The re-imposition of Iran nuclear-related sanctions by the Trump administration has ruffled the feathers of numerous foreign governments and businesses. The Europeans and Iranians are figuring out if they can go it alone and move ahead with the previously negotiated nuclear deal without the United States. The Russians have been left in a lurch with their own financial problems to handle. The Gulf states and Israel are supportive of a tougher stance toward Iran, but questions remain whether Tehran’s behavior will actually change because of the reimposed sanctions. US President Donald Trump and Iranian President Hassan Rouhani are now in a heated Twitter exchange.
But what does it all mean for global businesses?
European officials and some American commentators have argued that their domestic businesses stand to lose a great deal from the re-imposition of sanctions. An adviser to the EU’s top diplomat, Federica Mogherini, has gone so far as to say that the EU could sanction European businesses for pulling out of Iran.
The sanctions re-imposed earlier this week target Iranian use of US currency and ban trade in metals and sales of Iranian-made cars. The sanctions also target the import of Iranian carpets and food, and Iran will no longer be able to buy US and European aircraft and parts. These measures are a re-imposition of the trade-related nuclear sanctions that were previously in place before the 2015 agreement known as the Joint Comprehensive Plan of Action (JCPOA). Even more important than the re-imposition of the sanctions is the caution issued by President Trump underscoring that global businesses could either trade with Iran or the United States – a reference to the willingness of the Trump administration to impose secondary sanctions on those who do business with sanctioned Iranian entities.
While certain businesses will face losses, the fact of the matter is that the majority of businesses had continued to avoid business with Iran, regardless of the 2015 agreement, due to the risk associated with doing business with the country. And those non-US businesses who did begin working with Iran are now walking away not because they are legally required to, but because they want to avoid the risk of getting caught in the crosshairs of the US sanctions regime.
Before the JCPOA, a number of European banks – for example, HSBC, BNP Paribas and Standard Chartered – faced heavy fines for US sanctions violations. Other large banks shied away. Following the JCPOA, the then US secretary of state, John Kerry, pleaded with European banks to consider doing business once again with Iran, arguing that if Tehran saw the economic benefits to the deal it could change its behavior for the better. Stuart Levey, HSBC Holdings’ chief legal officer and a former US treasury under secretary for terrorism and financial intelligence, published an op-ed in response, questioning why the US would push European banks to engage in financial activity that was still illegal for US banks, and argued that HSBC would make its decisions based on financial-crime risk and the underlying conduct of Iran. Since that time, the major European banks have stayed away from Tehran.
Following the JCPOA, several global businesses did try to take advantage of the opening. But many have now left – for example, Total, Peugeot, Daimler, Siemens and Maersk – and have publicly attributed their departure to the re-imposition of US sanctions. Even the Russian oil giant, Lukoil, has stated that it would no longer pursue joint ventures with Iran due to US sanctions.
Since Trump’s May announcement to reimpose Iran sanctions, European government officials have stressed that they will look for ways for companies to continue doing business with Iran – for example through relationships between their central banks or through the EU’s “Blocking Statute.” However, the power lies in the hands of global businesses, who are ultimately responding to US sanctions, whether or not they are legally required to.
Unsurprisingly, businesses and banks take strong measures to avoid legal and reputational risk. And the unwitting risk of doing business with a deceptive Iranian actor does not outweigh the potential financial upside. It’s not to say that there isn’t money to be lost. US air giant Boeing was required to step away from a significant contract with Iran due to the re-imposition of sanctions.
But ultimately, if Iran wants business, it’s up to Iran to change. For years, it has pursued weak economic policies and has chosen to use the little money it does have – amid a crumbling rial and angry population – to help fund its objectionable behavior across the Middle East. For years, the Financial Action Task Force – the international standard-setting body for anti-money laundering/countering financing of terrorism (AML/CFT) – has pointed to Iran’s significant deficiencies. And for years Iran has infamously used deceptive practices to circumvent sanctions – a fact global businesses are very well aware of.
The reason why the attitude of businesses, given the re-imposition of sanctions, will not be terribly different is because there was no gold rush in Iran to begin with.
While I would argue that it would have been more prudent to keep the nuclear deal in place and renegotiate its terms by taking into account the broader region’s significant concerns, the fact of the matter is that the crippling sanctions are returning – and their weight will be felt regardless of how Europe responds, because of the private risk-based decisions of its own banks and businesses.
Hagar Hajjar Chemali is founder and CEO of Greenwich Media Strategies, which offers communications strategy, media engagement and public-relations consulting in areas including national security and counter-illicit finance. Chemali has held senior public-affairs and policy-making positions at the White House, state department and treasury department.
AFP PHOTO/ATTA KENARE