IranSource | Understanding and Analyzing a Multifaceted Iran

June 8, 2017
Since the conclusion of the Iran nuclear deal, member states of the European Union have unanimously affirmed their commitments to the agreement and accelerated their rapprochement with Tehran. This process has continued despite calls from President Trump for all nations of conscience to isolate Iran.

While Trump has coupled required sanctions waivers with repeated comments that the Joint Comprehensive Plan of Action (JCPOA) is a “disaster,” for Europe, the agreement is viewed as a diplomatic mechanism that has successfully addressed a major global security concern and averted military action in an already fragile Middle East. Europeans are eager to build on the nuclear accord and resist opening the Pandora’s box of re-negotiations over an agreement that took years to reach, particularly at a time of tension between the Trump administration and European allies on other issues.

The EU together with the French, German and British participants to the JCPOA are actively looking to strengthen implementation of the deal. There is also general pushback against unilateral steps from the US executive or legislative branches that would intentionally or inadvertently shift the JCPOA goalposts. Yet Europeans also recognize that the nuclear accord faces political and technical challenges that need to be addressed and would be open to constructive multilateral solutions that build on the JCPOA.

European Rapprochement with Tehran

Europe has a significant stake in preserving the nuclear deal and engaging with Iran to fulfill non-proliferation objectives as well as non-nuclear interests. Europe-Iran relations in 2017 are in a far better place than in 2012 when the EU introduced its toughest sanctions and an oil embargo on Iran. Given the drastically altered landscape in the Middle East in the wake of the 2011 Arab Spring and the rise of extremist actors such as the Islamic State, Iran is perceived in Europe as a relatively stable and powerfully positioned regional actor. While critical differences remain between European capitals and Tehran, there is broad acknowledgment that Iran cannot be ignored or isolated if Middle Eastern conflicts are to be resolved or contained.

For over a decade, Europeans played an important diplomatic role in ushering Iran and the United States toward a peaceful solution of the nuclear file. In pursuing this path, European capitals and companies – not the US -- took the brunt of the diplomatic downturn and oil embargo which targeted Iran’s nuclear program. The JCPOA and the sanctions-easing process have afforded Europe and Iran greater space to pursue a path toward normalization.

Europeans have also been encouraged to deepen ties with Tehran in response to the relatively moderate positions of President Hassan Rouhani’s government, which has sought greater openings with Europe. This starkly contrasts with the divisive role of Rouhani’s predecessor, Mahmoud Ahmadinejad, whose policies of isolationism and brash rhetoric toward Israel greatly damaged European relations with Iran.

Since Rouhani’s election in 2013, almost all European foreign ministers have made official visits to Iran. The EU’s High Representative for Foreign Affairs and Security Policy, Federica Mogherini, has made two official trips to Iran, most notably in April 2016 when she visited the country together with seven EU Commissioners. In the aftermath of Rouhani’s re-election on May 19, Mogherini was one of the first world leaders to congratulate Rouhani, noting that the EU is “ready to continue work for full JCPOA implementation, bilateral engagement, regional peace.” Similar messages came from other European leaders

The EU and Iran have initiated regular high-level political talks on issues including the nuclear deal’s implementation, the economy, the environment and regional conflicts. Most recently, the EU Energy Commissioner visited Tehran for the first ever business forum on sustainable energy and climate change, seeking to advance partnerships in this sector.

Since the easing of sanctions and resumption of Iranian oil shipments in January 2016, there has been an uptick in trade although not yet a full recovery to pre-sanctions years. Overall trade between Iran and the EU has risen by 79 percent. Iranian exports to the EU reached roughly 5.5 billion euros compared to 1.2 billion euros the preceding year. The Rouhani administration has stressed the need for over $200 billion investment in Iran’s energy sector alone, and has sought to attract major European companies. 

Yet European companies have been unable to fully capitalize on Iran’s post-sanctions economy due to hurdles that have made it either too costly or prohibitive to trade and invest. In part these hurdles are due to Iran’s domestic economic environment. Another fundamental challenge relates to reconnecting Iran to European financial platforms. Europe’s major banks have been unwilling or unable to finance Iranian deals given their exposure to the US market and remaining US sanctions at both the federal and state level.

Normalization will clearly require more time and confidence building. Europeans broadly share the concerns of the United States over Iran’s policies in Syria, its advancing ballistic missile program and domestic human rights record.  However, since the JCPOA was signed in July 2015, and in contrast to the US position, most European leaders have pursued a pathway toward greater diplomatic engagement with Iran in order to address those concerns.  

