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More trade disruption from US sanctions on Iran

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President Trump is reasserting traditional US alliances in the Middle East, positioning the US as a friend of Israel and Saudi against Iran and Syria. (Source: Getty)

There has been plenty of attention to the way the EU is caught in the crossfire of the US trade dispute with China. We also need to remember that the EU also stands to lose from the US wider dispute with Iran. The EU exported $10.8bn to Iran last year and is worried that US sanctions will draw EU companies into the US action.

President Trump is reasserting traditional US alliances in the Middle East, positioning the US as a friend of Israel and Saudi against Iran and Syria. He has decided to walk away from the Joint Comprehensive Plan of Action, the agreement between the Security Council permanent members, Germany and Iran. He has accepted Israeli advice that Iran is still pursuing its nuclear ambitions, despite the intent of the agreement to stop it. He also believes the agreement was too narrow. Iran claims it is abiding by its terms, whilst continuing to develop ballistic missiles and disrupting America’s allies in the region.

Tough stance

The President has said that he wants a wider agreement with Iran to control these other threats as the US sees them. The US has stated: “Our effort is broader than just the nuclear threat and we will be working together with partners to eliminate the threat of Iran’s ballistic missile programme, to stop its terrorist activities worldwide, and to block its menacing activity across the Middle East and beyond.” The US administration is busily preparing to reintroduce all the trade sanctions that applied to Iran before the Joint Plan was signed. These include bans on the sale of aircraft, and restrictions on the use of the dollar and western finance.

Russia sees this as a great trade opportunity for itself and its satellites. It has made clear it will not be accepting US sanctions. Its five-nation Eurasian Economic Union has recently signed the Astana Agreement as a stepping stone to closer trade and economic ties with Iran. India has confirmed it will continue to buy Iranian oil and will find ways to pay in rupees and through barter to deal with restrictions on the use of dollars and the international banking system.

The European Union does not want US sanctions to apply to its companies. At risk is, for example, a potential 100 Airbus planes that Iran wishes to buy. On 17 May 2018, the EU declared any US sanctions on Iran as null and void in Europe. This may not, however, protect all companies as they hope. Some European based companies with substantial US business interests, exports to the US or with a requirement for components from the US, may decide it is better to act as if the US sanctions apply. The UK government official trade website both explains the policy of promoting more trade with Iran and cautiously tells companies to “consider whether their proposed activity is subject to US sanctions”.

Some loss of trade with Iran seems certain for EU companies. Whether the EU finds a strong legal response or not, the US hostility to Iran will have its impact on some large EU-based multinationals weighing up the overall balance of their interests. Meanwhile we still await the findings of the US government on the motor trade, which could cause more tensions between the EU and the US. These matters remain an unresolved negative for share investors.

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