Trump, Iran, and guidance for European businesses Matthew Oresman is a Counsel in the Public Policy and International Trade Practice at Pillsbury Winthrop Shaw Pittman The Trump Administration’s approach to Iran has left many in Europe confused, especially on how – and whether – they should pursue business opportunities in Iran. They fear that President Trump will ‘tear up’ the Iran nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), and impose new restrictions on doing business with Iran. They can’t be blamed. During the 2016 campaign, then-candidate Trump made competing statements, first saying “My number one priority is to dismantle the disastrous deal with Iran.” At another time he seemed to bemoan the fact that European business were benefiting from the Iran deal when American companies were not, stating “All of these countries are going to do business with Iran… They’re going to make lots of money and lots of other things with Iran...And we’re going to get nothing.” Here, we see the tension in President Trump’s desires – on the one hand he wants to contain and confront Iran. On the other hand, if European businesses are going to benefit, he wants America to get its share too. Those advising President Trump have not made the situation any clearer. His top national security advisors, especially Secretary of Defense James Mattis, believe the JCPOA is imperfect, but seem more concerned with the threat Iran poses to the United States and its allies in the Middle East than the particulars of the nuclear agreement. Mattis has called Iran “the biggest destabilizing force in the Middle East” and believes its policies are contrary to America’s interests. However, he has also supported a policy of keeping the deal in place, saying “when America gives her word, we have to live up to it and work with our allies.” The Trump Administration approach to Iran Simply put, many in the Trump Administration believe the JCPOA was fundamentally flawed. They believe that the deal still allows Iran to develop a nuclear weapons program; that Iran still threatens US interests and made no concessions on non-nuclear areas of concern for the United States, such as Iran’s support for terrorist groups and its military buildup; and that Iran has now received billions of dollars – with more on the way through Iran’s new access to international markets - that can now be used to threaten US interest. They also feel that the Obama Administration gave up most of its leverage on Iran without achieving gains on the fundamental threat Iran poses. However, the Administration may be able to live with the JCPOA by instead focusing on the goal of containing Iran’s ability to negatively affect US interests in the region. Though it would also like to find new ways to limit even more Iran’s ability to acquire nuclear weapons through enhanced enforcement of the JCPOA or new side-agreements. Of course, there is an inherent tension in these goals. On the one hand, the Trump Administration is willing to negotiate with Iran to gain further concessions around its nuclear program. On the other hand, it wants to prevent Iran from pursuing Iran’s own security interests in the region. Overall, the Trump election does not necessarily mean that the JCPOA will be torn up, Iran sanctions will snap back, and the world will rewind back to 2012 where there was a unified Western front against Iran. That being said, there are most definitely additional risks that the United States will impose new sanctions on Iran and there will be a marked increase in tension in the US-Iran relationship. Of key importance, it is misleading to think just about the JCPOA as the only tool in the President’s kit when it comes to dealing with Iran. So-called Snap Back, the tool contained in the JCPOA that allows the deal to be terminated, is of course an option. To trigger it, the United States would need to launch a series of consultations on the basis that Iran has violated the terms of the JCPOA. Fundamentally, these consultations, which include UN Security Council sessions, and the other steps in the process, cannot block the United States from unilaterally cancelling the JCPOA if it so desired. However, Snap Back is not necessary for President Trump to achieve his policy goals. In fact, given the likely negative international diplomatic consequences of driving through Snap Back over the objection of allies, as well as the fact that cancelling the JCPOA would allow Iran to restart its nuclear program, suggest that it is not the ideal tool to be used. President Trump has plenty of other tools, though, including broad powers to impose new sanctions on Iran unrelated to its nuclear program, or to expand existing sanctions. He has the authority to impose sanctions on Iran in response to its support for terrorist groups, its human rights violations, or its ballistic missile programs. This could also include secondary sanctions. Several US experts have argued that any economic gain for the Iranian government directly translates into actions that hurt US interests, so therefore – they argue – any new sanctions must hit the overall Iranian economy. We may therefore see the Trump Administration use an asymmetrical approach to achieve its goals. That is, the Administration may threaten or launch sanctions under the excuse of counter-terrorism in an effort to obtain concessions from Iran across multiple policy fronts including both nuclear and non-nuclear issues. We have already seen this play out recently when the US Government imposed sanctions on 25 individuals and companies, including several from China, in response to Iran’s ballistic missile test. Unlike many other topics in foreign policy, it should be kept in mind that President Trump has broad Congressional, as well as bureaucratic support, for these actions. In fact, increasing sanctions on Iran, or confronting it more aggressively, is one of the few things that President Trump, Senator