European governments remain committed to the JCPOA and continue to negotiate with Iran on how to strengthen the agreement after the United States pulled out of the deal. The Iranians, however, have been unwilling to make any changes to the agreement.
Even as they acknowledge the flaws in the deal, defenders of the nuclear agreement repeatedly cite International Atomic Energy Agency (IAEA) reports to demonstrate it is working. The EU, for example, insists the “JCPOA is working and delivering on its goal, namely, to ensure that the Iranian program remains exclusively peaceful as confirmed by the International Atomic Energy Agency (IAEA) in 11 consecutive reports.” Olli Heinonen, who served at the IAEA for 27 years, says the EU position is misleading. “The IAEA has only said in its reports that it has continued to verify non-diversion of declared nuclear material, but it has not confirmed that Iran’s nuclear program remains exclusively peaceful,” according to Heinonen. He added, that rather than dismantling its nuclear program, Iran “proceeds with the development of new centrifuges, piles up uranium (yellow cake), and is quietly building infrastructure” (Washington Times, August 14, 2018).
Meanwhile, the Europeans hoped they could circumvent U.S. sanctions. In a major setback, however, the European Investment Bank rejected an EU proposal to do business in Iran. “The resistance from the European Union’s lending arm underscores the limits of the bloc’s ability to shield trade with Iran from the reimposition of U.S. sanctions” (Reuters, June 5, 2018).
In early July, the Europeans invited Iran’s President Hassan Rouhani to attend a meeting to discuss how to get around U.S. sanctions. Israeli Prime Minsiter Benjamin Netanyahu pointed out the same week “his regime dispatched a terrorist cell to carry out a major terrorist action in France. The commander of this terrorism cell was an Iranian diplomat in Austria.” The plot to bomb a rally in Paris staged by Iranian opposition groups was discovered and members of the cell were arrested in France, Belgium and Germany. The Iranian diplomat was expelled (Deutsche Welle, July 2, 2018). Netanyahu said, “Here’s my message to the European leaders: Stop funding the very regime that is sponsoring terrorism against you and against so many others. Stop appeasing Iran” (Prime Minister’s Office, July 3, 2018).
Ahead of the talks, Rouhani told the leaders of France and Germany that a European package of economic measures to counter the effects of U.S. sanctions did not meet Iran’s demands. Instead of the leaders meeting, foreign ministers and senior diplomats from Britain, China, France, Germany, and Russia held talks on July 6 with their Iranian counterpart, Mohammad Javad Zarif, but failed to reach an agreement to salvage the nuclear deal after Iran said the package of economic measures they were offered did not go far enough. Afterward, EU foreign policy chief Federica Mogherin said the parties agreed to continue negotiations (Radio Free Europe, July 6, 2018).
The German newspaper Bild reported the Iranian regime intends to fly 300 million euros in cash from Germany to Iran. The mullahs are worried that they will run out of cash because of U.S. sanctions (Bild, July 8, 2018). The United States and Israel are concerned the money will be used to finance terrorism and Iran’s foreign adventures and the U.S. ambassador to Germany called on Berlin to block the plan (Haaretz, July 10, 2018). In September, Iran reportedly gave up trying to obtain the money in the wake of U.S. opposition (theAlgemeiner, September 5, 2018).
Replying to a June 4, 2018, letter from Britain, France and Germany seeking broad exemptions for European firms doing business in Iran, Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin wrote that the Trump administration would grant only limited exceptions based on national security or humanitarian grounds (NBC News, July 14, 2018).
In August 2018, the EU announced plans to provide Iran with more than $20 million as part of its effort to keep the nuclear deal alive. The EU said the funds represented the first tranche of a wider package of $58 million intended to help Iran “address key economic and social challenges.” The decision was criticized by Prime Minister Netanyahu who said it would undermine “efforts to curb Iranian aggression in the region and beyond the region” (Radio Free Europe, August 24, 2018).
