May 09, 2018
European businesses most affected by US sanctions on Iran
REUTERS
Trump’s withdrawal from JCPOA deepens US isolation
Major companies, particularly in Europe, could see billions of dollars in commercial deals canceled because of the US decision to reinstall sanctions on Iran, though the ultimate impact remains unclear due to the possibility of renegotiations and exemptions, experts say.
US President Donald Trump’s decision to withdraw from the Iran nuclear deal and reimpose sanctions on Iran means companies worldwide must stop doing business with the country or run afoul of the US government, AP reported.
Companies and countries with commercial deals with Iran would have either 90 or 180 days to wind down those activities, depending on the type of products being sanctioned. And firms would not be able to generate new business.
Certain exemptions and waivers can be negotiated, but the US did not say what products or countries might qualify.
Since the Iran nuclear deal was struck in 2015, it was mainly European companies that moved back in to strike deals with Iran, making Trump’s decision particularly painful for the region.
“US Iran sanctions are hardly hitting any US companies, but aim primarily at European ones,” Carl Bildt, the former leader of Sweden who is now co-chair of the European Council on Foreign Relations, said in a tweet. The EU has in the past found this utterly unacceptable, he added, though it was unclear still how European leaders would respond.
Among US companies, plane maker Boeing has signed the biggest deals, and US Treasury Secretary Steven Mnuchin said Tuesday that its existing licenses – as well as those of its European competitor, Airbus Group – would be invalidated.
In December 2016, Airbus signed a deal with Iran’s national carrier, Iran Air, to sell it 100 airplanes for around $19 billion at list prices. Boeing later struck its own deal with Iran Air for 80 aircraft with a list price of some $17 billion, promising that deliveries would begin in 2017 and run until 2025. Boeing separately struck another 30-airplane deal with Iran’s Aseman Airlines for $3 billion at list prices.
Boeing has yet to deliver any aircraft to Iran under those deals and said that it will “continue to follow the US government’s lead.”
Airbus, which is subject to the US license because it makes at least 10 percent of its aircraft components in the US, says it will abide by the new US sanctions but it could take “some time” to determine the full impact on the industry. It has already delivered two A330-200s and one A321 toIran.
The US says the sanctions will also sharply curtail sales of oil by Iran, which is currently the world’s fifth-largest oil producer. In the case of oil sales, there will be a 180-day period for countries to wrap-up existing contracts.
So far, French oil company Total SA has been the most aggressive Western oil company to move back into Iran, signing in July a $5 billion, 20-year agreement with Iran. A Chinese oil company also has a deal to develop the country’s massive South Pars offshore natural gas field.
The price of oil rose sharply on Wednesday to its highest since 2014.
In other sectors, French carmaker PSA Peugeot Citroen reached a deal in 2016 to open a plant producing 200,000 vehicles annually in Iran. It said Wednesday that it is studying the implications of the US move and hopes the European Union will have a united position on the Iranian sanctions.
A group representing German trade interests said the US decision to withdraw from the deal will hit German companies and urged the EU to protect their interests. Trade between Germany and Iran reached 3.4 billion euros ($4 billion) last year, according to BGA, another foreign trade association.
German Finance Minister Olaf Scholz vowed on Wednesday to try to protect European companies from any adverse effects from the US president’s decision.
“We’ll try to do everything in our means so that European companies will be affected as little as possible,” said Scholz at a news conference, adding it would take some time to get clarity about the consequences, Reuters reported.
Fallout for US economy
Trump’s decision also risks fallout for the US economy.
The US move may lead to “gradually and modestly reduced oil production” by Iran, that would further push up global oil prices, according to a research note Tuesday by Gregory Daco, chief US economist at Oxford Economics, Bloomberg reported.
If West Texas Intermediate crude oil prices average $70 a barrel this year that would amount to a drag on growth worth half of the 0.7 percentage-point boost from tax cuts and a government-spending increase, Daco wrote.
With gasoline prices already squeezing consumers’ pocketbooks, the possibility of extended pain at the pump casts a shadow on widespread expectations that US household spending is poised for a rebound in coming months driven by tax cuts. At the same time, energy-producing businesses and regions within the US would benefit from higher oil prices.
US isolation
In his speech, Trump claimed he was making the world safer, but in fact he deepened the US isolation on the world stage and revived doubts about American credibility.
