The Iranian nuclear deal: the challenge of the European Union

The Iranian nuclear deal: the challenge of the European Union

On the 14th July 2015, the Joint Comprehensive Plan of Action (JCPOA) – also known as the Iranian nuclear deal – was signed. The parties involved were Iran and the 5 + 1 group (the five permanent members of the UN Security Council: China, France, Russia, the United Kingdom, the United States, plus Germany and the European Union). The primary objective was to prevent Iran from developing a technology that would allow it to build atomic bombs. As a consequence of the agreement, the economic sanctions previously imposed by the United States (USA), the European Union (EU) and the UN Security Council (UNSC) were removed at the beginning of 2016[1]. However, on  May 8th, US President Donald Trump announced his country’s withdrawal from the Iranian nuclear agreement and the subsequent  implementation of US secondary sanctions (affecting third countries that have economic relations with Iran) suspended back in January 2016[2]. In this article, we will first address to the reasons that paved the way towards the nuclear agreement and explain its content. Furthermore, the controversial position of the EU will be outlined, taking into account the expert opinions on the strategic role it has assumed, especially since the announcement of the US withdrawal. In conclusion, considering the delicate international economic, financial and geopolitical balance, this article will try to explain whether the EU has and can play a leading role in neutralizing the effects of the confrontational relationship between Iran and the USA.

1. What is the JCPOA?

During the 2000s, Iran increased its
nuclear program, thus creating frictions with Western countries. In August
2002, the National Council of Resistance of Iran – a dissident group – publicly
revealed the existence of two undeclared nuclear facilities: the heavy water
production plant in Arak and the Natanz enrichment plant[3]. The International Atomic Energy Agency (IAEA)
inspectors visited Natanz and in May 2003, Iran allowed IAEA inspectors to
visit the Kalaye Electric Company but refused to allow them to take samples[4]. In June 2003 and faced with the prospect of being referred
by UNSC, Iran undertook negotiations with France, Germany and the United
Kingdom (EU 3). However,the US refused to be involved in these negotiations. In
October 2003, an agreement known as the Tehran Declaration was reached  between Iran and the EU 3, namely: Iran
agreed to cooperate fully with the IAEA and temporarily suspend all uranium
enrichment[5]. This was followed by the Paris agreement of November
2004, in which Iran agreed to temporarily suspend enrichment and conversion
activities[6]. In 2005, Mahmoud Ahmadinejad was elected president
of Iran, and from the beginning he outlined his policy in favor of developing
the country’s nuclear program. The following year, the UN approved its first
resolution asking Iran to stop its uranium enrichment and transformation
activities. Between 2006 and 2010, the UNSC adopted a total of six resolutions
(1696, 1737, 1747, 1803, 1835, 1929) imposing gradual sanctions on Iran,
including freezing assets of people and companies related to the enrichment
program, and banning the supply of nuclear technology into the country[7]. Simultaneously, both the EU and the US adopted
unilateral financial sanctions against Iran.

In June 2013, Hassan Rohani, considered a relatively
moderate member of the regime, won the Iranian elections. A few months later,
the first contact between the American and Iranian leaders was established.
Furthermore, Iran, the permanent members of the UNSC and Germany (P5 + 1) had already
reached a temporary agreement in November, known as the Joint Plan of Action,
which limited the Iranian nuclear program. According to the interim agreement,
Arak’s heavy water reactor ceased its activity and Iran pledged to reduce a
large part of its enriched uranium reserve[8].

After intense negotiations, the signature of the Joint
Comprehensive Plan of Action (JCPOA), also known as the Iranian nuclear
agreement, was announced on the 14th of July 2015. The agreement was
reached by Iran and the 5+1 group (UNSC members plus Germany, in addition to
the EU). The main objective was to prevent Iran from developing a technology
that would allow it to build atomic bombs, but would allow it to continue the
program for the production of nuclear energy for civil use. As a consequence of
the agreement, the economic sanctions previously imposed by the USA, EU and
UNSC were removed at the beginning of 2016 (issued with Resolution 1747) [9] .

