Europeans Irked by U.S.-Iran Trade as Companies Suffer

Photographer: Alain Mingham/Gamma-Keystone via Getty Images

Demonstration in front of the US embassy during the hostage crisis, in which 52 Americans were held hostages during 444 days from November 4, 1979 to January 20, 1981 by a group of Islamists students and militants in support of Iranian Revolution on November 10, 1979 in Tehran, Iran. Close

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Photographer: Alain Mingham/Gamma-Keystone via Getty Images

Demonstration in front of the US embassy during the hostage crisis, in which 52 Americans were held hostages during 444 days from November 4, 1979 to January 20, 1981 by a group of Islamists students and militants in support of Iranian Revolution on November 10, 1979 in Tehran, Iran.

Europeans are complaining about rising American trade with Iran as their companies bear the brunt of the sanctions that the U.S. government pushed through against the Islamic Republic.

While Europe’s trade with Iran still dwarfs that of the U.S. by more than 20-to-one, American business has climbed 35 percent since 2011, compared with a 77 percent drop for the European Union, according to data compiled by Bloomberg. Some officials say it’s unfair that U.S. exports, mostly food, pharmaceuticals and medical devices, are rising at a time when European companies are making sacrifices and their banks are being fined for alleged dealings with sanctioned countries.

“The EU needs to address concerns with the U.S.,” said Marietje Schaake, a Dutch member of the EU parliament who has served on the Foreign Affairs and International Trade committees. “American sanctions vis-a-vis Iran have had undesired extra-territorial impact on EU business,” Schaake, who was in Iran in December, said in a written response to questions.

Divisions among the allies over measures against Iran may hurt any effort by the U.S. and Europe to partner in a new sanctions regime to punish Russia’s Vladimir Putin for his Crimea land grab, said Ian Kearns, director of the London-based European Leadership Network, a policy-advisory group led by former EU officials.

Once one of Iran’s main commercial partners, the U.S. has largely shut itself out of the $400 billion economy since ties broke off after the 1979 Islamic revolution. In recent years, it has worked with allies to tighten sanctions, imposed over concerns that the Persian Gulf country is developing a nuclear bomb -- an allegation Iran has repeatedly denied.

Split the Community

Jack Straw, the U.K.’s former foreign secretary and current co-head of a U.K. Parliamentary committee on Iran, said after talks with the International Atomic Energy Agency in Vienna last month that there’s a double standard that could “split the international community.”

French officials have this week cried foul over the targeting of BNP Paribas SA, the Paris-based lender that faces a U.S. penalty of as much as $10 billion to settle allegations it transferred funds for clients in violation of sanctions on Iran, Sudan and Cuba, according to people with knowledge of the investigation.

“The fine has to be proportionate and reasonable,” French Foreign Minister Laurent Fabius said on France 2 television yesterday. “These figures are not reasonable.”

President Francois Hollande will discuss the BNP matter with Barack Obama when the U.S. president visits France this week, a French official said this week.

Iran Trade

U.S. trade with Iran rose to $315 million last year from $234 million in 2011, according to U.S. Census Bureau data. During the same period, European trade fell to 6 billion euros ($8.2 billion) from 28 billion euros, European Commission figures show.

The shift happened as Europe followed the U.S. in ramping up sanctions in 2011 and 2012. While U.S. trade is near its 10-year average, European shipments are less than a third. At the end of last year, U.S. companies traded $1 with Iran for every $26 Europe did, compared with $155 two years earlier.

Europe’s main exports to Iran are industrial and agricultural products, according to the European Commission. The U.S.’s biggest exports last year were rice, pulp wood and dairy products, according the U.S. Census Bureau.

‘Run Into Trouble’

The U.S. isn’t seeking to give its companies advantages through its sanctions regime, a senior U.S. administration official said. European trade with Iran will probably see a bounce in the second quarter because of the interim deal reached in Geneva in November, which lifted some sanctions in return for curbs on nuclear work, said the official, who asked not to be named because of the issue’s sensitivity.

U.S. Treasury spokeswoman Hagar Chemali and EU spokesman Michael Mann declined to comment.

One of the European complaints is that U.S. companies get waivers from the authorities there that aren’t available to non-Americans. The Treasury grants licenses for U.S. businesses to trade permitted goods with Iran, and Straw said that creates an advantage over European companies that must make their own assessment of the legal situation.

“If you’re an American trader with an American bank you don’t run into trouble, but if you’re a European banker you do,” Straw said at a May 20 briefing in Vienna.

The U.S. official said it’s not feasible to provide indemnities covering the thousands of transactions that occur every year, and that the U.S. has assured Iran’s trading partners they won’t be penalized for selling humanitarian goods.

BNP Paribas Probe

Instead, non-American lenders must self-regulate. That’s the way the sanctions were designed to work, according to Juan Zarate, a former Treasury official who helped devise them. The system relies on the “risk-based compliance calculus of global financial institutions,” he told Congress in 2011.

The BNP Paribas (BNP) probe illustrates the perils of getting the calculus wrong. Other forms of pressure are less dramatic, yet still effective, analysts say.

“Over the years, European bankers would receive calls from U.S. officials on a Friday afternoon, asking why they were helping to promote trade with Iran,” said Heinrich Matthee at the Institute for Near East and Gulf Military Analysis in Brussels, who advises European companies. “That tends to ruin the weekend.”

As a result, companies that want to trade with Iran have trouble finding banks to finance them, according to Steffen Behm, head of the Iran desk at the Berlin-based German chamber of commerce said by phone.

‘No Qualms’

Among Europeans who say that they’ve carried most of the weight of the Iran sanctions, any perception of growing U.S. trade risks “undermining solidarity,” said Kearns.

That has implications for Russia sanctions too, he said. German Chancellor Angela Merkel “has no qualms about staring Obama in the eye and saying we have a lot more at stake here than you have and we’re going to move at the pace that suits us,” Kearns said.

While it’s unlikely that U.S. pressure on Europe is aimed at boosting their business, the issue “will inevitably create tension,” said Suzanne Maloney, a senior fellow at the Brookings Institution in Washington and a former American diplomat. “We’re just lucky to this point that tension hasn’t escalated.”

How long the luck holds out may depend on the outcome of the nuclear talks. Participants have set a mid-July target for a final accord that, by lifting trade curbs on Iran, would defuse the issue.

Without one, said the U.K.’s Straw, “the pressure to dilute sanctions will be very strong.”

‘Salvage Negotiations’

In the event talks stumble, the EU should stand up to a U.S. Congress that may want to levy more sanctions or try to prevent an accord, European Council on Foreign Relation fellow Ellie Geranmayeh wrote in a report published today. The EU needs to protect its strategic interests in Iran and must prepare to “act independently of the U.S.,” she wrote.

“Europe should not blindly follow an obstructionist Congress and in doing so risk undermining its own interests,” EFCR said in a separate e-mailed synopsis of Geranmayeh’s report. “If Tehran shows commitment to diplomacy and to agreements reached, Europe should try to salvage negotiations by going further than the U.S. in easing unilateral sanctions.”

To contact the reporter on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net; Alan Crawford at acrawford6@bloomberg.net Ben Holland

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