by Joseph Klein
Will the Europeans dare to defy Trump?
"SANCTIONS ARE COMING," President Trump tweeted in advance of the remaining set of U.S. sanctions against Iran that are coming back into force on November 5th. Lifted under the disastrous Obama nuclear deal with Iran that the Trump administration exited last May, these re-imposed sanctions will target Iran’s energy, shipping, and shipbuilding sectors, and transactions with the Central Bank of Iran as well as with other Iranian banks. The aim is to dry up revenues the Iranian regime uses to fund not only its nuclear program, but also its continued development and launching of ballistic missiles that transgress the same United Nations Security Council Resolution 2231 that had endorsed the nuclear deal itself, known as the Joint Comprehensive Plan of Action (JCPOA). The Iranian regime has also used revenues gained from the JCPOA’s lifting of the sanctions to finance terrorists world-wide rather than to relieve the financial hardships of its own people. That is all about to change. “Our objective is to force the regime into a clear choice: either abandon its destructive behavior or continue down the path toward economic disaster,” President Trump said in a statement issued last Friday.
The sanctions that are being re-imposed are tough. With few exceptions, any government or business entities importing Iranian oil or otherwise violating the sanctions, including via barter arrangements, will be subject to stringent U.S. financial penalties. However, the sanctions will exempt for humanitarian reasons the sale of food, medicine, medical devices, and agricultural commodities to Iran. Moreover, the Trump administration has decided to grant temporary waivers to eight countries, including South Korea, Japan, and India. The purpose is to avoid an immediate spike in oil prices that would occur if oil exports from Iran were virtually eliminated overnight, and to soften the blow to allies in Asia whose economies could be seriously imperiled by an immediate shut-off of their oil purchases from Iran upon which they have been dependent. The full list of countries excludes the European Union as a whole, which has 28 members. Two of the eight countries receiving the temporary waivers will completely cut off imports of Iranian oil in a matter of weeks, according to Secretary of State Mike Pompeo. The other six, he said, will "greatly" reduce their imports. All countries receiving the temporary waivers must reapply for extended exemptions beyond six months.
China, the largest purchaser of Iranian oil, has also been mentioned as a possible recipient of a temporary waiver. Such a move is hard to justify unless the Trump administration has concluded it must pay this price for China’s ironclad agreement to verifiably implement all the multilateral sanctions in place against North Korea and not transfer by ship any oil received from Iran or other sources to North Korea. Whatever the reason, any temporary waiver granted to China must be fully reversible at any time for any reason. If granted, the waiver should be used as leverage in trade negotiations with China and be pulled immediately for any violation by China of the multilateral sanctions against North Korea.
Even with the temporary waivers, “Goldman Sachs said it expects Iran's crude exports to fall to 1.15 million barrels per day by the end of the year,” CNBC reported. By way of comparison, Iran’s crude oil exports were reported to be at a level of 2.4 million barrels per day in May 2018, the month that President Trump announced his decision to withdraw the United States from the nuclear deal and to re-impose U.S. sanctions.
Iran's Supreme Leader Ayatollah Ali Khamenei lashed out against President Trump on Saturday. "This new US president ... has disgraced the remnant of America's prestige and that of liberal democracy. America's hard power, that is to say their economic and military power, is declining too," he said. "The challenge between the US and Iran has lasted for 40 years so far, and the US has made various efforts against us: military, economic and media warfare. There's a key fact here: in this 40-year challenge, the defeated is the US and the victorious is the Islamic republic."
The facts belie Khamenei’s spurious claim. While the U.S. economy is stronger than ever, Iran’s economy is in a free-fall. During the last year, the Iranian rial has lost about 70 percent of its value. Iran’s inflation rate reached nearly 37 percent in October, and more than 100 companies have already decided to cease doing business with Iran. More are sure to follow as all the sanctions are fully implemented, despite efforts by governments in Western Europe and elsewhere to prop up the Iranian regime and save the nuclear deal charade.
