Europe Must Confront America’s Extraterritorial Sanctions
Europe’s biggest challenge in resisting US sanctions on Iran is not legal or even geopolitical. It is psychological: European leaders act as if the US still cares about a trans-Atlantic alliance of shared interests, values, and approaches.
NEW YORK – Donald Trump’s renunciation of the Joint Comprehensive Plan of Action (JCPOA) with Iran and the reimposition of US sanctions on that country threaten global peace. Europe’s security depends on defending the agreement with Iran despite the US withdrawal. That, in turn, requires Europe, along with Russia, China, and other United Nations member states, to ensure that economic relations with Iran can develop. And that can happen only if Europe confronts, and ultimately overturns, America’s extraterritorial sanctions, which aim to deter trade and financial activities with Iran by non-US actors.
The purpose of Trump’s move is clear and indeed explicit: to topple the Iranian regime. Given this folly, European citizens accurately sense that Europe’s security interests are no longer closely aligned with those of the United States.
America’s bullying approach to Iran has been seconded – indeed championed – by two Middle Eastern allies of the United States, Israel and Saudi Arabia. Israel invokes US power to avoid having to make any compromises with the Palestinians. Saudi Arabia invokes US military power to contain its regional rival, Iran. Both are hoping for a direct US war with Iran.
America’s previous efforts at regime change in the Middle East yielded horrendous results for the US and Europe (to say nothing of the disasters that befell the countries caught up in the US-provoked mayhem). Such “wars of choice” have been the major factor in the surge of migration to Europe from the Middle East and North Africa. Even when regime change has “succeeded,” as in Afghanistan, Iraq, and Libya, the aftermath has been violence and instability. And when regime change has failed, as in Syria, the result has been ongoing war.
The humiliating failure of French President Emmanuel Macron, UK Prime Minister Theresa May, and German Chancellor Angela Merkel to convince Trump to remain in the JCPOA was predictable. The US decision reflects two converging forces: a deep-seated foreign-policy tendency – manifested by all recent US administrations – to seek hegemony in the Middle East, and Trump’s peculiar brand of psychopathy. Trump delights in embarrassing European leaders; their squirming is his triumph.
Yet they are not powerless. The agreement with Iran can still be salvaged, precisely because it is a multilateral agreement, endorsed by the UN Security Council (Resolution 2231), not an agreement solely between the US and Iran. Indeed, under Article 25 of the UN Charter, all UN member states, including the US, are obligated to fulfill the JCPOA. Trump’s withdrawal of the US from the JCPOA is itself a violation of international law.
The essence of the JCPOA and Resolution 2231 is Iran’s cessation of activities that could lead to the development of nuclear weapons. Strict compliance by Iran is linked to the normalization of international economic relations, including the lifting of UN-agreed sanctions.
Even if the US now absents itself from the JCPOA, it has only two means to block the implementation of the agreement between Iran and the rest of the world. The first would be to foment war. This clearly is on the US agenda, especially with the neoconservative doyen John Bolton back in the White House as National Security Adviser. The world must steadfastly resist another ruinous US military adventure.
Extraterritorial sanctions are the second way the US could kill the JCPOA. It is one thing for the US to decide that it will not trade with Iran. It is quite another for the US government to attempt to block trade with Iran by non-US parties. This is America’s intention; it is up to Europe and China to defeat it, in the interest of global peace, as well as in their own direct economic interest.
In practical terms, the US will be able to enforce anti-Iran sanctions on companies operating in its domestic market, and most likely on subsidiaries of US firms operating abroad. Yet the US will try to go much further, by trying to block non-US companies from dealing with Iran. The US will probably succeed in clamping down on dollar-based transactions, as these are generally cleared through the US banking system. The real issue will come with non-US companies operating outside of the US and interacting with Iran via non-dollar currencies such as the euro and renminbi.
The US will certainly try to punish such companies, whether by targeting their local subsidiaries, by trying to haul them into US courts, or by denying them access to the US market. Here is where the European Union must take a strong stand and move beyond begging Trump for “waivers” for specific European business deals, a process that would make European countries even more subservient to Trump’s whims. Europe should defend a firm and unequivocal “No” to US extraterritorial sanctions, notably on companies operating in non-dollar currencies.