The three main points of the
agreement are the containment of the Iranian nuclear program for at least a
decade, the lifting of international sanctions and increasing inspection. In
practice, it involved a decrease in the number of centrifuges (from 19,000 to
5,060). Indeed,  according to the
agreement, those in excess had to be brought to under the control of the IAEA
in Natanz. Furthermore, the JCPOA provided that enriched uranium higher than
3.67% had to be shipped out of Iran or diluted, and the amount of enriched
uranium had to be less than 300 kg. The limitation of plutonium production was
part of the agreement as well. On the one hand, Arak’s heavy water plant had to
be modified so as not to produce military plutonium. On the other hand, Iran
pledged not to build new heavy-water reactors for fifteen years. As Iran
ratified the additional IAEA protocol, it agreed to undergo inspections for
fifteen years once the agreement entered into force[10]. On January 16th
2016, the IAEA published a report stating that Iran had fulfilled the
constraints of the agreement, ceasing its enrichment of uranium. On February 11th
2018, Iran’s heavy water stock was 117.9 tons, and between 2016 and 2018, Iran
had not stored more than 300 kilograms of uranium hexafluoride, containing up
to 3.67% of uranium 235. From February 12th 2018, the stock had fallen to 109.5
kilograms[11].

On May 8th 2018, US
President Donald Trump announced his country’s withdrawal from the JCPOA and
the reintroduction of new sanctions against Iran, because “The
Iranian regime is the leading state sponsor of terror.  It exports
dangerous missiles, fuels conflicts across the Middle East, and supports
terrorist proxies and militias such as Hezbollah, Hamas, the Taliban, and al
Qaeda”[12]. Iranian President Hassan Rouhani then promptly replied
that Tehran would not abandon the nuclear deal and would continue to move
forward with the other signatories. To justify and reinforce the decision to
withdraw from the agreement, President Trump claimed to possess evidence
provided by Israeli intelligence. It supposedly demonstrated Iran had not fully
complied with the JCPOA, which waspublicly confirmed by Prime Minister Benjamin
Netanyahu on April 30th 2018. . EU High Representative for Foreign
Affairs and Security Policy, Federica Mogherini,  immediately replied that the nuclear agreement
belonged to the entire international community and that the EU was determined
to preserve it[13].

2. The
role of the EU and the expert opinion

The EU has been among the promoters
of the agreement to establish a political balance, especially between the two
sides of the Atlantic. Since 2006, the EU has implemented and strengthened all
the UN sanctions, while imposing autonomous ones. In addition to the
application of UN sanctions, the EU imposed a wide range of autonomous economic
and financial sanctions on Iran over the past decade, including:

  • Restrictions on the trade
    of goods: a prohibition of arms export to Iran, (or of) assets that would have
    been used in enrichment-related activities, an import ban on crude oil, natural
    gas, petrochemicals and petroleum products.
  • Restrictions in the
    financial sector: freezing of the activities of the Central Bank of Iran and
    the main Iranian commercial banks, setting up notification and authorization
    mechanisms for transfers of funds above certain amounts to Iranian financial
    institutions.
  • Measures in the
    transport sector: impeding access to EU airports for Iranian cargo flights,
    prohibiting the maintenance and servicing of Iranian cargo aircraft or ships
    carrying goods or prohibited materials[14].

On January 16th 2016,
after the entry into force of the JCPOA, the European Council revoked all the
economic and financial sanctions that were nuclear-related against Iran.
However, some restrictions remain in force[15]. The lifting of
sanctions in line with the JCPOA has facilitated trade and economic relations.
In 2016, in the first fiscal year following the implementation of the JCPOA,
imports from Iran reached 5.5 billion Euros, an increase of 344.8%, whereas EU
exports amounted to 8.2 billion, an increase of 27.8%. In 2017, imports from
Iran exceeded 10.1 billion and exports to Iran reached a peak of 10.8 billion[16]

