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David Lienemann
Joe Biden visits Belgium, May 2010.
David Lienemann

Will Biden’s Iran policy be the end of the European nightmare?

On Biden, Iran, and the EU

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March 4, 2021

By : Jan Lepeu


Biden’s election has been felt like a relief among (almost) all European chancelleries. The Trump administration has put transatlantic relations under a level of strain unseen since 2003. Among the core disagreements has been the US decision to leave the Iranian nuclear deal (JCPOA), and to unilaterally reimpose sanctions on Iran. US secondary sanctions meant that Trump not only reversed the normalization of Iranian relations with the US, but also actively prevented European economic actors from trading with Iran. In consequence, the Iranian regime has accused the European Union (EU) of not respecting its side of the agreement and ultimately relaunched nuclear activities contrary to its obligations under the JCPOA.



Trump and the Transatlantic Disagreement on Iran

Secondary sanctions refer to sanctions that aim to impose penalties on persons and organizations not subject to the sanctioning country’s legal jurisdiction and are therefore extraterritorial in their applications. The extraterritoriality of US sanctions allows such instruments to be constraining not only for companies and individuals based in the United States, but also to any actor using the US dollar as a currency of exchange or having an economic activity in the United States. The extraterritoriality of US sanctions, combined with the centrality of the US market and the US Dollar in the global economy, de facto means that the US sanctions hamper trade with Iran for almost any entity with international dealings around the world. This has been especially true for European economic operators due to the high-level of transatlantic economic integration.

Remarkably, Trump’s unilateral maximum pressure campaign lead Iran-EU trade relations to fall below their pre-2015 level, when EU sanctions, purposefully designed to hamper EU-Iran trade, were in place. Despite initial efforts, the EU and its member states have proven unable to repel the chilling effect of US sanctions and have been de facto forced to witness the dismantling of an agreement it considered vital for its own security. To policy concerns, the COVID pandemic added humanitarian ones, as many underlined that the very strict US sanctions hampered Iranian sanitary efforts, most notably by preventing the import of medicaments and protective equipment.

Such episodes have been particularly daunting to the EU’s willingness to play a bigger role in international affairs and in direct contradiction with the growing narratives around EU strategic autonomy and European sovereignty. This step back, furthermore, happened on a policy on which European disunity could not be blamed. Alarmingly, European hopelessness happened on a rare policy file that survived a shambolic Brexit process and dramatically opposed views on the Trump administration among the EU27.


A New Hope

Nevertheless, European diplomats will now hope that the new American administration will save the EU from its awkward position by rejoining the JCPOA, a promise from Biden’s campaign. But the path back to the JCPOA is a narrow one, as the USA and Iran disagree on who should move first, and whether to include potential additional issues on the negotiation table. The political options are, further constrained by upcoming elections in Iran and a rather skeptical Congress in Washington. However, Europe stands ready to pick up its favorite role, that of facilitator.

In that regard, it would be easy to overlook the symbolic value of JCPOA of for the EU and its diplomatic arm, the European External Action Service. Europeans have historically often looked on strategic negotiations on military-oriented nuclear program from the outside, even when the European continent was at the center of such negotiations, as reminded by the recent purely bilateral discussions, and disagreements, between Russia and the USA on the Intermediate-Range Nuclear Forces Treaty (INF) and the different START treaties.

In contrast, not only did the Iranian nuclear deal involve the three major European Powers (England, France and Germany), but also the European Union itself. As such, the JCPOA was considered by many in Brussels to be the main achievement of the Union’s High Representative (HR/VP) and the European External Action Service (EEAS), the EU equivalent of a Foreign Affairs Minister and its Ministry. The two institutions have been reshaped by the Lisbon Treaty (2007) and had to prove their relevance. What better way to do so than laying the ground to an agreement tackling a core security matter, nuclear non-proliferation. Indeed, both Catherine Ashton and Federica Mogherini, the first two HR/VPs, have played an important role in the discussions that led to the agreement in 2015. Their successor, Josep Borrell has already offered to host an informal meeting between the remaining parties of the JCPOA and the newly sworn in Biden administration in order to get the ball rolling.

