While headlines last week zoomed in on the EU’s threat to retaliate against the US “within a matter of days” should Washington’s more aggressive sanctions against Russia interfere with Europe’s energy industry, there was a second much less mentioned bone of contention in the transatlantic row over tolerable economic penalties.

The draft law on toughening sanctions packages, passed by the Senate on July 25 with a thumping bipartisan vote of 97 to two, targets Russia – to the chagrin of Donald Trump who of late has been palling up with Russian President Vladimir Putin – but also tightens the screws on North Korea and Iran, almost certainly to the gratification of Trump, who’s not keen on the mischief of Pyongyang and is a confirmed Iranophobe. 

For EU member states the inclusion of North Korea is no problem, but the move to further constrain the Iranians certainly is. To the great many European businesspeople waiting impatiently to invest in Iran, it is a Trumpean disfigurement of how things should be proceeding. “Sad!” to borrow from the US president.

Raising American eyebrows

In the days prior to Trump’s visit to Europe for the G20 summit in Hamburg in early July, the sudden blossoming of numerous milestone deals between big EU companies and Tehran must have raised eyebrows among the American president’s advisors. Their boss has after all described the 2015 Joint Comprehensive Plan of Action (JCPOA), or nuclear deal – which curbed sanctions against Iran and paved the way for such business – as “the worst deal ever”, while in Saudi Arabia in late May he vilified the Islamic Republic as the terrorist-enabling bogeyman of the Middle East. 

French major Total announced its delayed South Pars 11 deal, the first multi-billion-dollar Western energy investment in Iran since nuclear sanctions against the country were lifted early in 2016 and the first such contract between the Iranians and one of the big European oil companies in more than a decade;  Germany’s Volkswagen declared that it was returning to Iran after 17 years; the Paris Air Show saw a wealth of deals struck between Iranian airlines and Airbus, and also Boeing, one US company always nervously awaiting Trump’s next word on Iran given the billions in dollars now at stake following a slew of contracts it’s agreed with the Iranians; and, as a final example, Finland’s Nokia signed up to a cooperation with the Mobile Communications Company of Iran (MCI) to roll out fifth generation (5G) internet services. 

For the White House, the unwelcome cherry on the cake perhaps arrived the day before the House of Representatives vote on the sanctions bill it sent to the Senate when the Iranian foreign ministry announced that it would be minded to grant a request from Brussels to set up an EU office in the Iranian capital.

“Rexit” rumours linked to compliance row

Trump’s Secretary of State Rex Tillerson was on July 27 forced to deny that he was mulling a “Rexit” from the White House administration over differences with the president, including his insistence that the US does not as yet have any valid reason to withhold its regular certification of Iran’s 90-day compliance with the JCPOA. Trump is said to have come very close to killing the agreement in mid-July and he told the Wall Street Journal last week that “if it was up to me, I would have had them noncompliant 180 days ago”. But whichever path Tillerson follows from here on in, it is clear there is a stark divergence between Trump and Brussels when it comes to building up trade and investment with the Iranians – and the divide is widening day by day.

Congress’s bill will mean the pushing forward of another set of non-nuclear-linked sanctions against Iran – the latest in several bundles of penalties not ruled offside by the nuclear deal that have been introduced since Trump took office – but the EU seems only too eager to grant the country of 80mn a fixed place in the global economy.

In what can be taken as a polite warning to Washington not to try and gratuitously wreck what is after all a multilateral, not a bilateral, deal, the EU’s foreign policy chief Federica Mogherini told a Brussels press conference on July 11 that "the nuclear deal doesn't belong to one country, it belongs to the international community," adding: "We have the responsibility to make sure that this continues to be implemented."

While gently advising the Trump administration to tread carefully with its inter-agency review of whether the lifting of nuclear-linked sanctions against Iran was in the national security interests of the US, Mogherini was sat next to Sergei Lavrov, the Russian foreign minister. Russia is another country with great hopes of making a big return on investments in Iran, particularly when it comes to developing its gas reserves – the second largest in the world – and oil reserves – the fourth largest.

Fearing assassination-by-tweet

But it’s not just in Brussels and Moscow where heavy sighs will be heard should the day arrive when Trump assassinates the nuclear deal by tweet. China too has put pen to paper on some pretty major investments. Just last week it signed up for a $1.5bn investment in electrifying a high-speed rail link between the Iranian capital and second city Mashhad, while it also has a considerable stake in the South Pars 11 gas field development venture. The UK, struggling to ‘keep calm and carry on’ as its ministers trot the globe in search of promising post-Brexit markets, is another country with clear deep-seated frustrations over Washington’s ultra-hostile stance towards Iran, whatever the truth of the Americans’ claims about Iran’s ambitions to eventually build an atomic bomb, threaten Israel with an advanced ballistic missile arsenal and use terrorist and militia groups to make itself the kingpin of the Middle East. 

