, along with “one-off transfers” to Iran Central Bank. 

Other Competitors

Cooperation of Europeans with Russia and China to safeguard the nuclear deal and to enforce it might be just well wishing. Russia and China are unlikely to be affected by the US sanction regimes, as they are more flexible in managing the exposure of their entities to the US. Some analysts mention that Europeans could benefit from China’s experience in that area. This is the opinion shared by Tytti Erasto, a researcher on nuclear disarmament and non-proliferation issues at the Stockholm International Peace Research Institute in an interview to South China Morning Post.^[vi]Nevertheless, there seems to be little incentive for China or Russia to do so. As a matter of fact, both have actually a higher interest in excluding European competitors from the deal to preserve a stronger channel of communication with Iran, both for geo-strategic reasons and commercial ambitions. This is all the more valid, as Iranians, if fully stroke by US sanctions, will have no incentive in staying in a half-working deal, with Europeans forced to retreat on economic cooperation. Chinese CNPC is already positioned to replace TOTAL.^[vii]Meanwhile, Russia had also mentioned similar views hinting even that the end of the agreement would lift any restriction on a full Russia-Iran bilateral cooperation: "It might even be easier for us on the economic front, because we won't have any limits on economic cooperation with Iran. We would develop bilateral relations in all areas – energy, transport, high tech, medicine," Vladimir Yermakov, director general of the Department for Non-Proliferation and Arms Control at Russia's Foreign Ministry, was reported saying in different media outlets. ^[viii]

In that regard, it will be very difficult for the Europeans to have a weight without the US as, contrary to Russia and China they are acting under US restrictions. Russians and Chinese alike might be tempted to leverage their further support to the JCPAO by encouraging the Europeans in their current defiance of the US, to further weaken Washington’s position in other areas. Yet, Europeans will be able to further their defiance of US position only if they can limit the impact of US sanctions on their companies. Accordingly, unless financial and commercial compensation is provided by the US in favor of Iran’s isolation, Europeans may still be very reluctant, though not in capacity of opposing it.