It remains for now quite difficult to say if all parties will be able to agree on a new modus vivendi. In the short term, uncertainty is likely to continue regarding a potential sanction relief from the Biden administration, or at least a more lenient implementation of applicable sanctions. Even more unpredictable will be how European economic actors will respond to an eventual lifting of sanctions. The different layers of US sanctions are quite hard to read for companies and banks alike, and Iran started to complain about the timidity of the expected economic boost well before Trump was elected. Finally, companies will have every reason to remain circumspect about long-term investments based on any deal lacking congressional and bipartisan support in Washington.


Not just an Iranian Problem

Nevertheless, even the most optimistic observer will have to face that whatever Iranian policies are drafted in the White House and Foggy Bottom, none is likely to address the underlying problem of the extraterritoriality of US sanctions and their consequences for EU’s strategic autonomy. Due to the proximity of European and American positions on the Iranian nuclear issue until 2016, the extraterritorial elements of the Iranian sanctions adopted under Obama seemed bearable at that time. Trump has since proven that such transatlantic policy alignments are necessarily contingent on the views held on both sides of the Atlantic. And while Iran has been in the headlines due to the strategic nature of the JCPOA for European capitals, it is by no means the sole example of the effect of US secondary sanctions on European businesses and diplomacy.

Economic relations between the EU and states like Cuba or Venezuela remain today largely dictated by American legislations. Acute observers have noticed, and so did the Democratic leadership, that what turned Biden’s predicted early victory into a week-long thriller was a surge in Latino support for Trump in Miami. Trump’s harsh sanctions policy against Havana and Caracas has been particularly popular among certain Cuban and Venezuelan emigrants, which is likely to tighten Biden’s policy space to turn down sanctions regimes against the two countries and their extraterritorial effects on Europe. The extraterritorial aspects of US sanctions have been a tear in transatlantic relations since the mid-90s, and cannot be reduced to Trump’s unilateralism. The problem might potentially become of systemic nature as China also started its own sanctions program. The risk for the EU would be to have to navigate between two sets of (potentially contradictory) extraterritorial sanctions, seriously infringing both its ability to trade and its sovereignty.

Nevertheless, the awareness of the structural implications of the extraterritoriality of US sanctions on the transatlantic relations, beyond the specific case of Iran, have grown in recent months on both sides of the pond. The early moves from the Biden administration have shown a willingness to favor coordination with the Europeans over coercion, be it on imposing new sanctions on third country or on the sensitive question of the Nord Stream 2 pipeline. In that regard, the outcome of the comprehensive review of US sanctions policy announced by the new US Secretary of the Treasury will be particularly looked at.

In Brussels, Trump’s exit of the JCPOA, and the failure of the EU to put forward any effective policy response, made the issue unavoidable. At the request of the European Parliament Committee on International Trade (INTA), scholars from across Europe presented a sweeping assessment of the legal and economic challenges posed by extraterritorial sanctions. The report stated that “[t]he extraterritorial reach of sanctions does not only affect EU businesses but also puts into question the political independence and ultimately the sovereignty of the EU and its Member States”. The authors put forward a number of policy recommendations ranging from bilateral countermeasures, over presenting the case in front of WTO’s dispute settlement mechanism, to reinforcing the role the Euro as a global currency. Some of those recommendations have made it into the new EU strategy to strengthen the European economic and financial system presented by the Commission in January 2021. Explicitly referring to the EU’s need to protect itself “from unfair and abusive practices”, it envisages reinforcing the international role of the Euro, improve the resilience of the EU financial market infrastructures and strengthen the enforcement of its own sanctions regimes.

The comparisons between the policy proposals in the report to the INTA and the solutions put forward by the Commission is quite telling on EU’s willingness to favor instruments which are not directly pointing at its traditional transatlantic partner. Nevertheless, the objectives of the Commission’s new strategy of strengthening its own currency and completing the financial single market are all but new and unlikely to have much effect in the short term.

While the prospect of renewed diplomacy between the USA and Iran is definitively a hope for Europeans to put an end to their Iranian nightmare, Europeans would be wise not to forget that even the achievement of a modus vivendi between Iran, the United States and the EU is unlikely to solve the underlying issue of the extraterritoriality of US sanctions. The Obama years have been a lesson in that regard. While policy alignments between Europe and the US makes the issue of extraterritoriality less salient for a certain period of time, short of addressing their core objections to some of the effects of US sanctions, the EU and its strategic autonomy will remain at the mercy of a change of hearts, or majority, in Washington.

The views, thoughts, and opinions expressed in this article belong solely to the authors, and not to their employer, organization, committee or other group or individual.

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