Building on the JCPOA

Helga Schmid, Secretary General of the European External Action Service, and Iranian Vice President Ali Akbar Salehi, both leading negotiators of the JCPOA, have also begun to look for ways in which the EU and Iran can build on the nuclear deal. In March, the EU hosted a seminar in Brussels on nuclear cooperation with Iran. A follow-up seminar is expected to take place in Iran this year, supported by the Atomic Energy Organization of Iran, which Salehi heads. It is hoped that this will lay the foundation for EU-Iran collaboration on peaceful nuclear energy and increase incentives for Iran to ratify the nuclear safety convention.

With over three years of implementation by Iran of its nuclear commitments  (starting with the 2013 interim nuclear deal), European governments view the JCPOA as a major achievement. However there is acknowledgment in Europe that measures could be taken to address outstanding concerns in three broad areas:

Meaningful Revival of Banking and Financial Networks 

For Iran and Europe, the process of reconnecting financial and banking platforms has clearly fallen short of expectations. Before Iran can attract substantive foreign investment from Europe, it will need to implement reforms, including those required to meet the banking standards outlined by the Financial Action Task Force.

A significant challenge which European companies repeatedly underscore is the high transaction costs and reputational risk involved in due diligence, compliance and regulatory framework needed to adhere to remaining US primary sanctions on Iran. A handful of small and medium-sized banks in Europe, which have less exposure to the US market, are currently financing deals with Iran. For Iran and Europe to truly normalize banking relations, European banks need far greater confidence that the JCPOA will not be undermined by the US executive or Congress and that there will be more clarity over enforcement of existing and potential future US primary sanctions at both the federal and state level.

Nuclear-Related Provisions

European participants share with US critics -- albeit to a far less and public extent than the Trump administration – concerns over several nuclear aspects of the JCPOA. These include advancement of Iran’s nuclear program and research and development after the expiry of sunset clauses, the transparency of monitoring and verification carried out by the International Atomic Energy Agency and nuclear safety.

Ballistic Missiles

While there is little public debate inside Europe over Iran’s ballistic missile program, the European participants to the JCPOA share US concerns over the potential use of these missiles as offensive rather than defensive tools. At the same time, there is a pragmatic understanding that Iran is highly unlikely to be pressured into giving up its missiles through sanctions at a time of regional instability, increased arms flows and growing tensions with Saudi Arabia, a country which has seemingly received the unqualified military backing of the Trump administration with a recent arms deal worth $110 billion.

There is also skepticism about how far the ballistic missiles issue can be interwoven into the nuclear file. After an extensive attempt by Europe and the US during the negotiations in 2015, Russia resisted inclusion of explicit constraints on Iran’s missile program in the context of the JCPOA and Moscow has since stressed that Iranian testing of missiles does not contravene the JCPOA.

For Europe, a more suitable avenue to address Iran’s ballistic missile program may rest with a regional effort to persuade key Middle Eastern countries, including Israel and Saudi Arabia, to ratify the Missile Technology Control Regime (MTCR).  To have any chance of success, the United States would need to push regional allies towards this course.

European governments would welcome direct negotiations between Tehran and Washington that offer greater clarity over US primary sanctions and Iranian nuclear obligations. But the Europeans are highly unlikely to sign off on unilateral demands or changes to the JCPOA. The Joint Commission established under the agreement is a practical forum to discuss solutions and reach joint decisions. European participants, with a majority in the Joint Commission, can push for Iran and the United States to engage in discourse necessary for sustaining the JCPOA.

European participants may entertain further addendum to the JCPOA that are agreed by all stakeholders in the context of the Joint Commission. Yet there is doubt that this would be feasible given the degree of negotiation required to reach agreement between the United States and Iran under the Obama administration, which was fully committed to diplomacy. So far, there has been no public indication from the Trump White House or State Department of a similar commitment.

Meanwhile, concerns about the JCPOA are coinciding with growing friction between Europe and the Trump presidency over other multilateral agreements, such as the Paris Climate Accord, which the Trump administration recently announced it will leave. Moreover, there is concern that an initiative spearheaded by the Trump White House that goes beyond the JCPOA risks derailing the entire deal given the apparent increasing hostility toward Iran in Washington, including among those currently running Iran policy on the National Security Council. So long as the JCPOA is being implemented by Iran -- and given other pressing global security concerns, including North Korea’s nuclear ambitions and the ongoing Syrian conflict -- Europe’s diplomatic efforts are likely to be expended on safeguarding the JCPOA and addressing other foreign policy priorities.

Ellie Geranmayeh is Senior Policy Fellow at the European Council on Foreign Relations.

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