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On 8 May 2018, US President
Donald Trump announced the withdrawal from the Iranian nuclear
agreement (Joint Comprehensive Plan Of Action, JCPOA), reached by the
P5+1 countries (USA, Russia, China, France, United Kingdom and
Germany) in July 2015 and implemented in January 2016. This provoked
the reintroduction of sanctions against Hassan Rohani as well as
secondary sanctions against companies (also those Europeans’ ones)
involved in many activities with those Iranian entities subjected to
sanctions. Looking for mediation and support from the European Union
(EU), Iran re-started its nuclear activity by moving further away
from the terms of the Agreement. Firstly, in this article, we will
discuss about the content of the JPCOA. Secondly, the perplexities
and reflections of the experts on the Iranian nuclear issue will be
brought to light, with particular attention to the EU role, managing
to avoid repercussions on its security and its economy in the medium
term. In conclusion, you will found a framework about the high-level
risks considering various factors: on the one hand, the EU’s efforts
to respect the Agreement and on the other hand the limits of maneuver
in a complex scenario in which US secondary sanctions seriously
affect the European economy.

1.
What is JCPOA?

The
JCPOA is an international agreement on nuclear energy: it was reached
between Iran, the P5 + 1 (the five permanent members of the United
Nations Security Council and Germany) and the EU on 14 July 2015 in
Vienna 1.
The Agreement provides that:

  1. Iran has to maintain a level of
    enrichment of uranium not exceeding 5%, below the threshold of 90%
    necessary to make nuclear weapons2,
  2. Iran has to eliminate existing
    stocks of 20% enriched uranium, which will be converted into reactor
    fuel or brought to an enrichment level below 5%3,
  3. Centrifuges are used to enrich
    uranium and the agreement provides for the prohibition of installing
    new ones. Moreover it must reduce the number of the active ones by
    two thirds, bringing them from 19 thousand to 6 thousand4,
  4. Iran will redesign and rebuild a
    modern heavy water research reactor in Arak, based on an agreed
    conceptual project, using enriched fuel up to 3.67%5,
  5. Western countries announce the
    lightening of the sanctions against Iran. Tehran will have access
    to:
  • $ 4.2 billion from oil sales,

  • about $ 1.5 billion from gold
    and other precious metal imports,

  • petrochemical exports and the
    Iranian auto industry and
    easier access to
    humanitarian transactions,
  1. The embargo on conventional
    weapons to Tehran will be removed in 5 years but the ballistic
    missile one remains in force for 8 years6.

After
the signature of the Agreement, High Representative Federica
Mogherini and Iranian Foreign Minister Javad Zarif stated that:
“Today is an historic
day. It is a great honor for us to announce that we have reached an
agreement on the Iranian nuclear issue […] This is an historic day
also because we are creating the conditions for building trust and
opening a new chapter in our relationship. This achievement is the
result of a collective effort […] Thanks to the constructive
engagement of all parties, and the dedication and ability of our
teams, we have successfully concluded negotiations and resolved a
dispute that lasted more than 10 years
”7.
From the White House, US President Barack Obama said: “Today,
after two years of negotiations, the United States, together with our
international partners, has achieved something that decades of
animosity has not – a comprehensive, long-term deal with Iran that
will prevent it from obtaining a nuclear weapon […] In those days,
the risk was a catastrophic nuclear war between two super powers. In
our time, the risk is that nuclear weapons will spread to more and
more countries, particularly in the Middle East, the most volatile
region in our world
”8.