The British irritation at a promised land denied has been perhaps best relayed by ex-UK chancellor of the exchequer Norman Lamont, now the UK trade envoy to Iran. On May 22, he weighed into the row over the “unremitting hostility” expressed towards the Islamic Republic by the commander-in-chief during his visits to Saudi Arabia and Israel. Scathingly blasting Trump for not at all reciprocating in response to Tehran’s relatively constructive approach to international relations, Lord Lamont also drew attention to the inconsistency of levelling terrorism charges against Iran while visiting Riyadh when the Saudis are hardly squeaky clean in that regard. He said: “The point to remember about [Iran’s] Shi'ism is that it is much more flexible, much more pragmatic and much more liable to interpretation in the context of the times than is the Wahhabism of Saudi Arabia and most of the terrorism the West suffers from comes from Wahhabism from Isil [or Isis] and Al-Qaeda.”

Meanwhile, London-based Sturgeon Capital, which runs an Iran fund, is busy explaining to investors the less obvious great riches yet to be mined in modern-day Persia beyond the oil and gas opportunities. Clemente Cappello, CIO of the firm, names glass, manufacturing and petrochemicals, and an incipient technology industry, as sectors with true promise. On July 14, he told CNBC's "Street Signs" how Iranian stocks are on average trading at just six times price-to-earnings, while dividend yields are well into the double digits. Interest rates, he added, could soon be cut in half.

But, as Cappello noted, the “real obstacle” for potential investors is banking. Sanctions retained by Washington bar US banks, or any European banks with significant American exposure, from doing business in Iran and trade and investment with the country cannot be conducted in dollars. That puts great constraints on potential financing and there are even stories of banks that might seem in the clear to get involved in FDI in Iran refraining from doing so for fear of being entangled in American restrictions at a later date.

"The continued aggressive rhetoric [towards Tehran from Washington] clearly does not help sentiment and makes perceived risks higher than what they actually are," Cappello said in his CNBC interview, adding: “Our hope is that... deals such as the one Total signed will set a precedent that doing business with Iran is okay and encourage the global business community to re-engage the country."

Up, up… but not yet away

If you look at the stats on foreign investment in Iran, you might think things are up, up and away. You might say to yourself “If this is what can be achieved under the fraught circumstances, imagine what performance could result if Tehran and Washington were to settle their differences.” After all, the United Nations Conference on Trade and Development (UNCTAD) already has Iran ranked as among the successful countries in attracting foreign investment. Its 2017 World Investment Report says that in 2016 Iran attracted $3.37bn worth of foreign investment, a 63% improvement year on year.

How the Iranians would love to drive that figure up to dizzying heights – and their ambitions are not small with, for instance, $200mn being sought to develop the country’s oil, gas and petrochemical industries over the next five years – but there is a lot of anxiety that Trump, rather than attempting to deal the nuclear agreement one devastating blow, is trying to incrementally throttle it. The fear is that the strategy might be to steadily keep hindering investment by gradually piling on more and more sanctions to the point where the Iranians will no longer be persuaded that their adherence to the JCPOA is worthwhile.

Vincent Eiffling, a researcher on Iran at the Belgium-based Centre d’Etudes des Crises et des Conflits Internationaux, described such a scenario to Bloomberg on July 26, saying: “What investors – whether Russian, Chinese or Europeans or others – hate the most is uncertainty, and what worries Iran is that because of the uncertainty brought on by the US, Iran may not see the return of foreign investors it hoped the deal would yield.”

For now, the Iranians are showing patient restraint, despite contending that certain supposedly non-nuclear deal-related sanctions introduced by the Trump administration actually breach the JCPOA. They have not, for example, so far used the so-called Joint Commission meetings held every three months in Vienna to trigger a formal dispute resolution mechanism available to nuclear deal signatories alleging a JCPOA breach. Charges from the American side that Tehran is not following the spirit of the nuclear deal have, meanwhile, been batted back with the observation that it was Trump who was very much in breach of the spirit of the agreement when in July at the G20 summit in Hamburg he advised foreign heads of government to stay out of investing in Iran. 

Whether the erratic Trump will follow through on his promises to detonate the JCPOA is of course – as with just about any pledge he makes – not knowable. But in Tehran they can at least content themselves with having made one advance that nobody can take away: under the nuclear deal, Iran has already received much of the money that was frozen in foreign banks by the debilitating sanctions that existed prior to the brokered agreement. If Trump exits the deal at this point, he’ll be doing so knowing that Iran is cash rich and no longer subject to international commitments to limit its nuclear stockpiles or allow international inspections of its nuclear programme.