Is it possible for the United Kingdom, France and Germany to continue with the Iran nuclear deal, as they claim? An examination of evidence from the past indicates this is virtually impossible. With President Trump’s vow to impose new U.S. sanctions against Iran, the deal will be dead.
Trump terminated U.S. participation in the Joint Comprehensive Plan of Action (JCPOA) on May 8, blaming its failure to “prevent an Iranian nuclear bomb.” Following his decision, Trump tweeted: “If we do nothing … the world’s leading state sponsor of terror will be on the cusp of acquiring the world’s most dangerous weapons.”
{mosads}His withdrawal from the 2015 agreement was a major defeat for French President Emmanuel Macron, who, along with German Chancellor Angela Merkel, engaged in high-stakes diplomacy to cajole Trump to remain in the deal and forge a new one that addressed his concerns. Macron responded to the president’s decision on Twitter: “France, Germany and the UK regret the U.S. decision to leave the JCPOA. The nuclear non-proliferation regime is at stake.” The three countries issued a joint statement emphasizing their continuing commitment to the agreement, citing its importance “for our shared security.”
Why would they wish to deal with the Iranian regime? France and Germany are notable for pursuing self-interested actions to advance their commercial interests. Likewise, EU countries have strong reasons to continue with the JCPOA, since the European Union’s trade with Iran, worth €27 billion in 2008, fell to €6 billion by 2013 because of the imposition of sanctions. That trade cannot withstand sanctions and required the JCPOA to recover dramatically.
The European Union’s loss during sanctions was China’s gain. Sino-Iranian trade grew at a staggering rate from $400 million in 1994 to $29 billion in 2008. It was worth more than the trade between the European Union and Iran (over $43 billion) in 2017, and both countries plan to increase the commercial relationship to $50 billion this year.
Iran paid a heavy price because of sanctions — total trade was just €87 billion in 2013, compared to €122 billion in 2017 — providing Iran with incentive to negotiate.
Trump knows that allowing other countries to trade with Iran, particularly those in the European Union, would defeat his goals. Moreover, he did not terminate the deal to hurt U.S. commercial interests and provide an advantage to companies in other countries. Unlike the Obama administration, which was lax in sanctions enforcement in its latter years, Trump is likely to be aggressive in targeting European companies and individuals who breach sanctions. He will pay particular attention to Chinese companies that have served as a safety valve for Iran.
Trump’s enforcement of sanctions is aggressive. The United States is probing Huawei for shipping products to Iran in violation of sanctions. Chinese company ZTE was fined $890 million for trading with Iran in violation of sanctions and faces the prospect of an additional $300 million penalty.
Earlier, Germany’s Commerzbank settled charges for breaking sanctions laws and money laundering by paying a fine of $1.4 billion in 2015. The bank was punished for concealing “hundreds of millions of dollars in transactions prohibited by U.S. sanctions laws on behalf of Iranian and Sudanese businesses.” Deutsche Bank also paid a fine of $258 million for sanctions breaches in 2015. French bank BNP Paribas agreed to pay $9 billion in 2014, charged with conducting “egregious schemes to evade detection” and concealing more than $190 billion in transactions for clients subject to U.S. sanctions, including Iran.
These examples illustrate the perils for any European companies contemplating business with Iran after Trump’s announcement. The White House warned that those “who fail to wind down such activities with Iran by the end of the period will risk severe consequences.”
It would be unwise for any company to breach sanctions. Aside from the prospect of eroding shareholder value through penalties, it is bad corporate governance to knowingly debilitate reputation, brand value and incur opportunity costs. The risk is not just to the corporate entity — executives can face prosecution and jail.
Corporations cannot afford to engage in wishful thinking like politicians. They are rational profit maximizers and the examples of ZTE, Commerzbank, and Deutsche Bank will chill European commercial activity with Iran. If any company tries to forget, shareholder activism — typically strong in Europe — will ensure that executives pay a high price.
President Trump should do a new Iran nuclear deal, minus Iran. This should be a deal with the United Kingdom, European Union, and allies in Asia such as India to collectively reimpose sanctions. Achieving such a deal would be a bigger victory than merely scrapping the JCPOA.
If Trump can persuade China that its own commercial interests require disengagement from Iran, he might precipitate a collapse of the Iranian regime through an economic chokehold. That would bring peace to the Iranian people and the region.
Sandeep Gopalan is a professor of law and pro vice chancellor for academic innovation at Deakin University in Melbourne, Australia. He previously was co-chairman or vice chairman of American Bar Association committees on aerospace/defense and international transactions, a member of the ABA’s immigration commission, and dean of three law schools in Ireland and Australia. He has taught law in four countries and served as a visiting scholar at universities in France and Germany.