Blog

Iran deal: If Trump pulls out, business gets drawn in

4 May 2018
|
Regions: 
Asia,
Americas

Share:

Time is running out for the Iran nuclear deal. Trump’s self-imposed 12 May deadline, by which he wants to decide whether to continue waving sanctions lifted under the nuclear agreement, is just a week away. It appears increasingly unlikely that European proposals will prevent Trump from re-imposing sanctions. But this won’t be the end of negotiations about Iran. Transatlantic diplomacy about Iran policy, the nuclear deal and perhaps a ‘supplemental agreement’, will be complemented by parallel negotiations about what constitutes legitimate business with Tehran. The US administration will likely reintroduce sanctions as waivers expire, thus gradually increasing pressure on European governments to find a political agreement, but also to protect their economic interests.

Companies will face immediate uncertainty about trade with Iran, especially in oil. The snap back on 12 May of secondary sanctions enshrined in the ‘2012 National Defense Authorization Act’ would prohibit transactions with the Central Bank of Iran and certain Iranian financial institutions. It has a notable exception. Non-US state-owned or controlled financial institutions, including central banks, can continue their transactions, as long as they significantly reduce their purchase of Iranian oil within 180 days. Washington would need to enter swiftly into negotiations with Iran’s main buyers of oil. Before the lifting of sanctions in 2016, the US had agreements with six Asian countries - Korea, Japan, China, Taiwan, India and Turkey - that they would collectively purchase not more than 1mn barrels per day. Washington would also need to negotiate with Europe which imposed an oil embargo on Iran in 2012 but will be unwilling to do so this time round.

EU trade with Iran ($ billion)

Pressure on companies that made major investments in Iran over the last few years could be material by mid-July, when most remaining sanctions would kick in. The Iran Sanctions Act of 1996, as amended by the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, would start to punish investment in Iran’s energy sector – such as Total’s multi-billion investment in Iran’s South Pars Field - and prohibit the sale of refined petroleum to Iran. Further sanctions would impose restrictions on the shipping and insurance sectors, among others. Firms would likely have three months to wind-down their business, a period that Europe would seek to use to get exemptions from US sanctions.

There are many uncertainties about how these parallel negotiations might unfold. Much of the US’s negotiation tactics will depend on its desired goal. We still don’t know exactly what Trump wants. Is his intention to force a re-negotiation of a deal that he said is “disastrous”? Or is he rather looking to impose pain on Iran for the purpose of regime change? Another wild card is Iran’s reaction. If Tehran decides to restart its nuclear programme, Europe too might feel compelled to reimpose sanctions.

Share:

Authors

The views expressed in this note can be attributed to the named author(s) only.

Comment (0)

Add your comment

Add your comment

×

Success message

  • Your comment has been successfully posted.
×

Error message

  • You must first provide your comments