On May 8, 2018 the U.S. announced it was leaving the framework agreement. When the U.S. withdrew, European leaders supported the view that the United Nations Security Council resolution “endorsing the nuclear deal remained the ‘binding international legal framework for the resolution of the dispute.’” To this day, the fractured nuclear arms control agreement “has heightened tensions and left the remaining signatories scrambling to keep the deal alive.”
The U.S. has challenged that it had no international or domestic legal binding mechanisms under the deal.
The Europeans have sought financial mechanisms known as the Instrument in Support of Trade Exchanges (INSTEX). This financial circumvention of American sanctions against Iran was announced in early 2019 to open “a new channel for non-dollar trade that would allow EU entities to do business with Iran.” This was led by Britain, France and Germany (BFG), and it was put in place to enshrine the Iran nuclear deal and rebuke President Trump’s decision to exit the JCPOA. The U.S.’ European allies have consistently disapproved of the Trump administration’s hostility towards Iran.
INSTEX was unstable from the beginning, and The Society for Worldwide Interbank Financial Telecommunication (SWIFT), the main international financial payment system, has removed Iranian banks and financial institutions from its networks over insistence from Washington. Exclusion from the Belgium-based-SWIFT has isolated Iran from international finance, and proven “how high the extraterritorial political and economic influence of the US. still is.”
Now BFG leaders have drawn a strong response from Iranian officials after attacks on two Saudi oil facilities in early September were blamed on Iran, which was accused of facilitating and/or directing the bombings. At a September UN meeting between the heads of BFG governments – a joint statement condemning the attack – and hinting at leaving the JCPOA – was issued. This statement is a reversal for BFG and for overall European diplomacy, which has been striving to keep the original framework in place.
The attack on the Saudi’s Abqaiq-Khurais oil processing facility has contributed to further Middle Eastern instability, and drawn the geopolitical risk premium higher for oil and natural gas exploration and production (E&P) development. Saudi Aramco is back to producing close to pre-attack levels of 9.9 million barrel per day (mb/d) of oil, but the company is still trying to restore damaged spare capacity. Restored capacity is important, because it coincides with Saudi Aramco’s announcement that it would pay a $75 billion dividend on its upcoming IPO.
This combustible Middle Eastern conflict between Saudi Arabia and Iran is a main reason Europe – led by BFG – is turning towards resuming sanctions and acquiescing to Washington’s demands of tougher sanctions and actions towards the Iranian government. “Tactical disagreements” over Iran between London, Paris, and Berlin have now been pushed aside since the attacks put the possibility of increased escalations in the Middle East, which falls within the traditional European and NATO sphere of influence.
European security and financial implications from the unprovoked Saudi bombing turns Europe toward seeing Iran as a threat, instead of a stable, economic and security partner. The European triumvirate said they call on “Iran to accept negotiation on a long-term framework for its nuclear programme as well as on issues related to regional security, including its missiles programme and other means of delivery.”
This significant shift in policy echoes U.S. sentiments that it would renegotiate the 2015 Iran nuclear deal, constrain Iran’s ballistic missile program, and reach an understanding on Iran’s ascendant role in the region. Tehran is now isolated from previously understanding European capitals, and INSTEX will no longer assist in financially circumventing U.S. sanctions, or in buying Iranian oil. European purchases of Iranian crude were a main source of hard currency for the Iranian government and its affected citizenry.
Iran has additional consternation knowing Europe is buying into the U.S.’ “maximum pressure” campaign against the regime. As a result, Iran could be pressured into talks with the U.S. administration, or face yet greater separation from its European counterparts.
Iranian leaders however, have balked at sanctions leading to direct negotiations, and are currently breaking the rules of the original deal by “stockpiling excessive enriched uranium.” Additional tensions will arise if Iran enriches weapons-grade levels of uranium, launches other terrorist attacks on Arab nations, U.S. personnel or affiliated allies; and continues halting oil tankers in the Strait of Hormuz.
Iran could be banking on a new U.S. president after the 2020 presidential elections, one who is more sympathetic to Iranian security concerns in the Middle East. But Iran may also want to resume face-to-face diplomatic relations after the Trump administration didn’t retaliate over Iran shooting down a U.S. drone. Interrupted Middle Eastern oil supplies to the U.S. are no longer as great a concern as before. U.S. fracking of oil and natural gas supplies can now resupply domestic and global markets before an uptick in prices causes economic hardship.
What Europe is doing by joining American hardliners who support tougher Iranian sanctions is signaling a move back to the U.S. security umbrella provided by NATO. If the Europeans and Americans work through the UN Security Council, then “so-called snap-back sanctions” can be put back in place over Iranian recalcitrance at the American and possible European withdrawal of JCPOA.
Europe may face the same scorn the American administration did when it withdrew from Iran, and the world community, over the nuclear deal. BFG now want the unaddressed flaws of the first Iran nuclear deal to be addressed, and the geopolitical moves the Iranians make could determine the outcome of the Middle East for decades ahead.
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