The Iranian regime is counting on lifelines from other countries, including from Western Europe. Indeed, the European Union High Representative for Foreign Affairs and Security Policy, Federica Mogherini, issued a statement on Friday of support for the Iranian nuclear deal, joined by the foreign and finance ministers of France, Germany and Britain. They said they regretted President Trump's decision to restore all U.S. sanctions on Iran. “Our aim is to protect European economic actors who have legitimate commercial exchanges with Iran, in line with European legislation and the United Nations’ Security Council Resolution 2231,” Ms. Mogherini and the foreign ministers and finance ministers of the three countries said. They "committed to work on, inter alia, the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran’s export of oil and gas." To that end, the European Union is creating a special purpose vehicle to facilitate payments related to Iran's exports (including oil) and imports.
The Europeans, along with China and Russia - the other parties to the Iran nuclear deal besides the United States – insist that Iran has fully complied with its commitments under the deal. “The International Atomic Energy Agency (IAEA) has confirmed in twelve consecutive reports that Iran is abiding by its commitments under the Agreement,” the European ministers said in their joint statement. The United Nations, all the way up to its Secretary General António Guterres, has also stood behind the work of its inspectors at the IAEA without any reservations and called for the preservation of the nuclear deal.
The defenders of the JCPOA also fail to connect some critical dots. There is an obvious linkage between Iran’s continued development and launching of ballistic missiles capable of carrying nuclear weapons, which flouts the same UN Security Council resolution that endorsed the JCPOA, and Iran’s evident intentions with respect to perfecting the technology for nuclear warhead missile integration. We know that nuclear warhead missile integration technology remains a subject of intense interest to the Iranians. This interest is documented in a trove of secret nuclear weapons files discovered by Israeli intelligence agents, which had been moved to a hidden Iranian site in 2017.
The European Union leaders seeking to use their special purpose vehicle to sidestep the sanctions re-imposed by the United States against Iran do not care about the facts. They appear to prefer a confrontation with the United States over the sanctions rather than with the terrorist-sponsoring regime of Iran that has been linked to alleged plots on European soil to kill activists opposed to the regime.
The EU special purpose vehicle would serve as a self-contained clearing house of sorts for countries and businesses to make payments to and receive payments from Iran, bypassing the U.S. financial system and foreign branches of U.S. banks. However, as the saying goes, the best-laid plans of mice and men often go awry. Operationalizing the special purpose vehicle to enable continued payments for Iranian exports, principally oil, has run into some difficulty. "The undertaking is very complicated... the vehicle will not be operational on November 5," a senior EU official told AFP. "For the moment, we're nowhere,” said one of those negotiating the design of the mechanism, who was quoted by AFP. “There's no will to proceed on the behalf of the member states."
If the European Union does end up establishing a workable special purpose vehicle to try and undermine the Trump administration’s sanctions against Iran, President Trump will have little choice but to retaliate. His administration can start by picking off the weaker links in the EU, including European businesses that still depend on the ability to also do business in the U.S. market and banks in countries such as Denmark which have experienced the Iranian terrorist threat first-hand. The most drastic step would be to sanction European central banks and SWIFT – the international payments messaging system headquartered in Belgium – if these institutions continue to enable Iran to be connected to the global financial system.
The Iranian regime, directly and through its terrorist proxies such as Hezbollah, has American blood on its hands. The regime continues to hold American hostages, even after the release of some in return for Obama’s ransom payment. It has helped al Qaeda and the Taliban. It is continuing its ballistic missile program and, in all likelihood, its development of nuclear weapons related technologies. It has blocked unfettered inspections by the IAEA.
President Trump has made the right decision to exit the loophole-ridden nuclear deal and to tighten the sanctions noose around the necks of the Iranian regime, its vital industrial, energy and financial sectors, and the regime's enablers. If the regime tries to respond by using its terrorist proxies or military to attack U.S. interests or personnel or to use cyberweapons against the United States, the Trump administration must counter rapidly with overwhelming strength.
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