U.S. Sanctions May Overwhelm Europe’s Efforts to Save Iran Deal

Tehran’s threat to ramp up its nuclear program leaves Europe with stark choice: keep trade flowing with Iran or kill deal by re-imposing sanctions

By Laurence Norman, WASH POST

That means Europe may soon face a stark choice. If its leaders can’t free up enough economic benefits to persuade Iran to abide by its commitments, they will have to decide whether to kill the agreement by reimposing European sanctions suspended as part of the deal.

Still, European diplomats believe they have a window of opportunity to rescue the pact, with some saying they don’t expect a crunch point to come for months.

On Wednesday, President Hassan Rouhani warned that Iran will abandon limits on stockpiling low-enriched uranium and heavy water, two materials that can be used to make atomic weapons. He warned that Tehran may take bigger steps to ramp up its nuclear program in 60 days if key European countries don’t find ways to aid its flailing economy.

That threat places at grave risk the 2015 nuclear deal, which sought to restrain Iran’s nuclear activity in exchange for a loosening of economic sanctions that brought fresh investment and trade to the Islamic Republic.

Last year, the U.S. withdrew from that deal and imposed tough economic sanctions that have already forced Iran’s oil exports to below 1 million barrels a day, compared with 2.5 million barrels previously. The U.S. says lost shipments have cost Iran $10 billion.

Since then, France, Germany and Britain, who helped negotiate the 2015 deal, have led efforts to keep trade and investment flowing to Iran, despite the U.S. sanctions, in the hopes of keeping Tehran from pulling out of the accord.

That work has grown harder as the Trump administration continued to ratchet up economic pressure on Iran, essentially forcing foreign firms to choose between ending Iran ties and losing access to U.S. markets.

Iran has been pressing for trade, particularly in oil, to return to levels it was at a year ago before the U.S. pulled out of the deal, according to European officials.

However, Europe “issued good statements, but in practice, nothing happened,” said Russian Foreign Minister Sergei Lavrov on Wednesday, speaking alongside his Iranian counterpart.

In a joint statement Thursday, the foreign ministers of France, Germany, Britain and the EU urged Iran to continue to implement its commitments in full.

“We reject any ultimatums,” they added.

Over the past few months, the EU has worked to show it remains committed to its ties with Tehran.

The two sides have collaborated on civil nuclear work, including projects to safeguard Iranian nuclear-energy infrastructure and redesign some of Iran’s main nuclear facilities so they would pose less of a nuclear-weapons threat in the future.

Some European governments have organized export credit schemes, although these haven’t advanced. They have promised investment in Iranian transport infrastructure and provided advice for smaller European companies who have no U.S. ties and want to trade with Tehran.

The core European effort has been the establishment of a French-based company, with an Iranian mirror entity. It aims to safeguard trade by providing an alternative payment system that avoids direct financial transactions, which are easily targeted by American sanctions.

There have been no transactions under the new structure but European officials hope the first will come by the summer, possibly dissuading Iran from taking bigger steps to breach the nuclear agreement. European and Iranian officials have said they are working on agreeing some kind of oil transactions.

European officials also said Iranian officials signaled they don’t plan to build up Iran’s stockpile of enriched uranium and heavy water for the next 60 days. If Iran kept its stockpile at levels it was last reported at in February, Tehran may avoid breaching the agreement until late this year.

“The physical red line is not in July,” said a senior European diplomat. “It’s more in the fall—and late in the fall.”

European leaders, gathered for a summit in Romania on Thursday, discussed Iran’s announcement and said they still hoped the accord could be saved.

“We have big disagreements with Iran…but we still count on a diplomatic way of solving this,” German Chancellor Angela Merkel said. “Our hand remains extended. We believe that the agreement is good for both sides.”

Yet there is little prospect for re-establishing the trade ties that emerged under the nuclear deal. Last year, EU trade with Iran fell to €18 billion ($20.19 billion) from €21 billion in 2017. Europe’s monthly imports from Iran have tumbled to €82 million in February from €1.2 billion last year, according to the EU’s statistics agency.

Indeed, larger European energy, auto and manufacturing companies have left Iran en masse for fear of multibillion-dollar U.S. fines. European financial companies also have steered well clear.