The laughter and smirks made for viral videos, but there was another, less noticed sign of diminishing U.S. influence that boiled up on the sidelines of the General Assembly session. As Trump emphasized U.S. “sovereignty,” the European Union, Russia and China announced plans to circumvent U.S. sanctions reimposed on Iran by Trump in May.
The May move to withdraw from the Obama-era Iran nuclear deal was supposed to force Europe to follow suit and to pressure Iran into renegotiating the deal.
Neither has happened, so far.
Instead, U.S. pressure appears to be resulting in the emergence of an alternative payment system that could shield some non-U.S. companies from American sanctions and allow Iran to export oil and other goods to corporations in the European Union and elsewhere. The latest announcement came after the E.U. passed an updated “blocking statute” last month with the same goal. That earlier effort required European companies to seek compensation from the U.S. Treasury Department, however, with an uncertain outcome.
“This will mean that E.U. 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,” the E.U.’s high representative for foreign affairs, Federica Mogherini, said Tuesday.
Given the untested nature of the E.U.'s current efforts, there are reasons to remain skeptical about whether those plans will be able to reassure international companies to stay in Iran. To some, the risk of being hit by U.S. sanctions may still outweigh the benefits of exploring a new market that was restricted until only recently.
On Wednesday, Germany’s industry and trade association DIHK said that German exports to Iran have decreased by 18 percent since Trump announced he would reimpose sanctions on the country. German carmaker Volkswagen announced last week that it was withdrawing from Iran, giving in to U.S. pressure.
Overall, German companies exported goods worth $3.4 billion to Iran last year. But Germany exported goods worth $117 billion to the United States in 2017, indicating that most companies were still far more dependent on trade with the United States than with exploring opportunities in Iran. In the short run, only small or medium-size European companies that rely more on their trade with Iran than with the United States are expected to participate in the E.U. plans.
In the long run, however, the E.U. effort could dismantle U.S. dominance of international payment systems — a status that has handed U.S. leaders a powerful tool of both economic and political influence in the past, for instance by stopping Chinese exports to North Korea and other rogue states.
Trump officials naturally were not amused by the E.U. announcement this week, backed by France, Britain, Germany, Russia and China. U.S. Secretary of State Mike Pompeo said, “This is one of the most counterproductive measures imaginable for regional and global peace and security."
Pompeo said that he was “disturbed and indeed deeply disappointed.”
But European governments have rejected U.S. criticism, saying that even though there might be flaws, the current deal is better than no deal. While E.U. leaders believe that the U.S. decision to withdraw from the Iran deal violated international law, there are some concerns that the European Union is speeding up the dismantlement of a sanctions system without offering an alternative to put economic pressure on countries such as Russia and China to enforce sanctions in future scenarios.
So far, it’s still unclear how the E.U.'s alternative payment system would work, but one of the likeliest options involves a credits system that would allow companies with Iran ties to trade goods without transferring real money. That system would make it almost impossible for U.S. authorities to track trade between European and Iranian companies and minimize the risk of sanctions.
Both on stage and behind the scenes, Tuesday’s U.N. General Assembly session proved how isolated the Trump administration has become after escalating tensions with foes and triggering new spats with allies.