Analysis: Why Europe is Not Likely to Enforce Iran Deal

With the reopening of the UK’s embassy in Tehran on Sunday, a new wrench has been tossed into the nuclear deal approval process: Britain’s likely reluctance to enforce violations. 

UK foreign secretary Philip Hammond arrived in Tehran with a business delegation and announced that British businesses have a “huge appetite” for trade relations. He noted the desire among the business community to invest in Iran and optimize banking conditions for financial transactions, and zoomed in on restarting “oil negotiations” as the joint British-Dutch energy giant Royal Dutch Shell is slated to release $3 billion in frozen Iranian assets.

The odds weigh heavily against Western and Central European nations – the key beneficiaries of the dissolution of Iran sanctions – aggressively monitoring Iran for violations of the Iran deal because of a clash with powerful business interests.

In a Foreign Policy article titled “How to Get a Better Deal With Iran,” Mark Dubowitz, the executive director of the Foundation for Defense of Democracies, where this writer is a fellow, wrote: “Once European companies are sufficiently invested in Iran’s lucrative markets, any Iranian violations of the deal are likely to provoke disagreements between Washington and its European allies. Indeed, why would Europe agree to new sanctions when they have big money on the line?” Dubowitz notes: “Would Europe agree to a US plan to reimpose sanctions on the Central Bank of Iran if it was found – once again – to be financing terrorism? This is doubtful given that Tehran would threaten to return to its nuclear activities including large-scale uranium enrichment, putting not just European investments but the entire deal in jeopardy.”

It is worth recalling Germany – the economic powerhouse of Europe – and its policy of prioritizing financial gains over stopping Iran’s drive to obtain a nuclear weapons device and the 2010 attempt by US President Barack Obama to persuade Chancellor Angela Merkel to shut down the Hamburg-based European- Iranian trade bank (EIH). The columnist John Vinocur wrote at the time in the International Herald Tribune: “I also have been told that similar reluctance, this time involving German hesitation to clamp down on a bank in Hamburg facilitating suspect European deals with Iran, resulted in a recent phone call, to no immediate avail, from Mr. Obama to Chancellor Angela Merkel.”

Obama’s treasury department had designated the EIH a sanctioned bank because, “As one of Iran’s few remaining access points to the European financial system, EIH has facilitated a tremendous volume of transactions for Iranian banks previously [blacklisted] for proliferation.”

A bipartisan group US Senators issued a strongly worded letter to Germany’s then foreign minister Guido Westerwelle requesting him to shut down the EIH’s operation in Germany, and a Wikileaks dispatch revealed: “Germany won’t sanction German Bank EIH” because “the German business community is very powerful.”

After a scandal emerged in which Iran and Germany used the EIH to transfer at least €1.5b. to Iran, Merkel’s administration agreed – kicking and screaming – to shut the bank.

All of this helps to explain why European companies, whose mouths are salivating at the prospect of conducting massive business deals with Iran, are likely to be shielded by their governments in the event of Iranian sanctions violations.

As Dubowitz wrote: “Washington assumes it can always count on European votes. But this is a mistake.

Europe will have strong economic incentives to demure, particularly as pressure from European business lobbies grows, and good reason to buck the United States if Iran threatens a nuclear snap back.

While Washington can unilaterally reimpose UN sanctions if the issue does not get resolved and it deems ‘the issue to constitute significant non-performance,’ it is unlikely to do this in the face of European resistance.”

The nuclear deal, as Dubowitz notes, provides Iran with a robust escape hatch clause to engage in a resurgent nuclear weapons drive.

He terms the provision Iran’s “nuclear snap back” if the international community attempts to enforce the pact. The agreement also contains a highly disturbing paragraph that codifies the US and Europe are required to not interfere with the “normalization of trade and economic relations with Iran.”

Dubowitz urges a renegotiation of the deal to allow American leverage to continue before Europe begins to cut economic deals.

He writes: “If Washington makes it clear that European banks will risk penalties or jeopardize their ability to transact in dollars if they do business with Iranian banks, those European energy, insurance and industrial companies will find their financial pathways into Iran stymied.”

After potent Iran sanctions were introduced in 2011-2012, annual EU-Iran trade shrunk to under $10b. It is now expected that bi-lateral trade between Europe and Iran could quickly approach $30b., according to analysts.

European business and know-how is widely viewed as the key for Iran’s economic revival. Given that the European business flood gates are starting to open, the Iran deal’s enforcement provision to stop violations appears to be a paper tiger. There is simply no overarching appetite among European companies and governments to take a confrontational posture toward Iran during the life of the nuclear agreement.

A short-term windfall of profits will likely trump international security, if the deal is not blocked by the US Congress.

Benjamin Weinthal is a fellow at Foundation for Defense of Democracies. Follow him on Twitter @BenWeinthal