However, the US decision had direct
repercussions on Iran’s relations with other countries. Annalisa Perteghella, a
researcher at the Institute for International Political Studies (ISPI) and an
expert in Iranian politics at the MENA Center Institute, pointed to the effects
of the US withdrawal. US secondary sanctions could be applied to any person in
the world. Thus, through these measures, the US affects third countries which
maintain economic relations with those countries subject to sanctions, such as
the EU[17]. So the EU seems to be the most
involved actor in this dispute: Iran will only respect the JCPOA if it can
continue to maintain its economic, energy and trade relations with the EU. For
this reason and following the US withdrawal from the agreement, the EU has
taken two important measures to protect its companies from secondary sanctions while
safeguarding its trade relations with Iran. First, on August 6th 2018,
the EU reactivated the Blocking Regulation, which prevents European companies
from complying with US requests and exempts European subjects from court
rulings and decisions of administrative authorities outside of the EU. However,
according to Annalisa Perteghella, the Regulation has more of a political value
than an economic one: the US has the power to exclude the international
financial institutions that have relations with Iran from its financial system.
The second measure concerns the addition of Iran to  the list of countries eligible for loans from
the European Investment Bank (EIB). However, the Bank also finances itself in
the US financial market, and the fact that exposure to Iran would frighten potential
buyers of bonds causes alarm. According to the expert, this is the reason why
the EU has very few instruments to contain the effects of American sanctions on
the short term[18].

According to Cornelius Adebahr, a
researcher on European foreign policy at Carnegie Europe, the EU must preserve
the international agreement. In his essay “Europe cannot save the Iran deal,
but it must try”, he states that Europe neither has the political power to
defend the agreement nor to assume the role as a bridge between Teheran and
Washington. At the same time and despite the economic influence, it (the EU?) cannot
manage to withstand the pressures from the United States, at least not in the
short term. However, in the long run it may turn out to be a central player,
creating alternative payment channels that are not subject to US sanctions,
making any dollar transaction impossible, hence achieving a sort of financial
independence. According to the expert, the EU’s current position is critical
because it neither has the political weight to influence US policy nor the
economic force to reassure Tehran. The only role it can have is to slow down a
new nuclear escalation as much as possible[19].

3. The EU tips the
scale

The EU is a global trade power and
its economic policy aims to support growth by investing in transport, energy
and research. The EU GDP in 2017 was 15.36 billion Euros, and together with the
US and China, it is one of the three biggest global players in international
trade[20]. In 2017, the US GDP was 16876.80 Euros,
and it has significantly increased after the election of President Donald Trump[21]. According to a research conducted by
Astrid Viaud, Doctor of the Catholic University of Louvain (UCL), the
withdrawal of the agreement and the reintroduction of autonomous sanctions by
the US can also be seen as a commercial strategy aimed at slowing the growth of
American commercial competitors in Iran. President Trump’s strategy is
therefore to stop the economic power of the EU. According to this research, the
EU has a relative strong economic power on one hand, but on the other, its
political instruments to enforce the agreement are limited to a symbolic
response to the US. At this point, the EU must rely on the diplomatic support
of Beijing and Moscow to eradicate instability in the Middle East and thus to
guarantee its commercial, maritime and energy markets[22].

In concrete terms, between May and
June 2018 and response to President Trump’s announcement, the EU has taken
measures to protect the interests of European companies investing in Iran and to
demonstrate commitment to the JCPOA[23]. On June 6th, the
European Commission adopted an update of the external lending mandate of the
European Investment Bank (EIB). Furthermore, through the update of the Blocking
Regulation, the EU has sought to amortize the effects of US extraterritorial
sanctions[24]. However, the EU was aware that its
measures did not commit the EIB to actually support projects in Iran, because
the governing bodies of the EIB have the power to decide whether to undertake
such financing activities in line with the relevant rules and procedures.

On July
6th, a joint JCPOA committee chaired by the High Representative,
which brought together the EU, E3 (France, Germany and the United Kingdom),
Russia, China and Iran was held at ministerial level in Vienna. All stakeholders
present reaffirmed their full commitment to and continued implementation of the
nuclear agreement. On August 7th, the updated EU Blocking Regulation
came into force to mitigate the impact of sanctions on the interests of
European companies that carry out legitimate business activities with Iran. The
Blocking Regulation aims to protect the established legal system and the
interests of legal persons exercising the rights recognized by the Treaty on
the Functioning of the European Union from the unlawful effects of the
extraterritorial application of such legislation[25]. At
the same time, the EU has also committed itself to maintaining cooperation with
the US, which remains a key partner and an ally[26].

