Europe Won't Rally Around U.S. Sanctions Against Iran

(Bloomberg) -- Driving a wedge between the U.S. and Europe has long been a top policy goal for President Vladimir Putin of Russia. Now, another oil regime, Iran, shares that ambition. And even though Iran and Russia don’t have a realistic shot at success, President Donald Trump’s ham-handed treatment of his European allies brings them just a little closer to achieving their objective.

Trump’s attitude toward Europe is clear: He considers the European Union a collection of puffed-up small countries dependent on the U.S. for economic survival and military protection. In Trump’s view, these little nations will always cave to pressure. That stance was conveyed by the imperious tweet from the the newly arrived U.S. ambassador to Germany, Richard Grenell, who ordered German companies that do business in Iran to “wind down operations immediately.” Grenell has since explained that the tweet followed “the exact language sent out from the White House talking points” on Trump’s decision to withdraw the U.S. from the Iran nuclear deal.

The furious reaction to the tweet in Germany’s political circles hasn’t elicited so much as an apology from the U.S. Nor was Trump too worried about the joint statement by Germany, France and the U.K. indicating that these countries intend to stick to the Iran agreement. It’s clear from a background briefing by two senior State Department officials that the U.S. didn’t have a detailed discussion with the Europeans before reneging on the agreement. Asked if the U.S. was prepared to sanction French and German companies that do business in Iran, one of the officials said the “discussions” were just starting.

The Putin government, which, like the Europeans and the Iranian president, Hassan Rouhani, announced it would stick to the nuclear agreement, just loves this kind of thing. Ivan Danilov, a columnist for the government propaganda outlet RIA Novosti, used the occasion to predict a “big Middle Eastern war” and claim that “the so-called transatlantic solidarity is the first victim of this conflict” as Trump “approaches a state of proud solitude on the international stage.”

That view is probably as delusional as the Trump team’s apparent conviction that Europe will always roll.

There is little respect for Trump in European capitals, except, perhaps, in Warsaw and Budapest, which don’t call the shots on trade. French, German and U.K. politicians consider his presidency an aberration and a temporary setback. The current plan, inasmuch as there is one, is to outlast Trump and preserve all the frameworks he’s trying to break until the next U.S. president takes office. That’s the case with the Paris climate accord as much as with the Iran deal. No one in Moscow or Tehran should expect moderate leaders such as Chancellor Angela Merkel, President Emmanuel Macron or, especially, Prime Minister Theresa May, to suddenly turn anti-American just because Trump is in the White House.

But that doesn’t mean the core European powers are going to accept Trump’s contempt. Europeans have stood up to the U.S. before. The most relevant precedent concerns the extraterritorial Cuba sanctions in the Helms-Burton Act, which Bill Clinton signed into effect in 1996. The European Union’s answer was a regulation protecting European companies from such sanctions. It rendered U.S. rulings against firms that defied the U.S. restrictions unenforceable in the EU. The regulation wasn’t an empty threat: For example, it was upheld in 2007 when Austria forced one of its banks to reinstate the accounts of 100 Cubans it had closed while being taken over by a U.S. company. 

Europe’s stance on Cuba allowed European companies, such as Spain’s Sol Melia hotel group and France’s Altadis tobacco company, to remain major investors in Cuba after Helms-Burton. The U.S. sanctions did scare off other European investors, especially those with U.S. operations: The EU couldn’t protect them. But, as Joaquin Roy of the University of Miami wrote, “The true effect of the Helms-Burton law has been to foster unity and galvanize opposition to it on the part of all the governments of Europe and Latin America.” In 1997, in the face of European action at the World Trade Organization, the U.S. compromised by suspending the law’s most onerous provisions.

There’s no reason for Trump to count on weaker resistance today, especially since Iran presents a far greater economic opportunity than Cuba did. In Cuba, the biggest European investments were in the hundreds of millions of dollars. Iran, a country that holds 7 percent of the world’s entire mineral reserves, attracted $7.38 billion in approved foreign investment projects between January 2016 and September 2017 after taking in only $2 billion in 2015. Most of the new money is coming from China and the EU. Still, the U.S. sanctions could have deep consequences: If France’s Total, which has a big U.S. operation, is forced to pull out of Iran’s South Pars project, China’s CNPC, which is now Total’s partner, would likely take over. It’s not clear to the Europeans why they should leave the investment opportunity to the Chinese. Total wants the EU to fight its corner.

Besides, last year, Germany’s exports to Iran reached 3 billion euros ($3.6 billion), and the Hamburg-based Europaeisch-Iranische Handelsbank handled 10 billion euros in transactions.

The stakes are higher for the U.S. than the Trump administration appears to realize. With its influence on SWIFT, the Brussels-based payment-facilitation system, and its trade power, the EU is capable of blunting U.S. sanctions. If they prove ineffective and Iranians merely rally around their government as Russians have done in the face of American restrictions, the U.S. may be exposed as less of a fearsome global policeman than Trump would like it to be.

To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.net.

To contact the editor responsible for this story: Max Berley at mberley@bloomberg.net.

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