Allies Resist U.S. Pressure on Iran

Bottom Line Up Front

• The United States is alienating its European allies by insisting that they comply with U.S. sanctions against Iran.
• Iran is attracting international support by remaining, at least for now, in the 2015 multilateral nuclear deal.
• The European Union (EU) countries are establishing a ‘special purpose vehicle’ to circumvent U.S. sanctions, but success of this effort is no fait accompli.
• The Trump administration’s policy is aimed toward reducing Iran’s oil exports, but China and India continue to resist U.S. pressure to dramatically curtail their respective purchases of Iranian oil.

Iran’s Foreign Minister Mohammad Javad Zarif said on U.S. television during the late September 2018 meetings at the U.N. General Assembly that Iran will, for now, remain in the 2015 multilateral nuclear agreement (Joint Comprehensive Plan of Action, JCPOA). He asserted Iran’s position, supported by the EU and other parties to the nuclear deal, that the agreement is enshrined in a U.N. Security Council resolution and that the Trump administration had no justification for its May decision to leave the accord. The Iranian stance received further international backing with an International Court of Justice ruling on October 2 that called for some of the recently reimposed humanitarian-related sanctions to be revoked. The United States does not recognize ICJ decisions as binding.

Zarif stressed that Iran might yet leave the JCPOA altogether if the EU, Russia, China, and other countries fail to ensure that Iran continues to reap the economic benefits of the deal. These countries are attempting to continue engaging with Iran economically, in spite of U.S. sanctions that the Trump administration insists it will enforce, even on EU companies. In late September, France, Germany, Britain, and the European Commission announced they would establish a ‘Special Purpose Vehicle’ (SPV) that would allow European firms conducting business with Iran to avoid U.S. sanctions. While details are yet to be finalized, the vehicle could assume the form of an agency or corporation that would act as a conduit in brokering transactions with Iran. The vehicle would avoid involving large European banks that have U.S. exposure, and route the flow of money around the U.S. financial system. Presumably, the SPV would eschew participation in the U.S. market, making it relatively immune from U.S. sanctions. However, it remains unclear whether the SPV can succeed, in large part because most U.S. sanctions penalize even indirect forms of trade with Iran. Another possibility put forward by the EU is to establish a mechanism for purchasing Iranian oil via barter or non-dollar currencies, rather than with U.S. dollars. These ideas rest on an assumption that European authorities would not share information with U.S. counterparts about which European firms use these mechanisms.

Secretary of State Michael Pompeo immediately denounced the SPV as furthering Iran’s ability to support international terrorism. EU foreign policy chief Federica Mogherini rebutted that position on September 29, saying that ‘No sovereign country or organization can accept that somebody else decides with whom you are allowed to do trade with.’ In September, Greece, Italy, and Spain together imported 250,000 barrels per day of Iranian oil, bucking U.S. insistence that all importers reduce their purchases of Iran’s oil to zero.

The EU efforts notwithstanding, it is primarily China and India that are preventing Iran’s economy from sliding into a severe recession. Both Beijing and New Delhi have stated they would not cooperate with reimposed U.S. sanctions, and each imported a total of about 1 million barrels per day of Iranian crude in the month of September. Together, these two customers constituted 60% of Iran’s September oil export volume of 1.6 million barrels per day—a reduction of 2.5 million barrels per day from early 2018 levels, but still enough to signal that the Trump administration’s efforts to end Iran’s oil exports have not, and will not be, wholly successful. Meanwhile, continued U.S. pressure for cooperation with reimposed sanctions has left the United States politically isolated on the Iran issue.