Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

U.S.'s Iran Sanctions Also Impact European Firms. What's At Stake

By (Jason Martin/ OverviewMay 17, 2018 11:02
U.S.'s Iran Sanctions Also Impact European Firms. What's At Stake
By (Jason Martin/   |  May 17, 2018 11:02
Saved. See Saved Items.
This article has already been saved in your Saved Items
  • Last week the US re-instituted economic sanctions against Iran
  • Secondary sanctions against European firms doing business in Iran could cost billions.
  • Waivers or an EU legislative move would reduce the impact
  • US success in getting Iran to renegotiate should make sanctions moot

Investors continue to assess the implications of US President Donald Trump’s decision last week to pull out of the Iran nuclear pact which lifted sanctions against the Middle Eastern country in 2015 in exchange for Iran pulling back on nuclear weapons development. It's not just oil markets that will be affected. As well, there's the impact on European firms from “secondary sanctions” imposed by the US if they continue to do business with the Middle Eastern country.

By ending the nuclear deal with Iran, Trump effectively re-imposed economic sanctions on Iran in a National Security Presidential Memorandum issued on May 8 in which he ordered “ceasing United States participation in the Joint Comprehensive Plan of Action (JCPOA) and taking additional action to counter Iran’s malign influence and deny Iran all paths to a nuclear weapon.”

However, the JCPOA will also have ramifications for non-Iranian firms doing business in the region, as noted by the follow-up Congressional Research Service report:

“The action sets in motion a reestablishment of US unilateral economic sanctions that will affect US businesses and include secondary sanctions that target the commerce originating in other countries that engage in trade with and investment in Iran.”

With the notable exception of US aeronautics giant Boeing (NYSE:BA), which had penned a deal to supply 80 aircraft worth $19 billion at list prices to IranAir and another 30 plane deal to supply Iran’s Aseman Airlines worth around $3 billion at list prices, it was primarily European business that had moved into Iran to take advantage of the original deal in 2015.

Boeing has already promised to follow the lead of the US government. The company's CEO, Dennis Mullenburg, indicated back in April that the manufacturer was no longer as dependent on its deals with Iran as it had been, thanks to an aggressive sales effort for the current generation 777-300ER, the planes involved in those agreements.

European Exposure

“US Iran sanctions are hardly hitting any US companies, but aim primarily at European ones,” Co-Chair of the European Council on Foreign Relations Carl Bildt insisted.

Despite the large portion of European companies that signed deals in the region in 2015, the total impact from the re-imposed secondary sanctions remains unclear. Depending on the industry involved, European firms have a 90 to 180-day wind-down period—expiring on August 9 or November 4, respectively—to cancel contracts or face sanctions against them directly from the US. Any American units of those companies would effectively be breaking US law and face penalties, while those operating outside the US could also be prohibited from American commerce in a “with us or against us” policy stance.

The list of possible European firms affected is long, with billions of euros in deals at risk. Trade between Germany and Iran reached €3.4 billion ($4.1 billion) last year, according to foreign trade association BGA, prompting the German weekly magazine Der Spiegel to feature the story on its most recent cover (below) with the original story in its English version titled “Trump Humiliates Europe with Exit from Iran Deal.”

Examples of companies in the crossfire include: European energy giants Total (PA:TOTF) and Royal Dutch Shell (LON:RDSb), both of which have working deals with Iran; automakers Renault SA (PA:RENA) and Peugeot SA (PA:PEUP), which produce cars in Iran, as well as Volkswagen (DE:VOWG) which began exporting cars to the Middle Eastern country just last year.

However, the most-talked about European business threat involves the Franco-German Airbus (PA:AIR) contract to produce 100 aeroplanes for the Iranian state airline IranAir in a deal valued at $19 billion in list prices. A smaller deal for 20 planes was also inked with Franco-Italian turboprop maker ATR.