Britain, France, Germany, Russia and China announced on September 24, 2018, plans to establish a “Special Purpose Vehicle” (SPV) to facilitate payments for Iranian imports and exports. The SPV is seen as the lynchpin of European efforts to salvage the nuclear accord. According to European Union foreign policy chief Federica Mogherini, “this will mean that EU member states will set up a legal entity to facilitate legitimate financial transactions with Iran and this will allow European companies to continue to trade with Iran in accordance with European Union law and could be open to other partners in the world” (AP, September 24, 2018).
U.S. Secretary of State Mike Pompeo expressed dismay at the effort to circumvent U.S. sanctions. This is one of the most counterproductive measures imaginable for regional global peace and security,” Pompeo said. “By sustaining revenues to the regime you are solidifying Iran’s ranking as (the) No. 1 state sponsor of terror” (Algemeiner, September 26, 2018).
In October 2018, former CIA Director David Petraeus responded to the EU effort to maintain the JCPOA. “The Europeans focused on the strengths of the agreement and would like to continue it,” he says. “I would have some understanding for that, were it not for the fact that I’ve been on battlefields where American, coalition and Iraqi soldiers have been killed by lethal weapons and ammunition provided by Iran, along with funding. He added, “Iran is a country … that pushes until there is firm pushback. I think that you are now seeing an American administration that is willing to push back very firmly” (Arab News, October 28, 2018).
Nevertheless, the month before U.S. sanctions were reimposed, German exports to Iran increased 85 percent and recorded the highest monthly volume since 2009. According to Reuters, “The surge signals willingness among Germany’s small to medium-sized firms, or Mittelstand, to continue doing business with Iran despite the risk of being blacklisted by the United States for defying its sanctions” (Reuters, December 11, 2018). The news agency said approximately 1,000 Mittelstand companies have business ties to Iran and 130 have set up branches in the country. Chemicals made up about half the German exports; machines and plant equipment accounted for a third.
According to Benjamin Weinthal, Germany ties are much more extensive. He says that approximately 120 German companies operate inside Iran and 10,000 businesses conduct trade with the Islamic Republic. In 2017, Germany exported $3.42 billion worth of merchandise to Iran (Tablet, September 25, 2018).
Some Germans find the relationship with Iran difficult to comprehend. ”It seems paradoxical that Germany—as a country that is said to have learned from its horrendous past and which has a strong commitment to fight anti-Semitism — is one of the strongest economic partners of a regime [Tehran] that is blatantly denying the Holocaust and abusing human rights on a daily basis,” observed Dr. Josef Schuster, president of Central Council of Jews. “Besides, Germany has included Israel’s security as a part of its raison d’être. As a matter of course this should exclude doing business with a fanatic dictatorship that is calling for Israel’s destruction, pursuing nuclear weapons and financing terror organizations around the world” (Tablet, September 25, 2018).
In a major blow to EU efforts to defy U.S. sanctions, SWIFT, the international financial messaging system, said November 5, 2018, it will comply with U.S. sanctions. In keeping with our mission of supporting the resilience and integrity of the global financial system as a global and neutral service provider, SWIFT is suspending certain Iranian banks’ access to the messaging system. This step, while regrettable, has been taken in the interest of the stability and integrity of the wider global financial system (Financial Times, November 2, 2018).
Efforts by the EU to protect trade with Iran against U.S. sanctions faced possible collapse when no EU country expressed willingness to host the SPV for fear of provoking U.S. punishment (Reuters, November 14, 2018). France and Germany subsequently said they would share responsibility, prompting another warning from American officials that they would impose sanctions on entities that participated in the effort to undermine U.S. policy (Jerusalem Post, November 28, 2018).
