Back-to-work Iran confronted by darkening nuclear deal horizons

Back-to-work Iran confronted by darkening nuclear deal horizons
The nuclear deal was adopted in October 2015 by Iran, the US, the UK, Germany, France and China, with the European Union also adding its signature.
By bne IntelliNews June 6, 2018

As Iran prepared to go back to work on June 7 following three days of public holidays, there was little evidence of the kind of “credible” measures it has called for from Europe to stop the nuclear deal unravelling at the instigation of the Trump White House.

June 6 did at least bring news that the European Union, France, Germany and the UK have formally asked the US not to impose sanctions on EU-based companies over Iran. A published letter signed by their combined eight foreign and finance ministers asks Washington to permit EU companies to continue doing business with the Islamic Republic, despite the unilateral withdrawal of the US from the multilateral accord announced a month ago and the subsequent threat to introduce the “strongest sanctions in history” against Tehran and any foreign entities trading with Iran or investing in the country.

"As allies, we expect that the United States will refrain from taking action to harm Europe's security interests," the ministers wrote in the letter addressed to Treasury Secretary Steven Mnuchin and Secretary of State Mike Pompeo, underscoring the contention of nuclear deal signatories France, Germany, the UK, Russia and China that the agreement—formally known as the Joint Comprehensive Plan of Action (JCPOA)—has been effective in barring Iran’s path to the possible development of a nuclear weapon in return for the lifting of crippling sanctions since January 2016. Pointing to how the accord also helps to preserve fragile peace arrangements in the Middle East, the letter added: “An Iranian withdrawal from the [nuclear deal] would further unsettle a region where additional conflicts would be disastrous.”

The letter, posted on the official Twitter page of French Finance Minister Bruno Le Maire, was evidence that European political leaders have fallen into a pressing race against time to save the JCPOA. With European companies now announcing plans to pull out of Iran at a faster and faster rate—and even some Russian and Indian companies almost giving up hope that they will be able to maintain business relations with the Iranians—the EU’s big three countries desperately need a breakthrough in shielding companies in the bloc from secondary sanctions that would cut them off from the US financial system and expose them to a range of penalties.

Bye-bye Peugeot?
The latest big names to state that they are preparing to suspend their joint ventures or deals in Iran to comply with US law include PSA, which makes Peugeot and Citroen cars, and—to nobody’s surprise at all—American plane manufacturing giant, Boeing, which had lined up deals with Iranian airlines worth many billions of dollars. Airbus, which needs US licensing for Iran sales as it uses American components, might well be next.

Iran, of course, will have little incentive to stay in the JCPOA if the EU does not deliver it the economic incentives to do so. And, almost certainly as a warning shot to the European powers to get a move on in challenging what it describes as Trump’s “bullying”, it on June 5 informed the UN nuclear watchdog of “tentative” plans to produce feedstock for centrifuges, the machines that enrich uranium. The previous day Iranian Supreme Leader Ali Khamenei said he had ordered preparations to increase uranium enrichment capacity if the nuclear deal fell apart.

“The Agency received a letter from Iran on 4 June informing the Agency that there is a tentative schedule to start production of UF6,” a spokesman for the watchdog, the International Atomic Energy Agency (IAEA), stated, referring to uranium hexafluoride, the feedstock for centrifuges. The JCPOA permits Iran to enrich uranium to 3.67%—greatly below the 90% needed for weapons grade material—and places a 300-kilogram cap on its stock of enriched uranium hexafluoride.

The EU, which is also urging the Trump administration to grant exemptions to maintain banking and financial channels with the Central Bank of Iran and other Iranian banks not sanctioned by the EU, maintained a calm demeanour on news of Iran’s uranium move, saying an initial assessment concluded that it would not breach commitments made by Tehran under the JCPOA. "Following a first assessment, the announced steps per se are not a violation of the JCPOA," Maja Kocijancic, spokeswoman for EU foreign policy chief Federica Mogherini, told AFP. "However, at this particularly critical juncture, they will not contribute to build confidence...," she added.

Blows to confidence
Iran, however, could hardly be blamed for struggling with its own confidence that the JCPOA-minus-the-US still has a realistic prospect of survival with company and trading sources telling Reuters on June 6 that European refiners are winding down oil purchases from Iran, closing the door on a fifth of the OPEC member’s crude exports.

Refiners including France’s Total—which has already warned that it cannot continue with its multi-billion-dollar contract to develop part of the giant South Pars gas field off Iran’s Persian Gulf coast if Washington does not award it a sanctions waiver—Italy’s Eni and Saras, Spain’s Repsol and Cepsa as well as Greece’s Hellenic Petroleum are preparing to halt purchases of Iranian oil once sanctions bite, the sources reportedly said.

The negative scenario developing around Iran’s relations with the hydrocarbons sector might be said to have worsened even further on June 6 when bne IntelliNews caught sight of a conference attendance advisory note issued by the Platts oil, petrochemicals, energy and metals trade news agency and its parent S&P Global Inc. The note said: “As a result of US sanctions regulations applicable to Platts and its parent S&P Global Inc., Platts is unable to permit attendance by Iranian Nationals to this event.”

Confidence that the EU can get its act together to make a realistic attempt at salvaging the JCPOA took another knock on June 6 with reports that the European Investment Bank (EIB)—the EU’s nonprofit long-term lending institution—has baulked at plans to support EU businesses in Iran. France and Germany proposed an EIB workaround to allow an Iran-only banking channel but it appears that the bank is unhappy at the plan because it raises funds on the US markets, according to Mehr News Agency. Almost a third of EIB lending is dollar-denominated, exposing the bank to potential US sanctions down the road.

Europe’s central banks baulk at euros-for-Tehran plan
Prior to the reports of a disagreement developing at the EIB, on May 29 Handelsblatt Global reported on difficulties hindering an EU Commission plan to help Iran keep at least part of its oil export revenues by enlisting the help of Europe’s central banks.

It would involve bypassing the US financial system by handling oil purchases from Iran in euros, without the aid of commercial banks. To achieve that, central banks in Europe would have to transfer large sums of euros to the Iranian central bank. But Europe’s central banks are reportedly deeply sceptical, fearing they are being pulled into an arrangement that could lead them to aid money laundering or even fund terrorism. No one could say for sure where money transfers to the Iranian central bank would end up, central bank sources told the news outlet.

On June 5, meanwhile, the US showed no sign at all of smiling kindly on the EU’s requests for sanctions-shielding. The US Treasury Department called on US allies, partners and the private sector to work harder to ensure Iran does not exploit them to fund Iranian “nefarious activities.”

“You must harden your financial networks, require your companies to do extra due diligence to keep them from being caught in Iran’s deceptive web, and make clear the very significant risks of doing business with companies and persons in Iran,” Under Secretary of the Treasury Sigal Mandelker said in a speech. “To those in the private sector, I urge you to also take additional steps to ensure Iran and its proxies are not exploiting your companies to support their nefarious activities,” she added.

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