The EU should insist that extraterritorial sanctions violate international law (including the Resolution 2231 and therefore the UN Charter) and the rules of the World Trade Organization. They should recognize that acquiescence would be tantamount to handing the US a blank check to set the rules of war and peace beyond the UN Security Council, and the rules of global trade beyond the World Trade Organization. The EU should be prepared to use the WTO dispute resolution process against the US, and to bring its case to the UN Security Council and General Assembly. Where Europe is afraid to tread, China will surely swoop in to capitalize on business opportunities in Iran. And China would be right to do so.
Europe’s biggest challenge is not legal or even geopolitical. It is psychological. European leaders act as if the US still cares about a trans-Atlantic alliance of shared interests, values, and approaches. Sadly, this is no longer the case.
The US and Europe do still have many shared interests; but they have many divergent ones as well, especially when the US violates international law. Europe needs its own security policy, just as it needs its own trade and environmental policies. The showdown over the JCPOA is therefore a moment of truth. World peace depends on Europe’s defense of the UN Charter and the rules of international trade.
The Known Unknowns of US Sanctions Against Iran
The sanctions against Iran reinstated by US President Donald Trump raise two all-important questions that have no convincing answers. But they also raise a third question, about which financial markets are likely to be wrong.
BEIJING – The sanctions against Iran reinstated by US President Donald Trump raise two all-important questions that have no convincing answers. First, will this action make the world safer, as Trump claims, or will it further destabilize the Middle East and undermine future efforts to limit nuclear weapons, as argued by most geopolitical experts not directly employed by the US, Israeli, or Saudi governments? And, second, will US efforts to compel foreign companies to observe its sanctions against Iran prove as tough as Trump’s belligerent rhetoric?
The Iran sanctions could of course turn out to be an empty gesture. As a former Chinese ambassador to Iran recently put it: “For more than a year, Trump’s diplomacy, from the North American Free Trade Agreement, the Trans-Pacific Partnership trade pact and the Paris climate deal to the Korean Peninsula nuclear issue and the Syrian civil war, can be described as loud thunder but little rain.”
Still, the question of war and peace is impossible to answer. Fifteen years of Middle East chaos unleashed by the 2003 Iraq war have taught the world one indisputable lesson: nobody in the White House, the CIA, Mossad, or the Saudi intelligence services has a clue as to what might happen next in the region.
The commercial question is also hard to answer, for a simpler reason: The real extent of sanctions enforcement will not be clear until the late stages of the six-month “wind-down period” provided by the new US regulations for businesses to disengage from Iran.
But at this early stage in the US-Iran confrontation, another, even more important, economic question is worth considering: What will the US sanctions do to the price of oil?
At first sight, the answer seems too obvious to bother discussing: The oil price will surely rise as sanctions curb Iran’s output and exports, while traders brace themselves for a possible war. But financial markets have a disconcerting habit: predictions viewed by investors as completely obvious often turn out to be wrong. The outlook for oil prices could turn out to be such a case, for several reasons.
Oil prices are already 70% above their level last summer – and expectations of US sanctions against Iran have been an important driver of this surge. To “buy on the rumor and sell on the news” is a time-honored principle of financial speculation. Unprecedented recent purchases of oil contracts by non-commercial speculators in the New York and London futures markets suggest that sanctions may already be priced in, with Brent oil trading at $78 a barrel.
This price had never risen above $70 since 2014, when the upsurge in US shale production caused oil prices to collapse. And oil for future delivery in 2020 still costs well below $70, creating an unusual market condition called “deep backwardation,” which was last seen in the autumn of 2014 and often presages a steep price decline.
Turning from speculative conditions to the fundamentals of oil production, it is far from clear that sanctions will reduce Iran’s exports sufficiently to affect the global balance of supply and demand. While Iran’s exports almost doubled after the previous sanctions were lifted in 2015, from 1.5 million barrels a day to around 2.5 million barrels currently, most of this oil has been sold to China, India and Turkey, all of which are likely to ignore or circumvent US sanctions.