On January 31, 2019, after months of delay, the SPV was established with the name Instrument for Supporting Trade Exchange (Instex). It will be financed by Britain, France and Germany and run by a German banker. The idea is to evade U.S. sanctions by allowing goods to be bartered between Iranian companies and foreign ones without direct financial transactions or using the dollar. Instex is only facilitating trade in humanitarian goods not covered by U.S. sanctions and Washington, which still objects to the organization, believes most companies will avoid trading via Instex to avoid legal problems in Washington. Nevertheless, the State Department reiterated the administration’s position that “entities that continue to engage in sanctionable activity involving Iran risk severe consequences that could include losing access to the U.S. financial system and the ability to do business with the United States or U.S. companies” (New York Times, January 31, 2019).
Iran’s supreme leader Ayatollah Ali Khamenei, meanwhile, dismissed the trade mechanism as a “bitter joke,” called Western politicians “savages” and said the Europeans “have stabbed us in the back.” Nevertheless, Iran created its own trade organization, the Special Trade and Finance Institute or STFI, to cooperate with INSTEX to facilitate trade and circumvent U.S. sanctions (Daily Mail, March 21, 2019).
The Europeans find themselves in an increasingly difficult bind because their defense of the Iran deal, which in large measure was based on the promise of Iran moderating its behavior, has been undermined by the planned terrorist attacks on their soil. Even as it attempts to undermine U.S. sanctions, the EU agreed at the beginning of January 2019 to enact sanctions against an Iranian Intelligence Service for the assassination plots. The EU also added deputy minister and director general of intelligence, Saeid Hashemi Moghadam, and diplomat Assadollah Assadi to the EU terrorist listing, which allows officials to freeze their financial assets. Assadi worked for Tehran’s Ministry of Intelligence and Security in Vienna where he was arrested in 2018 in connection with a bomb plot. He is now facing trial in Belgium (The National, January 8, 2019). The Dutch government also announced that Iran was responsible for hiring criminal gangs to murder two Iranian dissidents, one in 2015 and the other in 2017 (The Telegraph, January 9, 2019).
“Today the country is facing the biggest pressure and economic sanctions in the past 40 years,” Rouhani admitted at the end of January 2019 (New York Times, January 30, 2019).
France offered Iran a $15 billion line of credit, roughly equal to half Iran’s expected oil revenue for the year to make up for the losses caused by U.S. sanctions and keep the Iranians from pulling out of the nuclear agreement. Responding to the offer, Deputy Foreign Minister Abbas Araghchi said, “Our return to the full implementation of the nuclear accord is subject to the receipt of $15 billion. Otherwise, the process of reducing Iran’s commitments will continue,” Araghchi said. “Either Europe has to buy oil from Iran or provide Iran with the equivalent of selling oil as a credit line guaranteed by Iran’s oil revenue.” Rouhani gave Europe “another two-month deadline for negotiations, an agreement and a return to its commitments” (Washington Post, September 5, 2019).
A new potential sticking point emerged when a French diplomatic source said the European trade mechanism to barter humanitarian and food goods with Iran will not be implemented until Tehran sets up a mirror company and meets international standards against money-laundering and terrorism financing. “The Iranian mirror structure is not operational. The day they have signed the necessary FATF (Financial Action Task Force) conditions we’ll talk about it and the day that we are sure that the first transactions through Instex aren’t put under American sanctions, (then) we’ll talk about it again,” the source said (Reuters, September 4, 2019).
In October 2019, FATF said it would give Iran until February 2020 to enact the required reforms or it would “lift the suspension of counter-measures and call on its members and urge all jurisdictions to apply effective counter-measures.” In the interim, FATF asked its members to scrutinize transactions with Iran (Reuters, October 22, 2019).
Meanwhile, Iran continues to violate the terms of the agreement without Europe, China or Russia imposing any of the sanctions that Obama had said would be reimposed for failing to adhere to the terms of the agreement.