The
agreement, welcomed by the entire international community, was signed
on the eve of the elections in the United States and Iran, which saw
the elections of the new republican administration and the
reconfirmation of Hassan Rohani in Tehran. In 2016, one year after
the Agreement’s implementation many banks still hesitated to
undertake business affairs with Iran as they risked incurring the
primary US sanctions (which according to the Agreement remained
unchanged). Tehran complained that Washington was not doing enough to
reassure European banks and companies that wanted to undertake some
business affairs with Iran because they feared legal consequences
from the US. For its part, Trump’s administration was arguing that
Iran kept conducting missile tests between October 2015 and March
2016, despite the ban of the Agreement9.
On 8 May 2018, after two years of mutual accusations, President
Donald Trump announced his withdrawal from the JCPOA claiming that
the latter did not contain sufficient measures to halt Iran’s
progress towards a military nuclear capability nor was it useful to
limit its missile arsenal and counteract its activities in the Middle
East. Shortly thereafter, Washington reinstated all the sanctions
that had been suspended, including those affecting foreign companies
who were undertaking business affairs with Iran, many of which are
located in the EU.

Specifically,
US reinstated sanctions against Tehran:

  1. On the purchase of dollars by
    the Iranian government;
  2. On gold/precious metals’ trade
    ;
  3. On direct or indirect sale,
    supply and transfer to or from Iran of graphite, raw metals or
    semi-finished products such as aluminum, steel, coal and software
    for the integration of industrial processes;
  4. On significant transactions
    involving the purchase or sale of Iranian national currency (rial),
    or the maintenance of accounts denominated in rial outside Iranian
    territory;
  5. On the purchase, subscription or
    facilitation of the emission of Iranian sovereign debt;
  6. On the Iranian automotive
    sector10.

Overall,
secondary sanctions are aimed at companies that trade with Iran: they
expect that all of them, wherever they are headquartered, must
respect US sanctions when dollars are used to carry out transactions.

2.
Expert opinion

After
the US withdrawal, the EU repeatedly urged Iran to refrain from
initiatives that could undermine the Agreement and welcomed any
diplomatic efforts to find a way out of the crisis with Tehran.
However, starting from January 2019, Iran has taken “preliminary
activities for designing” a modern process for 20% uranium
enrichment for its 50-year-old research reactor in Tehran, signaling
a new danger for the nuclear deal11.
The Iranian nuclear agreement states that the enrichment threshold
must remain stable at 3.67%. Despite the European warnings, this
first phase was followed by another in July 2019. Indeed, after the
announcements in January, Tehran responded to the threats and
officially started the second phase of the plan by increasing its
uranium enrichment level, causing a stir among European countries
that asked for more time to mediate even with the US, but without
success12.
On 4 September 2019, Iranian President Hassan Rohani announced the
start of the third phase of withdrawal from the Agreement on the
nuclear program. Tehran specified that the Iranian nuclear agency
wanted to implement the extension of the internal nuclear technology
and applying its own scientific research13.
Since that day, 20 IR-6 model centrifuges and 20 other IR-4 models
have been activated and the further acceleration in the uranium
enrichment process was announced. At this moment, experts estimate
that, in less than one year, Iran would have the amount of uranium
needed to produce an atomic bomb14.

According
to Professor Sven Biscop, honorary member of the European Security
and Defense College (ESDC), director of the “Europe in the world
program” at the Egmont Institute and professor at Ghent University,
the EU has to develop its vision and translate it into an operational
strategy continuing to support the Agreement with Iran. According to
him, the priority is to convince Iran to do the same. In order to
support the Agreement, the EU should seek to cooperate with other
permanent members of the UN Security Council (China and Russia above
all)15.

According
to Steven Blockmans, Senior Research Fellow and director of the
Foreign Policy and Institutions Unit of CEPS, the EU has to work to
maintain the Agreement and reduce the effects of US restrictive
measures on European companies, creating mechanisms to protect the
legitimate interests of investors and economic operators. According
to him, it would be up to the European Commission to prepare such
plans, creating a long-term energy partnership and a bilateral
investment agreement directly with Iran16.
On 6 August 2018, the EU adopted the “Blocking Statute”, which
allows European operators to obtain compensation for damages
resulting from US extraterritorial sanctions from the people who
caused them. It also allows EU operators to recover in court damages
caused by the extra-territorial application of the specified foreign
laws. Moreover, it prohibits people from the EU to comply with these
sanctions, unless the Commission authorized it17.

