In the game that started with Trump’s decision to withdraw from the Iran nuclear deal, there is still no clear winner.
Just days before the Islamic Republic of Iran celebrates its 40th anniversary on February 11, Europe has offered it a gift.
Ever since last May, when Washington pulled out of the nuclear deal signed under then-President Barack Obama and reimposed sanctions on Iran, Europe has promised to soften the economic blow by offering Iran a Special Purpose Vehicle (SPV). Last week, after months of anticipation, and timed to coincide with a controversial Middle East conference cohosted by Poland and the United States that is widely expected to tar-and-feather Iran, the first step of the SPV was rolled out.
“Oversold and under-financed,” was how Esfandyar Batmanghelidj of the European Leadership Network (ELN) described it. With its details still unclear, the new vehicle, called Instex, registered in France with a German Director and British board, will likely not be fully operational for several months.
It is designed only to handle, at least initially, trade in medical, food, and other humanitarian products that in any event are exempt from sanctions. Yet, the decision by Europe to hold its ground against a strong US policy decision appears historic, as the EU has loyally marched in lockstep with Washington’s foreign policy for decades (with the exception of France’s decision not to support the 2003 coalition invasion of Iraq).
The SPV is an important, if small, step by Europe to encourage its companies to do business with Iran by insulating them from US threats and retaliation.
Still, it may be too little too late. On January 29, Iran reversed its ban on the use of bitcoin, which it previously worried would promote capital flight, and announced it could be used as a currency of exchange. Further, it authorised initial coin offerings (ICOs), tokens, cryptocurrency wallets, cryptocurrency exchange bureaus, and legalised mining, all which indicates that crypto-currencies can now be used to legally bypass American regulators and finance its oil trade.
Since the Trump administration backed out of the 2015 nuclear accord, or JCPOA (the Joint Comprehensive Plan of Action), calling it “the worst possible deal”, the game has taken unexpected turns, many beyond the glare of public scrutiny. What’s more, many of the moves are scoring points in other games as well.
Indeed, even as the last details of the new sanctions regime against Iran were being finalised in Washington last fall, soybean farmers in Mississippi, facing a sudden drop-off in China’s imports due to Trump’s trade-war, found an unexpected new market – Iran – which was stockpiling strategic commodities in anticipation of the sanctions. Relieved to have a market open up suddenly, Mississippi farmers quietly shipped over 300,000 tonnes of the crop to Iran, convincing Trump’s administration to keep agricultural products off the sanctions list.
For its part, the EU has engaged in projects to keep relations warm with Iran, even as delays plagued the SPV rollout and other areas of friction arose. Under the umbrella of UNESCO, the EU is funding an expanded presence in Tehran to act as a node on the organisation’s Silk Roads Heritage Corridors project, designed to “promote and facilitate partnerships, improve communication” and build capacity through income generation and job creation.
For Iran’s sanctions-hit economy, where the currency has lost 70 percent of its value, inflation exceeds 35 percent and food costs have more than doubled – this is a welcome arrival. However, by engaging in the rescue of a cultural heritage corridor that has recently gained more public notice as the route of China’s Belt and Road Initiative, the EU is neatly playing a double game.
Or even a triple one. It has chosen not to utilise the waivers to import Iranian oil that Washington awarded both Greece and Italy. And it has shown that Washington’s efforts to highlight “malign activities” by Iran, including its missile programme, are of sufficient concern that the EU has moved to constrain Iran in alternative ways. In January, the EU put sanctions on an entire department of Iran’s Intelligence Ministry in retaliation to its purported role in a bomb plot in France.
Germany, meanwhile, last week withdrew landing rights for Mahan Air to fly into its airports, arguing the carrier was being used to shuttle military equipment to Syria. It was a move Iranians found particularly stinging, as Mahan is the country’s only airline to have Airbus 340s, making it not the safest of its fleets, and also the only one able to fly to Europe and back without refuelling – a key issue until the SPV makes it easier for Iran to spend its hard currency.
Moves and countermoves are part of the three strategies that are gradually emerging in this game, with each player winning some and losing some. Trump’s plan is to squeeze Iran until it agrees to talks, so he can take credit for a better deal than Obama’s.
The EU is attempting to play three hands at once, attempting to keep the US happy and Iran in compliance, while maintaining its own moral high ground. And Iran is attempting to find ways around the sanctions (much as it has done for the 35 years it has been sanctioned by the US) before the economy goes into free fall.
So far, the Europeans have offered sufficient promises that Iran remains in the JCPOA. But time is running out. Hardliners are accusing Foreign Minister Javad Zarif and President Hassan Rouhani of being naive and putting the national interest at risk by trusting “the Great Satan” (a common Iranian euphemism for the US) to keep its promises while delivering nothing to Iran. Technocrats and reformers are on the back foot, and increasingly likely to lose out to conservatives in the next election. Unless bitcoin can turn the economy around, and fast, the US game will deliver Iran on a platter to its hardest line politicians.
The Europeans, for their part, are finding the middle ground increasingly uncomfortable. They have few real economic benefits to offer the Iranians, and increasingly little to negotiate with the US as the Trump administration puts pressure on NATO and demands better terms on its economic trade with the EU.
Finally, Trump’s hope for an Iran summit, and ultimately a deal, in the mould he minted with North Korea, is becoming increasingly unrealistic. Even though his deals deliver considerably more fanfare, and significantly less detail, than Obama’s JCPOA, and hence, could be a windfall for Iran, the Islamic Republic is refusing to play Trump’s game. The only winner is likely to be National Security Adviser John Bolton, who is playing a waiting game until the other three strategies fail. At that point, his claim that regime change is the only game in town could justify a war timed to leverage Trump’s re-election campaign.
And that will be a losing game for everyone.