Recently,
on the 24th September 2018, in New York, a ministerial meeting took
place between the E3 group (Germany, France and the United Kingdom, with the High
Representative)
[D1] , China, the Russian Federation and Iran. Participants reviewed the
process of identifying and implementing practical solutions to issues arising
from US unilateral withdrawal from the agreement, considering that Iran
actually continued to fully implement its nuclear-related commitments, as
confirmed by twelve consecutive reports of the IAEA. The participants also
emphasized that they intend to protect the freedom of economic operators
engaged in legitimate business activities with Iran, considering that, in any
case, the updated Blocking Regulation has a limited effectiveness against
American sanctions[27]. On the same day during a joint press conference with Iranian Foreign
Minister Mohammad Javad Zarif, Federica Mogherini confirmed that the EU intends
to develop a “Special Purpose Vehicle” (SPV) by November as a technical tool to
circumvent the impact of US sanctions[28]. A
SPV is a legal entity created to fulfill narrow, specific or temporary
objectives and it is typically used to isolate a company from financial risk[29].
This means that EU Member States will establish a legal entity to facilitate
legitimate financial transactions with Iran and allow European companies to
continue trade with Iran in accordance with EU legislation. This legal entity could
be open to other partners in the world. European diplomats described the SPV
proposal as a means of creating a barter system, similar to the one used by the
Soviet Union during the Cold War, meaning to exchange Iranian oil for European
assets. Several analysts suggest that it could result in a trade-in system that
would allow companies to bypass the international bank transfer system (SWIFT).
Credits for oil or goods imported from Iran by an EU company could be used to
pay an EU exporter for his goods or services to Iran. The SPV would operate in
Euros rather than US dollars, while the US authorities will not be able to
process transactions, unlike the SWIFT system[30].

It
seems that the EU wants to ensure it is perceived as an international actor able
to manage, observe and enforce the terms of the agreement with Iran in the long
term. However, the US withdrawal caused a chain reaction that increased
tensions with the entire Middle Eastern area. Iran, at least until now, has not
shown any concrete sign of rethinking regarding the JCPOA: this represents a
sort of « double-edged » link with the EU and other signatories. Their
situation is actually more complex than Iran, because the EU the US are not
only  historical allies but one of the
major trading partners. In other words, the EU wants to be able to balance its
approach by maintaining a strategy that can be beneficial for all the parties
involved. The maintenance of trade relations with the US remains imperative and
essential for the European economy and for its member states. However, it seems
that the decision concerning the SPV can be considered as a high diplomatic
act. The SPV will not only allow the survival of the agreement, but also a
loophole to circumvent the US secondary sanctions. Confirming what has been
explained by the experts, even if in this case the EU cannot have a decisive
political impact, thanks to its economic and diplomatic power it can turn out
to be a central actor that maintains relations both with Iran and with the USA.

Maria Elena Argano


[1] «Il Sole 24ore» Website : https://www.ilsole24ore.com/art/mondo/2018-05-02/che-cosa-prevede-storico-accordo-l-iran-che-trump-minaccia-abbandonare–163528.shtml?uuid=AErTLjhE&refresh_ce=1

[2] « La Repubblica » Website: https://www.repubblica.it/esteri/2018/05/08/news/usa_accordo_nucleare_con_l_iran_ultime_ore_prima_dell_uscita-195831106/

[3]  Consiglio nazionale della resistenza iraniana Website:  https://www.ncr-iran.org/it/comunicati-stampa/presidente-eletta/305-iran-nucleare-maryam-rajavi-saluta-la-risoluzione-dellagenzia-internazionale-per-energia-atomica

[4] “The Guardian” Website :https://www.theguardian.com/world/2015/apr/02/iran-nuclear-talks-timeline

