US President Donald Trump's unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) has led all other signatory states to work towards salvaging the agreement. With international companies facing a new dynamic and risk profile, innovative steps need to be taken to sustain the deal, especially in response to Iranian expectations.
Following President Hassan Rohani's statement on 8 May, Iran will work with European signatories to assess whether It is possible to continue to implement the agreement without the United States. Supreme Leader Ayatollah Ali Khamenei publicly summarized Iran's priorities on May 9: "If you want to make a deal, make sure that there are practical guarantees, otherwise they will do what the US has done to us." Officials are facing a major test: Will they ensure that the pride of the nation is protected or not? The pride and interests of the nation must be truly secured. "
In other words, the new JCPOA construct ̵
The challenge for the EU is to provide guarantees to Iran, while protecting European companies from US secondary sanctions. In this way, the EU will need a high level of cooperation with Tehran, especially through incentives continue to participate in the Iranian market. Given that large European companies have complex dependencies on the US market, banks and stock exchanges, it is expected that the EU will focus primarily on small and medium-sized enterprises (SMEs) to engage in Iran , Some larger companies may request licenses from the US Treasury, but the majority of companies that continue to do business with Iran will either be less active in the US market or ready to accept European protection.
The Rohani administration will look for an outcome to prove that its extensive diplomatic engagement with the West was not a waste of time and resources. There must be clear benefits for Iran to be committed to the JCPOA, beyond the limited progress so far. Of particular symbolic value would be the supply of Airbus aircraft, which are an integral part of the JCPOA. Due to financing problems, only three of 100 Airbus passenger jets have been delivered so far. While Airbus is European, it requires US Office of Foreign Assets Control (OFAC) licenses for sale to Iran, as more than 10% of its components come from the United States. The Trump government revoked the Airbus license and gave Iranian and European governments three months to find a solution.
Beyond symbolic expectations, Tehran is likely to compare gains against the toughest years of sanctions (2012-15). Therefore, it can reasonably be expected that Iran will seek EU guarantees on the following topics:
- Financial Transactions: So far, banking relations have not been normalized, in part due to concerns of first-tier banks about US sanctions and low compliance standards in the Iranian financial sector. The reintroduction of US sanctions will further hamper banking relations, making it more difficult to finance projects in Iran. The key mechanism will be the involvement of European governments and potentially central banks in financing projects to both facilitate and protect businesses. The latter could include the establishment of emergency credit lines, including through special purpose vehicles, and, as some have argued, an agreement to establish a European commercial bank, consisting of state and lower banks, to facilitate European engagement with Iran. Other ways of risk-sharing include working with China to develop novel financing mechanisms for all international companies. The EU must also protect SWIFT from US sanctions, as the repayment blacklist of the Islamic Republic would stifle international banking relations with Iran. Another potential instrument could be to help European companies obtain the necessary OFAC licenses to continue their trade with Iran. At the same time, Iran must continue the planned reforms in its financial sector and eliminate the other administrative and legal challenges facing European companies in Iran.
- Oil sector exports continue: In the period since JCPOA was introduced in January 2016, Iran's crude oil and condensate exports have risen from 1 million to 2.5 million barrels a day. Tehran will insist that this level be maintained and even increased in line with production. More than 80% of these exports go to Asia. The E3 + 2 will have limited impact on whether buyers like Japan and South Korea will continue their imports. What is feasible, however, is that the E3 + 2 guarantees that they will offset losses that may result from the re-imposed US sanctions. The E3 + 2 could also decide to help buyers of Iranian oil and condensates request exemptions from the US authorities. Petrochemical exports were also an important factor in Iran's return to global markets, and Tehran will seek similar guarantees. In this context, access to ports, transport insurance and related services must be further protected against secondary sanctions.
- Technology Transfer and Foreign Investment: One of the main motivations for Iran to seek sanctions was to attract European investment and technology. Despite limited progress so far, it is no secret that Iran continues to need foreign investment and technology to create the jobs it needs. Although Asian and Russian companies will continue their activities, Iran will insist on the latest European technologies. In this scenario, the EU will have no choice but to withstand the pressure of the US, not only by blocking, but also by counter-sanctions and possible action by the World Trade Organization. How far such initiatives will succeed remains to be seen, but Tehran will certainly demand guarantees that the EU will facilitate the flow of investment and technology. In this sense, E3 development banks and the European Investment Bank have large capacity to support investment either through loans or through lending.
The above initiatives may not meet all expectations in Iran. Presidential Adviser Hamid Aboutalebi tweeted on May 11 that "guarantees must include all of Iran's political, economic and security rights". However, economic guarantees would go a long way towards maintaining the JCPOA.
If Iran and The E3 + 2 can define and implement a viable framework for protecting future investment, and many companies, especially European small and medium-sized enterprises, would be in a better commercial position than before. It would certainly be ironic if the US withdrawal effectively benefited Iran on many levels. This in itself, namely the potential to isolate the United States in a multilateral agreement, could be an incentive for Iran to make the new deal work.
However, if the parties do not maintain the agreement, there will be a new layer of distrust of the West that will influence future Iranian decisions. However, in this time of geopolitical uncertainty, one thing is certain: without the Western companies, the main beneficiaries of the situation will be Russia, whose companies are aggressively pursuing Iranian opportunities, and China, which has long surpassed Europe as the largest country in Iran's trading partner.