October 17, 2018

Trump Should Calm Tensions With Europe Over Iran Sanctions

By: Peter Harrell

The Trump administration and the European Union are coming perilously close to a major escalation in their already substantial diplomatic and economic rift over Iran. European officials in September announced plans to establish a “special purpose vehicle” to enable financial transactions with Iran to continue after the United States fully restores its sanctions regime in early November. U.S. officials promptly responded by threatening to blacklist European companies and institutions that participate in the vehicle in violation of U.S. sanctions.

Trans-Atlantic tensions are already building over trade policy, climate, and other issues, and the looming fight over Iran sanctions threatens to further reduce potential cooperation on even shared interests. For example, the more energy Washington and Brussels spend quarreling over Iran sanctions, the less likely it is that the two sides will be able to agree on imposing additional sanctions on Russia’s malign activities targeting both Europe and the United States. The fight on Iran also could mean short-term economic pains in the United States and Europe and long-term adverse consequences for America’s economic power.

I met with hundreds of foreign companies when I worked on sanctions as a U.S. State Department official from 2012 to 2014, and those discussions led me to agree with the Trump administration’s assessment that, in the near-term, a European special purpose vehicle is likely to be limited in scope. Europe is designing the vehicle to be a financial conduit that will let Iran move money to pay European companies that are selling European products, and to let European companies pay for their imports of Iranian goods. Europe’s goal is to replace the role that large global banks ordinarily play in handling payments for international trade, given that most major banks will refuse to handle Iran-related transactions after sanctions are fully restored on Nov. 5. Europe has also suggested that the tool might be used by other countries, such as China, to handle financial transactions related to their trade with Iran. However, most large European companies, including oil companies and industrial giants, have far larger business interests in the United States than in Iran and as a result will likely refuse to use the special purpose vehicle to continue trading with Iran, at least initially, out of fear of drawing Washington’s ire.

Read the full article at Foreign Policy.

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