U.K. Prime Minister Boris Johnson broke ranks with France and Germany on September 23, 2019, telling Sky News, “Whatever your objections to the old nuclear deal with Iran, it’s time now to move forward and do a new deal.” Later U.K. officials appeared to walk back his comments when his office issued a statement saying, “The prime minister supports the JCPOA.” Elaborating the statement continued, “The Iranians aren’t currently in compliance, and we need to bring them back into compliance. If there’s a way to do that, we’re open to discussing possible solutions” (Bloomberg, September 23, 2019). The same day, however, the European signatories to the agreement made a dramatic about face, motivated in part by Iran’s September 14 attack on Saudi oil facilities, issuing a statement more consistent with the policy of the Trump administration. Johnson, French President Emmanuel Macron and German Chancellor Angela Merkel agreed they would continue to support the 2015 deal but said the time had come for Iran to start talks on a longer-term, more comprehensive agreement dealing with its nuclear, regional and missile activities (Wall Street Journal, September 24, 2019).
To jumpstart negotiations, Macron tried the following day to broker a meeting between Trump and Iranian President Hassan Rouhani while both were at the UN. The Iranians balked, however, insisting that the U.S. ease sanctions before they would begin talks (Wall Street Journal, September 24, 2019).
At the beginning of December 2019, it was announced that Belgium, Denmark, Finland, the Netherlands, Norway and Sweden agreed to join INSTEX. The timing was criticized as it occurred after Iran had publicly flouted several provisions of the JCPOA and was being investigated by the IAEA for actions taken secretly in violation of the agreement. Iran was also in the midst of violently suppressing protests.
“The hundreds of innocent Iranians murdered during the latest round of protests are rolling in their graves,” the Foreign Ministry said in a statement. “We ask these European countries – what message are you sending to the Iranian people? Would it not be more effective and ethical to designate the regime officials responsible for the murder of innocent civilians? How is the Iranian regime and the Islamic Revolutionary Guard Corps (IRGC) to understand this gesture?” (Times of Israel, December 1, 2019).
The UK, France and Germany, also known as the E3, have triggered the dispute resolution mechanism (DRM) in the 2015 JCPOA Iran nuclear deal. Under JCPOA Article 36, a party to the agreement can claim significant non-compliance by another party. To resolve the dispute, the claim goes to a Joint Commission, then a 3-person advisory board, and if required to the UN Security Council. If the UNSC are unable to resolve the dispute, UN multilateral sanctions snap back after 65 days.
The Trump administration threatened to impose a tariff of 25% on European car imports if the E3 did not act (Reuters, January 15, 2020). Officials expressed resentment at the threats and argued they were already planning to engage the DRM, though their intent, unlike that of the United States, is to save the deal by discussing with Iran what it should do to reverse decisions it had made. The aim was not to reimpose UN sanctions, they said (Reuters, January 14, 2020).
The E3 acted on January 14, 2020, after the latest Iranian declaration of its intention to violate the nuclear deal. The government announced on January 5, 2020, that it would not place any limits on its uranium enrichment and production. “Iran will continue its nuclear enrichment with no restrictions .... and based on its technical needs,” according to a government statement (Jerusalem Post, January 6, 2020).
Rouhani responded to the E3’s move with a threat, “Today, the American soldier is in danger, tomorrow the European soldier could be in danger,” he said (Times of Israel, January 16, 2020).
The threats are having an impact and provoked anger in the Trump administration, particularly over the refusal of the EU to maintain sanctions over Iran’s continued sponsorship of terrorism and development of ballistic missiles. The EU continues to resist ramping up pressure out of fear Iran will withdraw from the JPCOA even though Tehran is violating its terms. “The mullahs blew up 5 percent of global oil supply, stormed the U.S. embassy in Baghdad, took British and other European citizens hostage, arrested the British ambassador, murdered 1,500 people in the streets, and blew a passenger jet out of the sky—zero sanctions in response,” said a former State Department official. “At some point, someone in Europe needs to stand up and say Iran is not our friend, America is our strongest ally, and we are going to do what we can to stop the mullahs from building nuclear weapons with long-range missiles to hit London” (Jerusalem Post, March 12, 2020).