The 2015 agreement, which was negotiated by the former president Barack Obama administration and included Germany, France and Britain, had lifted most US and international economic sanctions against Iran. In exchange, Iran agreed to restrictions on its nuclear program.
But Trump, a severe critic of the deal dating back to his presidential campaign, said Tuesday in a televised address from the White House that it was “defective at its core.”
US allies in Europe had tried to keep him in and lamented his move to abandon it.
Iran’s government must now decide whether to follow the US and withdraw or try to salvage what’s left with the Europeans. Iranian President Hassan Rouhani said he was sending his foreign minister to the remaining countries but warned there was only a short time to negotiate with them.
The US administration said it would reimpose sanctions on Iran immediately but allow grace periods for businesses to wind down activity. Companies and banks doing business with Iran will have to scramble to extricate themselves or run afoul of the US government.
Meanwhile, for nations contemplating striking their own sensitive deals with Trump, such as North Korea, the withdrawal will increase suspicions that they cannot expect lasting US fidelity to international agreements it signs.
Former president Barack Obama, whose administration negotiated the deal, called Trump’s action “misguided” and said, “The consistent flouting of agreements that our country is a party to risks eroding America’s credibility and puts us at odds with the world’s major powers.”
“US credibility is shot”
Failed 2016 presidential candidate Hillary Clinton said Trump’s abandonment of the nuclear deal leaves the US distrusted around the world, with its credibility “shot.”
In a series of tweets, the former first lady implied that the only alternative to the nuclear pact was war. She said pulling out of the Iran nuclear deal is a big mistake. It makes America less safe and less trusted.
Trump, who repeatedly criticized the accord during his presidential campaign, said Tuesday that documents recently released by Israeli Prime Minister Benjamin Netanyahu showed Iran had attempted to develop a nuclear bomb in the previous decade, especially before 2003. Although Trump gave no explicit evidence that Iran violated the deal, he claimed Iran had clearly lied in the past and could not be trusted.
Iran has denied ever pursuing nuclear arms.
IAEA statement
The UN atomic watchdog policing the deal said on Wednesday Iran is continuing to implement its nuclear commitments under the deal, Reuters reported.
“Iran is subject to the world’s most robust nuclear verification regime under the JCPOA, which is a significant verification gain," International Atomic Energy Agency (IAEA) chief Yukiya Amano said in a statement, using the deal's official name, the Joint Comprehensive Plan of Action.
"As of today, the IAEA can confirm that the nuclear-related commitments are being implemented by Iran," he said, adding that the IAEA was "closely monitoring developments" related to the deal.
Trump spoke with French President Emmanuel Macron and Chinese leader Xi Jinping about his decision Tuesday. Hours before the announcement, European countries met in Brussels with Iran’s Deputy Foreign Minister for Political Affairs, Abbas Araqchi.
For the Europeans, Trump’s withdrawal constitutes dispiriting proof that trying to appease him is futile.
Australia and Japan on Wednesday expressed continued support for the multinational nuclear deal with Iran even though the US is pulling out of it.
Australian Prime Minister Malcolm Turnbull said that he regrets President Donald Trump’s decision to withdraw from the landmark pact. Turnbull is urging all parties involved in the pact to show restraint.
In Japan, the Foreign Ministry said Japan continues to support the deal and that it “hopes for a continued constructive response from the nations involved.”
Reactions in Iran
Iran's press on Wednesday condemned Trump's withdrawal from the deal, AFP reported.
"The nuclear deal without the trouble-maker," was the headline in one of the leading reformist papers, Etemad.
It reprinted a tweet by President Hassan Rouhani on its front page: "We have been freed from the evil of someone who does not respect their commitments. The nuclear deal will continue if Iran's interests are assured."
Another reformist daily, Aftab, spoke of "Tehran's logical decision" to stay in the landmark 2015 deal with the help of the other signatories -- Britain, France, Germany, China, Russia and the European Union.
The conservative dailies took a sharply different tack.
"Trump has torn up the nuclear deal, it is time for us to burn it," said the Kayhan newspaper, echoing a recent threat by Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei. Kayhan has been one of the fiercest critics of the agreement.
"Iran will be united and will resist," was the headline of conservative paper Javan.
Other conservatives were sceptical about the ability of Iran's government to salvage the agreement with the help of European powers.
"Europe does not have the capacity to maintain the nuclear deal," said daily Farheekhtegan. "The result of all their bargaining with Trump has just been more pressure on Iran."
