Can the EU maintain financial channels and Oil trade with Iran like they claim in their statement on reimposition of US sanctions on the country?

Question

The US has announced fully enforcing sanctions on Iran, starting from Tuesday this week.

The EU issued their statement on that, stating that they regret the US decision but the most curious part is:

“The remaining parties to the JCPOA have committed to work on, inter alia, the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran’s export of oil and gas,” the European Union’s foreign service said in a statement, referring to the acromym for the nuclear deal struck with Iran in 2015.

How can the EU remain committed to financial and trade dealings with Iran without running afoul of the US sanctions themselves? Wouldn't allowing Iranian funds to be transferred to/from the EU and doing trade with them be in violation of the Sanctions?

Answer 1

Of course the EU will "run afoul" of US sanctions.

The US is using their economic weight to isolate Iran, and in this case the EU decided to push back. In theory, the new EU regulations allow companies fined in the US to have courts seize US government assets in the EU in compensation, and it also allows EU courts to punish companies for compliance with US demands.

The EU believes that they have a deal with Iran on nuclear matters and that Iran has kept the letter of the deal, so the EU should do the same. They seem to believe that rewarding this sort of compliance is more important than not provoking the Trump administration further.

(This is not really the place to speculate on motivations, but the EU has historically been keen on treaties and calm political process while the current US administration seems much more mercurial. The EU might believe that they have to draw a line in the sand somewhere or it will go on like this. Back in the Cold War, the US and their NATO allies mostly consulted in private and then presented an united front against the Soviets. Now the US does not consult any more, so why should the EU fall in line?)

How will it end? Nobody knows. Either one side blinks first, or there will be severe strain on US-EU relations.

Answer 2

The United States can (theoretically) only rule on their own relationships with other countries. EU countries and Iran being sovereign states, they are (theoretically) allowed to trade together without violating US unilateral sanctions. For instance, European countries have had diplomatic relationships and trade with Cuba for long notwithstanding the US embargo.

However:

• Some Courts in the US have ruled that any transaction using US$ was under the jurisdiction of US trade rules, which has allowed it to sue and heavily fine several foreign banks and companies for violating a US embargo. EU and Iran plan to dodge that issue by using Euro for payment of Iranian gas and oil.

  The European Union (EU) is considering switching to euros instead of U.S. dollars in the oil trade with Iran

• Any European company (rather than State) that will be involved in trade with Iran might face retaliation by the US administration, losing public markets in the US or even being banned from this huge market. As a consequence, most of them will be very careful not to lose a big market (USA) for a small one (Iran). Unlike the case of the company breaking an embargo deciding by its own country, this is "the law of the strongest" rather than "international law". Some insurance companies, for instance, are reluctant to sign contracts for oil cargo from Iran because of the US embargo. That's why EU also plans the:

  development of special purpose vehicles in financial banking, insurance and trade areas

SE-user o.m. explains part of the mechanism that has just been released by UE (link in French) in a useful comment that I reproduce here:

Under the new rules, EU companies could claim damages from US retaliation in EU courts. An US bank with assets in the EU could be held responsible as intermediary if they cooperate with the US administration on sanctions. If both sides pull that through, transatlantic trade will take an enormous hit.