Moreover, as it has been pointed
out in the publication of the German Marshall Fund “Europe
Needs to Go Forward with the Iran Nuclear Deal, With or Without the
United States
”, the
EU must act as guarantor of the Agreement, following the example of
France which, on 15 July, proposed to Iran the opening of a $ 15
billion credit line to save the nuclear deal18.
European countries are not willing to to defend Iran, rather to
ensure that it respects the Agreement. In January 2019, the creation
of the “Instrument in
support of the trade exchange
”
(INSTEX) by France, Germany and the United Kingdom was only the
first step towards independence from the US, always keeping in mind
to avoid the effects of secondary sanctions19.
Indeed, the INSTEX is a European special-purpose vehicle (SPV)
established to facilitate non-USD transactions and non-SWIFT to avoid
breaking U.S. sanctions. The European trade vehicle was conceived as
a way to help match Iranian oil and gas exports against purchases of
EU goods.

3.
EU limits and possibilities

The
main tools that the EU has so far adopted to deal with secondary US
sanctions and maintain the Agreement are:

  1. the “Blocking Statute”
    (Regulation 2271/96), which prevents European companies from
    adapting to US secondary sanctions,
  2. the creation of INSTEX,
  3. the extension of the mandate of
    the European Investment Bank (EIB), which would be granted the power
    to provide guarantees on financial activities with Iran.

However,
it seems that the EIB has no intention of effectively supporting
investments towards Iran. This is mainly due to the fact that the
Bank also finances itself on the US financial market, and it is
feared that exposure to Iran will scare off potential buyers of
securities. Furthermore, about a third of its transactions are
conducted in dollars. Indeed, the only way for the EU to support
investment in Iran and to continue processing payments to and from
the country would be to create totally “isolated” financial
institutions, with no exposure to the US20.

On
15 of February 2019, the High Representative of the Union for Foreign
Affairs and Security Policy Federica Mogherini met Mohammad Javad
Zarif, Minister of Foreign Affairs of the Islamic Republic of Iran,
on the sidelines of the conference on security in Monaco. On that
occasion, the firm determination of the EU to shield the Agreement
(considered fundamental for both regional and global security), and
therefore the creation of INSTEX was reiterated to demonstrate the
European will to preserve the Agreement21.
Furthermore, on June 16 2019, the EEAS Secretary General Helga Maria
Schmid confirmed the EU’s continued commitment to the Agreement,
which is the key to increase stability and security in the Middle
East22.

On
July 9, 2019, the foreign ministers of France, Germany and the United
Kingdom and the High Representative expressed their concerns : Iran
is carrying out activities incompatible with the commitments
undertaken under the Agreement, especially because the International
Atomic Energy Agency (IAEA) confirmed that Teheran had begun to
enrich uranium above the established maximum limit. On that occasion,
the EU expressed its deep concern about the fact that Iran was not
respecting many of its commitments and thus encouraging them to
maintain a compliant behavior23.
On 8 September 2019, IAEA confirmed that advanced centrifuges were
installed in Natanz. France, Germany, the United Kingdom and the High
Representative were deeply concerned by these activities . For this
reason, they asked Iran to cooperate with the IAEA24.
On 25 September 2019, on the sidelines of the General Assembly of the
United Nations, the High Representative Federica Mogherini said: “I
will not hide that it is increasingly difficult to do it and we have
discussed today the fact that we will try and continue keeping the
agreement in place and overcome the difficulties we are facing. What
I believe is that every step that has been taken so far by Iran –
and I underline so far – is reversible. We have constantly called
upon Iran to reverse these decisions and go back to full compliance
which has been the case until recently. Because this is in the
interests of all. Let me add that this is in the security interests
of all of us and is also in the economic interest of Iran. I hope
that rationality will prevail and that this meeting today will
contribute to preserving the agreement also in the future
”25.
On September 26, 2019, Iran further enriched uranium with advanced
centrifuges. This provoked Washington’s reactions on the following
day as they repeatedly stated they wanted to hold talks with Iran on
a broader agreement. However, Tehran excluded the talks until the
sanctions were lifted26.

