In May 2018, the US rescinded its obligations under the JCPOA. It unilaterally imposed sanctions on Iran in August of the same year that are (at least partially) illegal under international law.[24] In April 2019, it refused to extend the waivers it had granted to China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece (all major importers of Iranian oil). Together, these actions created a policy rupture between the US and EU/E3 not seen since the 2003 US invasion of Iraq (see Annex for a more detailed sequence of events).

While the governments of the EU/E3 swiftly expressed their enduring commitment to the JCPOA in a clearly worded press release,[25] activated the EU’s blocking statute[26] to thwart US sanctions from having effect in the EU, and instructed the European Investment Bank (EIB) to facilitate trade with Iran, Europe’s private sector quickly and massively disengaged from Iran (see Table 1 below) at an estimated ‘cost’ of at least €38 billion in foregone profit and deals.

Thus, the US was extremely effective in leveraging the fact that its market is vastly more profitable for many European multinationals than the Iranian one. This extraordinary effect could have been achieved even without the extraterritorial effect of US sanctions and the re-activated EU blocking statute since many European multinationals have a legal presence in the US that is directly vulnerable to sanction-based penalties. In short, a US government measure undid a key commitment of EU governments under the JCPOA via Europe’s private sector that its governments were relatively powerless to stop, short of triggering a full-scale economic war through retaliatory measures.

Table 1
Overview of major European companies disengaging from Iran[27]

Q2 2018

Q3 2018

Main effects

(all figures are estimates)

German companies

Allianz, Hapag-Lloyd, Commerzbank

Daimler, Volkswagen, Siemens, BASF, Munich Re, Deutsche Telekom, Deutsche Bahn, Lufthansa, Herrenknecht, Dürr

Cessation of business activity, loss of €1.6 billion in deals, investment and revenue, cancellation of flight connections

French companies

Airbus (French/German), Air France, Renault, Total

Loss of €33 billion in deals, investment and revenue, cancellation of flight connections

Other EU-based companies

Maersk (DK), Torm (DK)

KLM (NL), Quercus (UK), FS (Italy), ATR (Italy)

Refusal of new contracts, cancellation of flight connections, loss of €3 billion in deals

Unable to stem the exodus of their businesses from Iran, it quickly turned out that the EU/E3 did not have the ‘all weather’ diplomatic capacity required to resist the aggressive anti-Iran policy of its US ally. The blocking statute proved ineffective due to direct exposure of European companies on the US market, the EIB needing access to US financial markets, and SWIFT, despite EU protestations, disconnected Iranian banks from the global payment system under US pressure.

Next, the E3 created INSTEX to enable commercial trade with Iran without recourse to the dollar. As a ‘Special Purpose Vehicle’, its intention has been to provide a payment channel and insurance mechanism to eliminate the risk of sanctions to companies that are willing but cautious to transact with Iran. Yet, it took until January 2019 for INSTEX to be incorporated and another 14 months for the mechanism to enact its first transaction. In the same period, the scope of INSTEX was significantly reduced from covering a range of commercial transactions (including oil) to humanitarian transactions only.[28] As a result, it is safe to say that the initiative failed to ‘compensate’ Iran for the anticipated increase in trade and investment for which it had negotiated the JCPOA – and which had been subsequently blocked by US sanctions.[29] Nevertheless, INSTEX can also be seen as a modest act of creative defiance on the part of a Europe in search of alternative ways to protects its economic interests in a US-dominated global order. Similar initiatives may be launched with greater ease in less complicated cases in the future.[30]

Naturally, the problem of maintaining trade and investment with Iran in the face of extraterritorial US sanctions was not unique to Europe. In fact, many of Iran’s trading partners complied without much political fuss. However, the EU/E3, Russia and China – having co-negotiated the JCPOA – were bound by its commitments they now struggled to honour.

Economically, China has put in the best performance of these three, mostly by maintaining a floor in its oil purchases from Iran, in part via a Malaysia-centred conduit to maintain some deniability of ignoring US sanctions.[31] Nevertheless, official data show a 30–40 per cent drop in bilateral trade between China and Iran: from $3–3,5 billion in June-July 2018 to $2 billion in June–July 2019.[32] This suggests that China sought to balance demonstrating commitment towards Iran and compliance with US sanctions. Since then, escalation of the broader Sino-American trade war has made it easier for Beijing to increase the volume of trade[33] and to engage in negotiations about a long-term strategic partnership with Tehran.[34] Interviews suggest that trade and investment with Russia is relatively irrelevant to Iran except for its potential role as vendor of high-quality armaments after the relevant parts of UN Security Council Resolution 2231, which prohibits such sales, lapsed in October 2020.

Politically, the major difference between China, Russia and the EU/E3 is that since May 2019 China and Russia have shown greater appreciation for Iran’s strategy of taking more gradual and reversible steps away from its JCPOA commitments than the EU/E3. In fact, China and Russia have tended to present these steps as inevitable consequences of the US having breached its own commitments and the EU/E3 not being able to honour its part of the bargain.[35] In contrast, the EU/E3 has repeatedly criticised Iranian violations, urged it to return to full compliance, and even triggered the JCPOA’s dispute resolution mechanism (see Annex).[36] From a European point of view, this response can be explained by a mix of concern about Iran’s regional posture, a desire to pay lip service to the US, and the exigencies of domestic parliamentary politics. From Tehran’s point of view, it is the height of hypocrisy. There is considerable merit in Iran’s accusation against Europe of double standards: it is hardly able to fulfill its own part of the bargain yet it criticises Iran for not discharging its obligations even though it remained in full compliance for a year in the face of a harsh sanctions regime. However, there is also another explanation for Iran singling out the EU/E3 for its harshest criticism, namely its need for Chinese and Russian diplomatic support in the UN Security Council. The EU/E3 is considered too close to the US to be of much help. In this regard, Iran, Russia and China have each other’s backs, since weakening transatlantic relations represents a shared geopolitical interest.

Consider the order of the International Court of Justice of 3 October 2018, online; or UN Security Council Resolution 2231 (2015, online), which was unanimously adopted (both accessed 14 June 2020).
See: link (accessed 10 June 2020).
This is legislation that protects EU operators from extra-territorial application of third country laws. See Council Regulation (EC) No 2271/96, online and Commission Delegated Regulation (EU) 2018/1100, online (both accessed 22 September 2020).
See for instance: link; link; (both accessed 7 June 2020).
Cullis, T., EU’s INSTEX transaction offers glimmer of hope but unlikely to satisfy Iran, Responsible statecraft, online, 2020; Von Hein, M., EU-Iran Instex trade channel remains pipe dream, Deutsche Welle, online, 2020; Batmanghelidj, E. and S. Shah, Protecting Europe-Iran trade to prevent war: A provisional assessment of INSTEX, June 2019, online.
See the Joint Comprehensive Plan of Action (JCPOA), Vienna, 14 July 2015, online.
For a broader analysis of steps that could be taken to enhance the EU’s economic strategic autonomy: Leonard, M. et al., Redefining Europe’s economic sovereignty, Brussels: ECFR, online, 2019.
For more background: link; Yacoubian, A., Iran’s tankers and its smuggling tactics, USIP, 2019, online.
Katz, D., Despite sanctions, China is still doing (some) business with Iran, Atlantic Council, 2019, online.
For instance: link (accessed 27 September 2020). Not all of the increase goes to China.
See: Saleh, A. and Z. Yazdanshenas, Iran’s Pact With China Is Bad News for the West, Foreign policy, 2020, online; Al-Jazeera, 6 August 2020, online.
For instance: link; link (both accessed 14 June 2020).
See: link; link (both accessed 14 June 2020).