Europe has signaled that the rift with the U.S. over Iran is significant even if both sides would like to see change in Iranian behavior. It is unclear how this rift will play out with regard to sanctions on European companies doing business with Iran, especially those buying oil. Both sides are likely to take stands on sanctions in principle, but then negotiate a series of individual time or condition-based exemptions or waivers. This may limit any reduction in European oil imports, even without a Saudi guarantee to make up a shortfall.
U.S. Secretary of State Michael Pompeo’s May 21 speech on Iran policy provided a list of U.S. grievances related to Iranian government actions both internally and in the region. The speech, while short on specifics, laid out three lines of U.S. effort against the Iranian regime: 1) applying unprecedented financial pressure on the regime; 2) deterring Iran militarily in concert with regional allies; and 3) advocating for the Iranian people. In conjunction with line of effort #2, Secretary Pompeo also threatened unspecified “bigger problems” for Iran if it restarted their nuclear program. What constitutes both “restarting” and “nuclear program” were left unclear in the speech. Pompeo then went on to list twelve actions that Iran must undertake before Washington would lift sanctions or normalize relations. As Pompeo noted, some European states on are on board with some of those demands, but in the wake of Washington’s actions with regard to the JCPOA, there is no longer a framework for the U.S., its European allies, or Russia or China on how to move forward to achieve even those demands on which they all agree.
What is currently happening is the initial diplomatic and economic maneuvering over whether Washington’s threat of secondary sanctions on European and other non-Iranian firms will suffice to create a new international framework more in line with the Trump administration’s priorities. The U.S. has begun re-imposing sanctions that were suspended as part of its participation in the JCPOA, but only those directly on Iranian entities were restarted immediately. Others have a “wind down” period allowing companies to disentangle themselves from commercial transactions with Iranian entities but also allowing for further negotiations with European allies and UNSC members such as Russia and China over what comes next.
The response from the European participants to the JCPOA so far has been two-fold. First, senior diplomats, while agreeing that Iran’s behavior in areas such as ballistic missiles, terrorism, and human rights are unacceptable, have expressed extreme skepticism that a comprehensive agreement or treaty addressing all of these issues is feasible. Second, senior government officials such as French Foreign Minister Jean-Yves Le Drian have expressed willingness to continue with the JCPOA obligations, including protecting European firms in their ongoing commercial activities with Iran: “… we decided to implement a mechanism which will allow us to ensure that the European enterprises deal with Iran via financial mechanisms that allows immunizing investment without being dependent on U.S. dollar or on sanctions adopted by the US.” More formally, at a recent EU meeting, the body announced it would update its blocking regulations by August 6, the date on which U.S. secondary sanctions could begin to apply to European firms. This signaling has two purposes – to show Iran that some adherents to the JCPOA intend to continue to comply with its provisions (and therefore Tehran should as well), and to indicate to Washington that Europe is not buckling to Washington’s pressure.
If no further agreement is reached between the U.S. and Europe prior to August 6, then European firms will be stuck in between two competing sets of laws/rules, and firms will have to make individual decisions on compliance and risk. It is also possible that the EU will signal that it could impose reciprocal sanctions on U.S. firms that do business in Europe. Even if August 6 arrives with no agreement between Brussels and Washington, the Trump administration could still waive sanctions on specific European firms or activities. This is the likeliest outcome –Washington and Brussels taking stands on sanctions in principle, but then negotiating a series of individual time or condition-based exemptions or waivers.