Europe’s ’Blocking Statute’ a Necessary But Insufficient Step to Save the JCPOA

Venting their anger at the Trump administration, the European leaders at the Sophia summit resolved to protect Europe's economic interests in Iran by invoking the so-called "Blocking Statute" that prohibits the European firms from complying with the requirements of new US sanctions on Iran.  A brave historic decision reflecting European Union's political will and coming of age in the post-cold war era, this is simultaneously a big slap at the Trump administration and reflective of a widening transatlantic gulf with both near and long-term consequences for Europe's external affairs.

As a result, the European officials are now busy drafting an updated version of the 1996 Blocking Statute by incorporating the US sanctions against Iran and specifying the legal counter-measures.  Although this Regulation is now 22 years old, it has not been yet tested and has only been used once as a political leverage with the US (i.e., Clinton) administration, rather successfully.  In other words, it represents untested waters and its effectiveness in blocking the US efforts to thwart EU trade with Iran particularly in the energy sector is an open question, depending on a number of factors such as enforcement and the complementary role of other remedial EU measures, including the promotion of government-financed trade with Iran, direct investment through the European Investment Bank (EIB), and bypassing US dollar by making special Euro-denominated oil and gas transactions with Iran's Central Bank.  Also, European governments may lobby Washington to acquire sanctions exemptions for their companies, but at this point that does not seem very likely.  Altogether, however, no single measure or initiative can save the day and a creative basket involving the aforementioned steps is necessary in order to convince Tehran that continued adherence to the onerous JCPOA obligations is still called for.

With respect to the Blocking Statute, it is important to keep in mind that it can pose an empty threat to US if it lacks the necessary tooth to bite the US interests.   Since compliance with the Regulation is at the national level, there needs to be a uniformed behavior in strict enforcement, otherwise some countries might seek to take advantage of the Regulation's loophole, e.g., Article 5(2) provides for the possibility of obtaining an authorization to comply with the US sanctions to the extent that non-compliance would seriously damage the interests of the companies involved or those of the European Community.  The European Commission may grant such authorization according to the procedure set out in Article 8 of the Statute.

Clearly, this Blocking Statue cannot alone reverse the negative repercussions of US' new sanctions reflected in the decision of several European companies such as Germany's Allianz or the French Total to suspend operations in Iran.  The EIB, on the other hand, is essentially too small a bank to embark on any ambitious project in Iran and is more apt to initiate a small-scale investment.  Italy's initiative of a 5 billion Euro credit line for Iran trade is a positive step as well, yet drastically falls short of the multi-billion MoUs signed on paper in the course of President Rouhani's post-JCPOA Italian visit.  Hopefully, other countries in Europe will emulate Italy's initiative, otherwise the overall pool of credit finances allocated to promote trade with Iran will be insufficient to meet Iran's minimum demands, above all the need to safeguard the oil exports to Europe, currently Iran's third largest energy trade partner.  Negotiations with the EU Energy Commissioner are on track with regard to this matter, but ultimately the EU energy giants must decide for themselves if continuing trade with Iran is economically viable, given their extensive financial ties with the US banks.  This points at EU's conundrum, the fact that its political leaders want to address Iran's need for certain guarantees yet are unable to dictate to their private sector, as a result of which in reality no such guarantees are ultimately possible within the present environment of European corporate capitalism.

In addition, the road ahead is strewn with important procedural implications that can delay adoption of the Iran-related Blocking Statute by months. It is unclear at this stage if the new regulation will require a co-decision by the European Parliament, following the EU Treaty's Aticle 100A, or simply a cooperative procedure with the Parliament (per Article 57)? Also, recalling how in 1996 the Blocking Statute was reinforced by a similar "Joint Action" that directly covered the persons or firms affected by the anti-Iran D'Amato Act, an integrated legal initiative that invokes the Joint Action is necessary in Europe since the Statute is perhaps too narrow by itself to provide an adequate legal response to US sanctions.

In conclusion, Europe has seemingly stepped to the plate to meet the challenge of US' bullying and trashing a verifiable international agreement that has been a success story, but the sum of EU's initiatives must pass the muster of sufficiency, otherwise the US sanctions will continue to wreak havoc on EU's trade with Iran, irrespective of the official European outcry.  In a word, EU's initiatives so far are necessary and prudent counter-measures but far from sufficient. As a result, the JCPOA continues to be on the brink and time will tell if Europe can indeed salvage it.