The genuinely vulnerable part of Iran’s oil trade are exports of just 750,000 barrels daily to the European Union, South Korea, and Japan. The EU has promised to protect its trade with Iran, but even if this proves impossible, much of the Iranian oil now flowing to Europe, Japan, or other US allies will doubtless be diverted to countries such as India and China, which will free up more Saudi, Iraqi, or Russian oil for Europe and Japan.
The fact that oil traders constantly redirect oil cargoes around the globe explains why most analysts expect sanctions to reduce global oil supplies by less than 500,000 barrels a day. A shift on this scale would be smaller than the 700,000-barrel collapse of Venezuelan oil exports since last year, and much smaller than the increase in US daily output of 1.1 million barrels projected over the next 12 months, not to mention the probable reduction in global oil demand caused by the sharp increase in prices since last summer.
In short, the Iran sanctions will have less impact on the global balance of supply and demand than the performance of the world economy and the behavior of other oil producers. This suggests another reason why the US-Iran confrontation could lead to lower, not higher, prices: Trump and his Saudi allies now have a very strong political incentive to resist further upward pressure on oil prices.
Rising gasoline costs have already reversed almost half the gains from this year’s tax cuts for middle-class Americans. If oil prices rise much further during the summer “driving season” that starts in the US about now, Trump will be blamed by voters and Republicans could suffer in November’s midterm congressional elections, especially in Midwestern swing states.
Assuming that Trump now finds it politically expedient to curb oil prices, the Saudi leadership can be expected to offer him whatever support he requires. On the other hand, Iran and Russia, which had previously been less hawkish than Saudi Arabia about OPEC pricing, might now support tougher supply restraints, precisely because a sharp rise in oil prices could cause a punishing backlash against Trump.
Past experience suggests that US and Saudi political interests are likely to prevail, at least in the short term. That was certainly true after the two Iraq wars. Oil prices plunged by 45% in1991, and by 35% in 2003, within a month of the US launching its attacks. A fall on this scale seems inconceivable today, but oil prices are likely to head downward, despite the Iran sanctions – or maybe because of them.
Trump’s War of Choice
For Donald Trump, the Iran nuclear deal was always an impediment to regime change, rather than a boon to nuclear disarmament. But by scrapping the agreement and reinstating sanctions, Trump risks leaving the Middle East even worse off than George W. Bush's presidency did.
TEL AVIV – President Donald Trump’s decision to withdraw the United States from the 2015 nuclear deal with Iran was not his first departure from a key international agreement. From the Trans-Pacific Partnership to the Paris climate accord, tearing up multilateral frameworks has become a Trump specialty.
But even by Trump’s standards, exiting the Joint Comprehensive Plan of Action (JCPOA), as the Iran deal is formally known, is a bridge too far. The move is already being compared to President George W. Bush’s ill-fated attempt to reshape the Middle East through wars in Afghanistan and Iraq. Like Bush’s military misadventures, Trump’s approach to the region carries enormous risks, not least because it has buried whatever was left of the transatlantic alliance in the chasm separating America’s power politics and Europe’s emphasis on diplomacy.
Trump’s move is not just about curbing Iran’s weapons of mass destruction. Rather, his objective is regime change, something he apparently hopes to achieve by draining the Islamic Republic’s economic and strategic resources. By reinstating sanctions, Trump is all but begging the Iranian people – who will bear the brunt of the sanctions’ pain – to rise up against their government.
Trump’s abrogation of the JCPOA has left Iran with two options, neither of them good. The first is to renegotiate the agreement with the remaining signatories – China, France, Russia, the United Kingdom, Germany, and the European Union. Iranian President Hassan Rouhani has already hinted at this possibility, but his ability to deliver could be limited when sanctions return. Forced to choose, European companies would sacrifice business in Iran to maintain access to the American market. And, as Iran’s economy falters, Iranians will seek to apportion blame.