[5] Ibidem

[6] « La Repubblica » Website : https://www.repubblica.it/esteri/2013/11/08/news/nucleare_il_dossier_iran_il_programma_di_teheran_dal_2003_a_oggi-70551803/

[7] “The Guardian” Website: https://www.theguardian.com/world/2015/apr/02/iran-nuclear-talks-timeline

[8] Ibidem

[9] Joint Comprehensive
Plan of Action: https://www.state.gov/documents/organization/245317.pdf

[10] Ibidem

[11] Agenzia internazionale dell’energia atomica Website: https://www.iaea.org/sites/default/files/18/03/gov2018_7_derestricted_fr.pdf

[12] White House Website: https://www.whitehouse.gov/briefings-statements/remarks-president-trump-joint-comprehensive-plan-action/

[13]« La Repubblica » Website : https://www.repubblica.it/esteri/2018/05/08/news/usa_accordo_nucleare_con_l_iran_ultime_ore_prima_dell_uscita-195831106/

[14] European Council Website: https://www.consilium.europa.eu/en/policies/sanctions/iran/,

[15] European Council Website: https://www.consilium.europa.eu/en/press/press-releases/2016/01/16/iran-council-lifts-all-nuclear-related-eu-sanctions/

[16] EEAS Website: https://eeas.europa.eu/headquarters/headquarters-homepage/2281/iran-and-eu_tk

[17] Istituto per gli studi di politica internazionale Website: https://www.ispionline.it/it/pubblicazione/usa-fuori-dalliran-deal-business-europeo-alla-prova-20869

[18] Ibidem

[19] Carnegie Europe Website:http://carnegieeurope.eu/2018/09/04/europe-cannot-save-iran-deal-but-it-must-try-pub-77176

[20] European Union Website: https://europa.eu/european-union/about-eu/figures/economy_it

[21] Trading Economics Website: https://tradingeconomics.com/united-states/gdp

[22] Diploweb Website: https://www.diploweb.com/Nucleaire-iranien-Echec-et-mat-de-l-UE-face-aux-Etats-Unis-Un-bras-de-fer-commercial-euro-americain.html?utm_source=sendinblue&utm_campaign=NL21081018_Fondamentaux_gopolitiques&utm_medium=email

[23] European Union Website: http://europa.eu/rapid/press-release_IP-18-3861_it.htm

[24] European Union Website: http://europa.eu/rapid/press-release_MEX-18-4085_en.htm

[25] European Union Website , EUR-lex: https://eur-lex.europa.eu/legal-content/IT/TXT/?uri=uriserv:OJ.CI.2018.277.01.0004.01.ITA&toc=OJ:C:2018:277I:TOC

[26] European Union Website: http://europa.eu/rapid/press-release_IP-18-4805_it.htm

[27] EEAS Website: https://eeas.europa.eu/headquarters/headquarters-homepage/51160/mise-en-%C5%93uvre-du-plan-daction-global-commun-d%C3%A9claration-minist%C3%A9rielle-conjointe_fr

[28] EEAS Website: https://eeas.europa.eu/headquarters/headquarters-homepage/51040/remarks-hrvp-mogherini-following-ministerial-meeting-e3eu-2-and-iran_en

[29] http://www.pmjournal-digital.com/pmjournal/april_may_2017?folio=55&pg=56#pg56

[30] “Financial Tribune” Website:   https://financialtribune.com/articles/economy-domestic-economy/94099/special-purpose-vehicle-for-iran-eu-trade-before-november

Maria Elena Argano

Après un bachelier en sciences politiques et relations internationales à l'Université de Palerme, j'ai décidé de continuer mon parcours à Bruxelles, en master de sciences politiques et relations internationales avec spécialisation paix, sécurité et conflits. En 2015, j'ai commencé mon parcours professionnel au sein de l’Institut Méditerranéen d’études internationales (IMESI). Ensuite, en 2016, pendant un an, j’ai été assistante de recherche pour le Research Unit One. Actuellement je suis coordinatrice du département consacré à la politique extérieure, sécurité et défense à l'IMESI. Chez EU-Logos, je m'occupe du portefeuille des relations extérieures et plus spécifiquement les relations entre l'UE et l'OTAN.

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