John McCain and the Republican foreign policy hawks, and Democrats all agree on. In fact, the last Congress ended with several bills pending that would impose new sanctions. Many will likely be reintroduced this year. The global reaction Of course, US policy towards Iran is not made in a vacuum. America’s European, Arab, and Israeli allies all have an interest in Iran, as do Russia and China, who President Trump is engaging on multiple other issues. Accordingly, America’s policy will factor in these influences. Additionally, Iran itself will react to negative policies and has some ability to push back against America if needed. If the Trump Administration tries to re-open the JCPOA, it is likely to face stiff opposition from European allies. In particular, if President Trump attempts to impose secondary sanctions unrelated to the JCPOA on European companies, European governments likely would object strongly. Italy, France, and Germany would be the most impacted European countries as their businesses have big plans for Iran. Conversely, the Gulf Arab States would like to see Iran more constrained, but are wary of chaos and direct confrontation. Those in the region may end up pushing a containment and JCPOA enforcement strategy over tearing up the JCPOA and pursuing a directly confrontational strategy that could lead to open conflict beyond the existing proxy battles occurring around the region. Iran is also a major ally of Russia. President Trump is seeking to realign the US-Russia relationship, especially in the fight against ISIS, which is a common interest among Russia, Iran, and the United States. Similarly, the Trump Administration is looking for major trade concessions from China. China, though, has deep commercial ties to Iran and reacted angrily when Chinese nationals were included in the most recent sanctions listing over Iran’s ballistic missile test. Accordingly, the bilateral US-Iranian relationship will likely also become wrapped up in the US-Russia and US-China relationship and other multilateral engagements. Of course, Iran will react to all of this. President Rouhani has already said that renegotiation is not an option. It is impossible to predict what Iran would do should President Trump threaten the deal or impose new sanctions, but two options are clear. First the Iranian government could engage in deal making. Alternatively, Iran could seek to put more pressure on US interests, including deeper interventions in Syria, Yemen, and elsewhere in the region; increased assistance to Hezbollah; and further ballistic missile tests. It could also restart its nuclear program. In the background to all of this, there is also a plausible scenario that suggests President Trump is looking to cut a deal with Iran that would allow a reduction of sanctions in exchange for significant Iranian concessions on multiple areas of concern, not just Iran’s nuclear program. Any deal, though, would likely only come after an increase in tensions and confrontation. European businesses must recognize that the opportunity of the Iran market includes severe geopolitical risk, including what actions Iran may take – from supporting Hezbollah to testing ballistic missiles – that could provoke a US response. Guidance for European businesses We are clearly in a period of uncertainty and expect more confusion as these issues play out. Recognizing that the Trump Administration has an interest in and capability to put much more pressure on Iran, it will also be a period of intense scrutiny on Iran and those doing business with Iran by US policymakers, intelligence agencies, and law enforcement. Simply put, the US rules applying to European companies dealing with Iran may not change, but the consequences of making mistakes in compliance may be much more severe. Given all of this, what can European businesses do other than just watch and wait? Strong and dynamic compliance programs remain a key safeguard for businesses looking to do business with Iran. Even in this period of economic opening, now is not the time to be lax toward compliance. In particular, in this time of uncertainty, counter-party risk is more acute. Many of the scenarios for what President Trump might do include adding Iranian entities to the Office of Foreign Assets Control’s Specially Designated Nationals list. When examining possible Iranian partners, European businesses must consider whether these Iranian entities might be a likely target for future US actions. Among other things, this assessment includes understanding the Iranian party’s business, links to the Iranian government and military, and importance to the Iranian economy overall. Companies that were sanctioned before, especially those that were sanctioned not because of their direct involvement in Iran’s nuclear program, but because of their importance in funding the Iranian government’s budget and perceived Iranian bad acts, are particularly at risk. Iranian companies in the natural resources sector are a prime example of this. Given this, payment risk also becomes more acute, as Iranian counterparties may suddenly find themselves cut off from international banking for reasons possibly outside of their control. This could make payment to European partners impossible. Depending on the type of transaction, one option is to manage some of these risks through contract clauses and insurance. Finally, active monitoring and understanding of developments in Washington and Iran are essential to successful execution of projects with Iran. Direct engagement with US policymakers on major project should also be considered. Iran still remains generally open for European businesses, but careful planning and evaluations is still required, as well as a dynamic understanding of unfolding developments.
Iran still remains generally open for European businesses, but careful planning and evaluations is still required, as well as a dynamic understanding of unfolding developments