The
EU seems to have done the necessary to both maintain the agreement
and to safeguard the interests of its companies by protecting them
from the US secondary sanctions. At operational levels, limits are
clear . In addition to the Blocking Statute, the EU established
INSTEX. However, these measures are still in their primordial phase
and their functioning has not yet been clarified (and regulated).
They didn’t assess their effectiveness in the medium and long term.
By analyzing the information provided so far, INSTEX can only protect
small and medium-sized companies from the US secondary sanctions
(because they don’t necessarily use the dollar). Beyond being
projected to the US market, most of the largest European companies
trading abroad use the dollar. This makes them vulnerable to
Washington’s secondary sanctions. At the same time, only the big
companies can satisfy the needs of the Iranian market to make them
respect the Agreement. Experts estimated that the Iranian economy
contracted by -7% since the US withdrawal from the Agreement. In
particular, there was a sharp decline in the oil sector of 35% and it
will continue throughout 2020. Inflation, which in 2018 peaked at
40%, is likely to exceed 50%. The fall of the Iranian rial, which
lost 100% of its value in 12 months, eroded the purchasing power of
large Iranian companies on international markets27.
European small and medium-sized enterprises are apparently immune
from sanctions as well as they are unable to reverse or have an
impact on Iranian economy. The EU therefore risks remaining between
two fires. On one hand, indeed, European and member-state big
companies are caught up in the fabric of the US secondary sanctions
that managed to affect market decisions and choices. On the other
hand, the EU has no objective
capacity to create an effective financial system able to give some
guarantees to Tehran and to keep Iran within the Agreement. However,
the weight of recent EU decisions in order to make itself
increasingly immune to Washington’s sanctions, as well as having a
strong political impact, has to be considered as a springboard for
the creation of an increasingly autonomous system, which could
improve the EU strategic independence

Maria Elena Argano

For further information:

1Joint
Comprehensive Plan of Action Vienna, 14 July 2015:
http://eeas.europa.eu/archives/docs/statements-eeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf

2Ibidem,
p. 7

3Ivi

4ISPI
Website, I
puntichiavesull’Accordonucleareiraniano
:
https://www.ispionline.it/it/infografiche/i-punti-chiave-dellaccordo-sul-nucleare-iraniano

5Joint
Comprehensive Plan of Action Vienna, 14 July 2015:
http://eeas.europa.eu/archives/docs/statements-eeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf
p. 7

6Ibidem
p. 11

7EEAS
Website, Joint statement by EU High Representative Federica
Mogherini and Iranian Foreign Minister Javad Zarif
:
https://eeas.europa.eu/delegations/papua-new-guinea/3244/joint-statement-by-eu-high-representative-federica-mogherini-and-iranian-foreign-minister-javad-zarif-vienna-14-july-2015_en

8White
House Website, Statement by the President on Iran:
https://obamawhitehouse.archives.gov/the-press-office/2015/07/14/statement-president-iran

9Il
Corriere Website, Le sanzioni, il
regime, gli Usa: l’accordosull’Iran un annodopo
:
https://www.corriere.it/extra-per-voi/2016/07/13/sanzioni-regime-usa-l-accordo-sull-iran-anno-dopo-c464b0ca-492f-11e6-ae06-0cc76a275352.shtml?refresh_ce-cp

10ISPI
Website, Iran: tornano in vigore le
prime sanzioni USA
:
https://www.ispionline.it/it/pubblicazione/iran-tornano-vigore-le-prime-sanzioni-usa-21095

11Rai
News Website, Iran ci prepariamoadarricchirel’uraniofino al 20%:
http://www.rainews.it/dl/rainews/articoli/Iran-ci-prepariamo-ad-arricchire-uranio-fino-al-20-per-cento-4e097b0d-bd29-4ae5-ad24-1b5a3da20966.html