The second option is no better. Iran’s reformists could capitulate to hardliners, scrap the JCPOA altogether, resume nuclear activities, and accelerate the country’s ballistic missile program. This would all but guarantee that Israel would launch a pre-emptive strike on Iran’s nuclear installations – with America’s blessing, if not complicity. At that point, Iran would feel free to redeploy its proxies against Israel, starting with Hezbollah in neighboring Lebanon. And this could lead to a broader conflagration involving other US allies in the region, including the Saudis and other Sunni Arab powers.
Unfortunately, the outcome to avoid is the very one that Israel’s leadership seems keen to bring about. Last month, Israeli Prime Minister Binyamin Netanyahu accused Iran of cheating on the nuclear deal. At the time, Netanyahu’s bizarre presentation – in English, no less – met with derision in the West. Now it looks like a prelude.
In fact, the Netanyahu-Trump tag team – which is largely responsible for the scuttling of the nuclear deal – is an explosive alliance of two narcissists who have allowed dysfunctional domestic politics to dictate their international behavior. In Trump’s case, the goal seems to be systematic deconstruction of President Barack Obama’s legacy, for no other reason than to be true to his electoral campaign (which, in a sense, has never ended).
Netanyahu, meanwhile, is enamored of his carefully honed image as the savior of the Jewish people from a second Holocaust. With his own political fortunes clouded by legal troubles that could lead to his indictment, warmongering has become a strategy to win reelection. In fact, support for Trump in Israel reached a record high after his decision to withdraw from the JCPOA, and following Israel’s massive military strike against Iranian targets in Syria. Netanyahu’s tactics also conveniently distract international attention from the Palestinian problem, which is coming to a head again.
Israel has the strongest military in the Middle East, but Netanyahu must not be allowed to use it for his own political gain. Israel last fought an interstate war in 1973, and the trauma of that fight still lingers. Moreover, military strength alone has done little to safeguard the country’s borders. The “Begin Doctrine,” Israel’s preventive-strike strategy for maintaining a regional monopoly on nuclear weapons, has not led to fewer rocket attacks from Israel’s Iranian-backed foes.
Only robust international diplomacy can halt the Middle East’s slide toward nuclear proliferation. Even without the US, the JCPOA’s remaining signatories can salvage the agreement’s central tenets by supporting Iran’s moderate leaders in mitigating the effects of new sanctions. The deal’s remaining supporters can also help defuse the crisis on Israel’s northern border, where Israeli and Iranian forces are already engaging each other directly.
In order to reach a new deal that ensures Iran’s continued denuclearization, puts its ballistic missile program under surveillance, and encourages a less hostile foreign policy, both sanctions and regime change must be taken off the table. Trump will most likely hear the same message from his North Korean counterpart, Kim Jong-un, ahead of the two leaders’ planned summit in June.
The irony, of course, is that this is exactly the type of “grand bargain” Iran proposed to the Bush administration in May 2003. Bush rejected the offer, vowing never to talk with a member of the “axis of evil.” As Vice President Dick Cheney put it in reference to North Korea – another member of that fanciful “axis” – Americans “don’t negotiate with evil; we defeat it.”
But by trading diplomacy for saber-rattling, the Bush administration slammed the door on a solution with Iran. Today, as Trump embraces the same tactics, it’s hard to fathom how the outcome will be any different.
A Blueprint to Save the Iran Deal
By unilaterally reneging on the 2015 Iran nuclear deal, US President Donald Trump has once again taken a wrecking ball to his own country's legacy of global leadership. It is now incumbent upon the European Union to step in and preserve the deal, lest the Middle East slide into full-scale chaos.
BRUSSELS – There can no longer be any doubt that “America First” means precisely that. In abandoning the 2015 Iran nuclear deal, US President Donald Trump rejected the advice of allies and showed an utter disregard for the interests of France, Germany, the United Kingdom, and the broader international community. French President Emmanuel Macron’s last-minute effort to construct a broader diplomatic approach toward Iran was sidelined in the final hour, with little to no explanation from the Trump administration.
