The European Union-Iranian financial and trade mechanism to circumvent US sanctions on Iran finally came to light at the end of last week. What are the prospects for the mechanism’s success? How effective will it be, especially for the Iranian economy, which is flapping around in distress?
We will try to answer these questions besides others based on available data. The mechanism aims to achieve two main objectives. The first is to facilitate Iranian oil exports to the EU and, the second, to facilitate trade between the two sides through using alternative currencies.
Instead of the US dollar, which is forbidden to Iran, they will use the euro through complex transactions that are fraught with mystery.
Let us differentiate between the approach of European governments and that of their large businesses, which have deep interests with the US. All big European corporates have withdrawn from Iran to avoid strict US sanctions against anyone found in violation.
Therefore, these EU decisions do not represent their big companies, and this means small and medium-sized European businesses that do not deal with the US market are to use this mechanism and its complex payment method.
However, that is not what Iran wants, as it needs to deal with large companies, especially those operating in gas, manufacturing and advanced technologies. Thus, the European-Iranian mechanism will probably contribute modestly to increased Iranian oil and gas exports and allow the import of some consumer goods, considering that Iran’s oil and gas export markets are in Asia and not in Europe.
In addition, it is difficult to avoid US sanctions in case of any breach, even by small and medium enterprises. They will be very careful before embarking on any wrong move, especially as the US president has said: “Companies that deal with Iran will face severe sanctions.”
It is true that these businesses may not deal directly with the US market, but they use the US-dominated international payment system, which can put them on the blacklist and hinder their transactions around the world and damage their relations with clients in other countries.
On the trade side, trade between the EU and Iran last year, before the US sanctions were implemented, reached $20 billion. The trade exchange, nevertheless, is expected to hit a rock-bottom, in particular because of the commitment of large European enterprises to the US boycott and, secondly, due to Iran’s failure to pay dues on its purchases.
In addition, there is a wide disparity among EU countries themselves on helping Iran. Countries wanting to uphold this mechanism include Germany, France and Britain, while those against it include Poland and the Czech. Belgium, which hosts the EU headquarters, as well as Austria and Luxembourg refused hosting the signing of the mechanism agreement, which forced the three countries to do so in Paris.
Therefore, this mechanism is more theoretical and difficult to apply, which led the US Department of State to rightly say that it excludes any possible effects from it. This means US economic sanctions against Iran will continue to be effective, as evidenced by Iranian President Hassan Rouhani’s statement the sanctions were the most difficult his country faced in 40 years and affecting the economic situation.
That being the case, seeking to implement such a fruitless mechanism is no more than an attempt by Iran and EU to save faces. They are against the US sanctions, but they lack the ability to stop them. For the EU, it is because of objective reasons related to the influence major companies have on the zone’s economy.
For Iran, it needed to do so because of inherent weaknesses and for wasting its fortune through the last 40 years to achieve dead-end agendas that hastened the transformation into a failed state.
Dr Mohammad Al Asoomi is an UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.