12La
Repubblica Siteweb, L’Iranescedall’accordosulnucleare
e inizial’arricchimentodell’uranio
:
https://www.repubblica.it/esteri/2019/07/07/news/l_iran_esce_dall_accordo_sul_nucleare_e_inizia_l_arricchimento_dell_uranio-230603622/

13Adnkronos
Website, Iran, terza faseritiro da
accordonucleare
:
https://www.adnkronos.com/fatti/esteri/2019/09/04/iran-terza-fase-ritiro-accordo-nucleare_oWyNyRUwc6loAiOPIN0ntK.html

14Il
Corriere Website, Nucleare:
l’Iranacceleral’uranio “ancorapoco tempo per un accordo
”:
https://www.corriere.it/esteri/19_settembre_07/nucleare-l-iran-accelera-l-uranio-ancora-poco-tempo-un-accordo-b64eb9c2-d149-11e9-be10-239c488c3af6.shtml

15Egmont
Institute Website, Will Trump’s decision on Iran end Europe’s
servility?:
http://www.egmontinstitute.be/will-trumps-decision-on-iran-end-europes-servility/

16CEPS
Website, THE ART OF STICKING WITH THE NUCLEAR DEAL: WHY EUROPE
SHOULD DEFY TRUMP ON IRAN:
https://www.ceps.eu/ceps-publications/art-sticking-nuclear-deal-why-europe-should-defy-trump-iran/

17Europe
Affairs Website, L’Unioneeuropeaaggiornailregolamento
di blocco a sostegnodell’accordosulnucleareiraniano
:
http://www.europeanaffairs.it/blog/2018/08/09/lunione-europea-aggiorna-il-regolamento-di-blocco-a-sostegno-dellaccordo-sul-nucleare-iraniano/

18German
Marshall Fund Website, Europe needs go forward Iran nuclear deal
or without United States
:
http://www.gmfus.org/blog/2019/07/11/europe-needs-go-forward-iran-nuclear-deal-or-without-united-states

19Ibidem

20ISPI
Webssite,USAfuoridall’Iran deal: business europeoallaprova:
https://www.ispionline.it/it/pubblicazione/usa-fuori-dalliran-deal-business-europeo-alla-prova-20869

21EEAS
Website, Federica Mogherini meets iranian foreign
minister:
https://eeas.europa.eu/delegations/iran/58230/federica-mogherini-meets-iranian-foreign-minister-zarif_en

22EEAS
Website, Secretary General concludes the visit in the Gulf and in
Iran
:
https://eeas.europa.eu/delegations/iran/64182/secretary-general-european-external-action-service-concludes-visit-gulf-and-iran_en

23EEAS
Website, Joint statement by the Foreign Ministers of France,
Germany, the United Kingdom and the High Representative of the
European Union on Iran/JCPoA
:
https://eeas.europa.eu/delegations/iran/65184/joint-statement-foreign-ministers-france-germany-united-kingdom-and-high-representative_en

24EEAS
Website, Joint statement by spokespersons of the High
Representative of the European Union and the foreign ministries of
France, Germany and the United Kingdom on the JCPoA
:
https://eeas.europa.eu/delegations/iran/67334/joint-statement-spokespersons-high-representative-european-union-and-foreign-ministries-france_en

25EEAS
Website, Remarks by High Representative/Vice-President Federica
Mogherini following a ministerial meeting on the implementation of
the Joint Comprehensive Plan of Action
:
https://eeas.europa.eu/delegations/iran/67911/remarks-high-representativevice-president-federica-mogherini-following-ministerial-meeting_en

26Reuters
Website, Iran commits new breach of fraying nuclear deal, expands
enrichment – IAEA
:
https://www.reuters.com/article/us-iran-nuclear-iaea/iran-commits-new-breach-of-nuclear-deal-expands-enrichment-iaea-report-idUSKBN1WB237

27Il
Sole 24 Ore Website, L’Iran paga il
conto delle sanzioni Usa: lungarecessionedietro l’angolo
:
https://www.ilsole24ore.com/art/l-iran-paga-conto-sanzioni-usa-lunga-recessione-dietro-l-angolo-AC6EJ8D

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