As with Trump’s other acts of vandalism against the international order – not least his withdrawal from the Paris climate agreement – his sabotage of the Iran deal, officially called the Joint Comprehensive Plan of Action (JCPOA), leaves it to other countries to pick up the pieces. The decision no doubt delights Trump’s domestic political base, which revels in his dismantling of the key achievements of his predecessor, Barack Obama. But the JCPOA was also a major success for the European Union. It was Europeans, after all, who paved the way for negotiations with Iran in the first place. And the deal itself significantly reduces the chances of nuclear proliferation in Europe’s backyard.
Attempting to justify his decision, Trump recently tweeted, “Remember how badly Iran was behaving with the Iran Deal in place. They were trying to take over the Middle East by whatever means necessary. Now, that will not happen!” But while it is true that Iranian influence has been spreading in the Middle East, there is no good reason to think that unilaterally terminating the JCPOA will suddenly change that fact. If anything, the decision could embolden Iranian hardliners and lead to even more Iranian meddling in Iraq, Syria, Lebanon, and elsewhere. In fact, almost immediately after Trump’s announcement on the JCPOA, Iranian troops stationed in Syria reportedly fired rockets into Israel.
Worse still, Trump has not even bothered to offer an alternative approach to containing Iran’s nuclear program. As a result, it is now incumbent on European leaders to step in. To be sure, the threat of US sanctions against European companies operating in Iran leaves the EU with an unenviable choice. But simply giving up on Middle East nuclear nonproliferation efforts is not an option.
Looking ahead, the EU should not limit itself to reaffirming its commitment to the JCPOA. It must seize this moment to introduce a broader strategy toward Iran, one that convinces Iranian leaders to address legitimate concerns about their ongoing ballistic-missile program and disruptive behavior in the region. If successful, a wider approach would also leave the door open for the United States to re-engage with multilateral diplomatic efforts at a future date.
To salvage the nuclear deal and advance other diplomatic goals, the EU can leverage its economic relationship with Iran. The Iranians must be made to understand that only by restricting their missile program and cooperating on efforts to restore stability to the region can they preserve their economic relations with Europe. EU leaders also must make clear that if Iran resumes nuclear enrichment or blocks access to inspectors from the International Atomic Energy Agency, the sanctions regime that was in place before 2015 will be reinstated.
At the same time, the EU should assure Iran that as long as it keeps its commitments under the JCPOA, then the EU will protect its companies from US sanctions and the extra-territorial effects of US legislation, as it did in response to US sanctions against Cuba in the 1990s. Providing such protection will be politically and economically costly, to be sure; but the alternative could lead to a nuclear arms race in the Middle East. And European citizens would likely object if the EU suddenly abandoned its principles simply to appease an unpredictable US president.
In taking the broader approach outlined above, the goal, as Macron has proposed, should be to conclude a parallel agreement to the JCPOA. But any new deal must go hand in hand with a wider strategy to stabilize the Middle East. Iran, the Sunni powers (led by Saudi Arabia), Israel, Russia, China, and the US must be convinced to stop fueling the region’s proxy wars. To that end, it is now up to the EU to lead on diplomacy, and to demonstrate to Trump that multilateralism is far more effective than diplomatic hooliganism.
More broadly, such a strategy could also start to close the deepening transatlantic divide that Trump’s presidency has opened up. The fracturing of the West is a welcome development in the eyes of Russian President Vladimir Putin and illiberal regimes around the world. Authoritarians and populists would like nothing more than to sow chaos and loss of confidence in the postwar rules-based international order. The democracies that built that order embody values that are antithetical to authoritarians’ interests.
Finally, Trump’s JCPOA decision demonstrates, once again, that Europe relies far too much on the US for its security and prosperity. Even by Trump’s standards, the savaging of the Iran deal was an astonishing act of diplomatic arson. It suggests that the full-scale operationalization of his “America First” approach is just getting started. Now is the time for Europeans to reclaim control of their own destiny. By strengthening its capacity for defense and global leadership, the EU can advance both its own interests and those of the broader international order.