Europe Searches for a Way Around Re-Imposed U.S. Sanctions on Iran
Since President Trump’s announcement in May of reimposing harsh economic sanctions on Iran, European countries have struggled to implement an alternative paying mechanism to continue their purchasing of oil and other Iranian goods. Although the U.S. pulled out of the Joint Comprehensive Plan of Action, known as the Iran nuclear deal, Iran and the other countries within the deal have remained.
The first round of the sanctions, which took effect in August, targeted “Iran’s access to U.S. dollars, metals trading, coal, industrial software, and auto sector.”
The newest sanctions on Iran officially took effect Nov. 5, with over 900 Iran-related targets, such as banks and subsidiaries, people, ships, and Iran Air. Restrictions have been placed upon Iranian ports, shipping companies, and the global sale of Iranian oil.
European companies have largely been forced to choose between the small Iranian market and the vast American market. Companies such as Mercedes-Benz, French automaker PSA, and Geneva-based Mediterranean Shipping Company have already halted activities in Iran. French oil giant Total SA and Royal Dutch Shell were two of the first energy companies to put an end to crude oil purchases from Iran. Now, both companies, fearing repercussions from the U.S., must divest from their Iranian assets.
For the EU governments hoping to continue their relations with Iran, as a method of sidestepping the Dollar-dominated banking system, one option is to create a special purpose vehicle (SPV). This would be a separate, legal entity to help companies continue trading with Iran. However, in trying to avoid provocation of the U.S., no European country has agreed so far. The SPV, trading in euros, would represent greater European economic independence from the dollar.
European officials explained that due to the sanctions, they may only be able to maintain 20 to 30 percent of their previous trade with Iran. In a released joint statement, parties of the Joint Comprehensive Plan of Action stated that they “have committed to work on, inter alia, the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran’s export of oil and gas.”
To keep the oil market stable, the U.S. granted waivers to eight countries, including Turkey and China, to continue buying Iranian oil for six months. During this period, the importing country is required to deposit Iran’s revenue in an escrow account, where the money can only be used by Iran for humanitarian purposes.
Due to an exemption, Iraq will be allowed to continue importing electricity and natural gas from Iran. Iranian officials have also declared that Iran will be pursuing a 2025 vision plan to reach $20 billion worth of exports to Iraq.
For now, some of Iran’s trading partners have signaled support for the struggling nation. Russia, an ally of Iran, has said that they will keep buying and trading oil and gas from Iran. India and China have also noted similar intentions.