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On US-Iran relations, Europe finds itself between a rock and a hard place

Image credit: EU2017EE (Creative Commons: Flickr)

Increasingly, the US and Europe are not seeing eye-to-eye in their approach to Iran.

The complex relationship between Iran and the US has been strained for over half a century with recent escalations in the Strait of Hormuz renewing fears of conflict. European leaders are urging restraint from Washington and Tehran to avoid dismantling the Joint Comprehensive Plan of Action, also known as the Iran Deal. Europe’s desperate attempts to save the dying agreement are being met by a staunch Trump Administration, bent on exerting ‘maximum pressure’ on Iran to block the nation’s regional interference. As a result, Europe has found itself toothless against the American military and economic beast.

Re-imposing sanctions

The effectiveness of the current Iran sanctions rests on the powerful position the US economy and dollar hold in the international marketplace. While the US is not reliant on trade with Iran, the economic stakes for Europe are substantial. The Iran Deal had promised to reopen trade with Iran, a nation of 80 million people, after decades of locking it away. The potential emergence of Iran as a significant trading partner meant increased EU-Iran trade, particularly in the pharmaceutical, agricultural, and service sectors. Reimposing sanctions has means that EU firms have had to withdraw from deals with Iran for fear of being penalised by the US. This includes the reversal of an Iranian purchase of multi-billion dollar European aircraft, and another $4.8bn deal involving France’s petroleum giant ‘Total’.

The E3 (the UK, Germany, France) have attempted to bypass the US financial hegemony through a barter system called the Instrument in Support of Trade Exchanges (INSTEX), through which companies can exchange Iranian oil for European humanitarian goods. INSTEX has been slow to activate, demonstrating EU firms’ reluctance to trade with Iran and risk exclusion from the US economy. Meanwhile, sanctions on Iran’s main exports are crippling the country’s economy causing a 6 per cent reduction in economic growth and fears of a 50 per cent increase in inflation, according to the International Monetary Fund. If INSTEX fails, it leaves potentially no viable economic means to provide humanitarian aid for Iran. Some fear that instead of capitulating, the Islamic Republic will be pushed into a corner and it might be forced to fight its way out.

Tehran is incensed that Europe has failed to safeguard political and economic reintegration as agreed in the Deal, and has begun to increase its stockpile of enriched uranium. This is explicitly banned in the JCPOA due to its potential use in military-grade nuclear material. Breaching the enriched uranium threshold is symbolic but this it would render the Deal essentially worthless and further weaken Europe’s multilateral position.

The demise of the Iran Deal

Despite European efforts, the Iran Deal appears to be failing. Negotiated by representatives of the E3 along with Russia, China and the US, the JCPOA forced Iran to enact rigid - yet compromised - restrictions on its nuclear program. The Deal was designed to peacefully reduce Iran’s capacity to develop a nuclear weapon, ease economic sanctions, and open up the Islamic Republic to the international market. The document was years in the making and mostly well received by the international community as a win for diplomacy.

The JCPOA has also attracted criticisms. In May 2018, US President Donald Trump rescinded US involvement. Negotiated under President Obama, Trump alleges the document’s fatal flaws act counter to the interests of America and its regional allies, namely Israel and Saudi Arabia. The US is pushing to renegotiate the document’s perceived inadequate restrictions on Iran’s ballistic missile program and it allowance for Iran to continue limited uranium enrichment and to research improvement to its centrifuges and delivery systems – equipment that could be used to make nuclear weapons.

Further, the Trump Administration claims that those sanctions lifted by the JCPOA had been specifically targeted at deterring Iranian funding of proxy groups, which they say threaten regional stability. Trump further claims that Iran has not acted in compliance with its JCPOA obligations. However, the latest report from International Atomic Energy Agency observers has disputed this.

A growing divide

The United States’ policy reversal in relation to the Deal demonstrates the widening gap in approach between the US and EU on how to deal with Iran. Senior diplomats from the EU/E3 have firmly expressed their commitment to the JCPOA, whose compromises they consider necessary for peaceful engagement with Iran. The Europeans see the document as vital for European security and avoiding further instability in the Middle East. The Trump Administration’s ‘maximum pressure’ tactic, intended to isolate Iran through sanctions and thus forcing its leaders back to the negotiating table, runs counter to Europe’s multilateral diplomacy and desires to rebuild trust. In order to counteract the US’s dominant position, Europe may be forced to enlist the large economies of China and Russia, further exacerbating transatlantic tensions.

European irrelevance?

Throughout the Iran crisis Europe has remained incapable of influencing the US’ approach. The slow uptake of INSTEX demonstrates the continued dominance of the US financial system and the power of unilateralism it affords US leaders.

Even if it succeeds, the scope of INSTEX is limited to providing a financial solution for EU-Iran trade and not to producing a political one. Europe currently lacks a plausible way forward to both appease its transatlantic ally and salvage the JCPOA. Although President Trump has stated he is not seeking regime change, should conflict erupt, the US’s NATO allies could be called up to contribute.

Caught between a rock and a hard place, these events are emblematic of Europe’s limited ability to effectively counter US foreign policy and economic strength

Dominic Simonelli is the Europe and Eurasia Fellow for Young Australians in International Affairs.

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