Waivers and Legislation Still Up In The Air

Still, nothing yet is set in stone. At this point, European firms have the option of applying for waivers from the US in order to continue business as usual in Iran, although American officials have yet to clarify whether these would be granted or not. Total was in fact granted waivers back in the 90s and its CEO indicated in April that it would once again seek the exemption.

Furthermore, in previous, similar situations, the European Union threatened retaliatory sanctions when the US attempted to penalize companies doing business with Cuba in 1996. At that time the US backed down.

The EU ambassador to the US has also suggested that Europe could institute “blocking regulation,” an action that would ban any European company from complying with U.S. sanctions and does not recognize any court rulings that enforce American penalties. European leaders were reportedly expected to decide whether to go ahead this week in Brussels, setting the stage for EU government leaders to reach a final decision at a summit in Sofia, Bulgaria on May 17.

Renegotiation Could Make Iranian Sanctions Short-Lived

Last Sunday, White House national security adviser John Bolton said “it's possible” there will be secondary sanctions imposed on European companies as a result of the US withdrawal from the Iran nuclear deal. Bolton told CNN that he believed some European allies would ultimately join the US in its withdrawal from the agreement although eventual sanctions on firms would depend on the “conduct of other governments.”

US Secretary of State Mike Pompeo told Fox News on Sunday that he remained hopeful Washington and its allies could strike a new nuclear deal with Tehran. Treasury Secretary Steven Mnuchin has already implied that the US withdrawal from the deal was a move designed to get Iran back to the negotiating table. “These sanctions do impact all the major industries (in Iran). They are very strong sanctions,” Mnuchin said last week.

Indeed, the outline of sanction implementation from the Treasury focuses precisely on the widespread nature of the sanctions that goes beyond the automotive sector, airline industry and oil companies already mentioned. Apart from sanctions on gold, precious metals, dollar transactions, Iranian sovereign debt and currency, sanctions will affect aluminium and steel, coal, software for integrating industrial processes, port operators, shipping, shipbuilders, financial transactions, underwriting services, insurance, reinsurance and the wide-spread energy sector.

“They worked last time. That is why Iran came to the table,” Mnuchin added in a clear statement of intent for the US government.

Until the final details are ironed out, the impact for European firms remains up in the air, both as far as which companies may receive exemptions and how the EU will react if their firms are not granted waivers.

Yesterday the Wall Street Journal reported that several "...European firms have started pulling back investment and abandoning commitments in Iran," including Total, Germany energy firm Wintershall, whose parent company, chemical giant BASF (BO:BASF) has extensive operations in the US and Maersk (CO:MAERSKb) the Denmark-based shipping company which announced it would "stop taking assignments for Iranian oil shipping." Torm (CO:TRMDa), a second Danish tanker company has also stopped taking new orders from Iran.

Other Europe-based firms, including German carmaker Daimler (DE:DAIGn), engineering group Siemens (DE:SIEGn), Austria’s Oberbank (VIE:OBER) and the UK’s Serica Energy (LON:SQZ) have said that it is too early to identify the impact. Each is still evaluating the circumstances surrounding this current uncertainty before deciding how to move forward.

Ideally, Trump’s negotiating tactic may get Iran back to the table so a new, less punitive agreement can be worked out and sanctions—both primary and secondary—would only be short-lived. While that seems unlikely, hopes still remain for European companies to find a way to minimize the billions of euros in damage brought on by this latest geopolitical development.

U.S.'s Iran Sanctions Also Impact European Firms. What's At Stake

Related Articles

Ipek Ozkardeskaya
Optimism Didn’t Last Long By Ipek Ozkardeskaya - Jun 28, 2022

Optimism didn’t last long yesterday, and the market mood turned rapidly sour, as the news flow was not pointing at sustained gains anyway! Oil and commodity prices rebounded with...

U.S.'s Iran Sanctions Also Impact European Firms. What's At Stake

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Giorgio Russo
Giorgio Russo May 17, 2018 19:01
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I hope European companies will not comply with U.S. sanctions against IRAN.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
Sign up with Email