When President Trump withdrew from the Obama-era Iran nuclear deal last year, the move wasn’t exactly a quiet departure. Within days, the United States threatened sanctions, not only against Iran, but also against the foreign companies trading with it.
That threat was directed against major enterprises from some of the United States’ closest allies, including Britain, France and Germany. Europe immediately announced that it would not be bullied into following the United States out of the nuclear deal, but the rationale in Washington was that the Europeans would eventually budge.
That bet appears not to have gone according to plan — for both sides. In a statement to The Washington Post, German diplomats confirmed a report by European TV network NDR on Thursday that Britain, France and Germany had registered a Paris-based company called INSTEX, which could theoretically allow some European businesses to keep trading with Iran, despite the threat of U.S. sanctions against banks and corporations.
To avoid real money being traded between Iran and Europe that the United States could use as evidence to justify sanctions, the corporation is expected to operate essentially as a clearinghouse for credit points. If an Iranian company trades with a European counterpart, it can use those credits to pay for purchased goods. That system works, however, only if trade is somewhat balanced.
Once operational, the transaction channel could represent a major European effort to keep the Iran nuclear deal alive, even though it is unlikely to restore European-Iranian trade to its pre-Trump levels.
Britain, France and Germany will be shareholders in the company, which means that if Washington were serious about its prior threats, it probably would have to directly sanction three of its closest allies.
The theoretical possibility of that awkward choice comes as Trump is openly clashing with his own intelligence chiefs in Washington over Iran. Although Trump previously implied that he withdrew from the deal because Tehran was seeking to build nuclear weapons, a Worldwide Threat Assessment report prepared by his own intelligence officials publicly contradicted the president Tuesday. “We continue to assess that Iran is not currently undertaking the key nuclear weapons-development activities we judge necessary to produce a nuclear device,” the officials wrote, echoing similar assessments by their European counterparts.
In a subsequent tweet Wednesday, Trump lashed out at his intelligence chiefs, writing: “The Intelligence people seem to be extremely passive and naive when it comes to the dangers of Iran. They are wrong!”
But Tuesday’s report assessed only that Iran is not currently pursuing a nuclear weapons program — it remained tough on Iran in regard to other issues. The officials warned that Iran’s ballistic missile program still poses a threat to the United States, as do cybersecurity attacks and other military capabilities.
European agencies have reached the same conclusion, but the Iran nuclear deal was always meant to address the most frightening prospect: an Iran armed with nuclear weapons. In their report Tuesday, U.S. intelligence officials acknowledged that the nuclear deal, officially known as the Joint Comprehensive Plan of Action (JCPOA), would delay Iran’s ability to build nuclear weapons significantly, compared to a no-deal scenario. “Iran’s continued implementation of the JCPOA has extended the amount of time Iran would need to produce enough fissile material for a nuclear weapon from a few months to about one year,” they wrote.
Iran has threatened to resume nuclear activities that are currently dormant in the event that Europe also withdraws from the deal.
Britain, France and Germany have stuck to the agreement, alongside China and Russia. By unilaterally leaving the deal, European leaders have maintained, Trump has increased the likelihood of a direct military confrontation with Iran.
Politically, the decision to maintain its support for the deal has put the Europeans in an awkward position between their own foes and their key ally, the United States. When Iran was suspected of being behind a foiled assassination plot in Denmark last October, Europe’s initially muted response struck some as an effort to preserve the deal at all costs.
On a practical level, maintaining the agreement with Iran has proved to be difficult, as well. Amid the threat of U.S. sanctions, almost all major European companies trading with Iran withdrew from the country, even as European officials insisted that they were working on a solution to shield them from that risk.
Nothing has changed about Europe’s underlying determination to stick to the Iran deal. But Iran’s alleged role in the Danish assassination plot last year resulted in more hesitancy in Brussels and other E.U. capitals to stand by Tehran, despite initial criticism that Europe was turning a blind eye to the incident. On top of that, practical difficulties in setting up the transaction channel and a desire among a number of E.U. member states to avoid U.S. anger have made Europe’s long-term response to Trump’s withdrawal less of a bold move than some had hoped for.
Germany’s influential BGA trade association said in a first reaction on Friday that the transaction channel sent an important message to businesses in Europe that Germany, Britain and France were serious about their promise to remain a reliable trade partner for Iranian companies. But at the same time, the trade association cautioned that crucial questions about how the transaction channel would work remained unanswered.
Depending on the coming months, the outcome may still be bold enough to trigger Trump’s fury, while at the same time not providing the risk-free link between Iran and Europe that was initially promised. For both Europe and Trump, their approaches to the Iran nuclear deal have turned into a bet in which everyone may end up losing.
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