No one spelled out Europe’s predicament over the escalating stand-off between the US and Iran quite as bluntly as Russia.

“It is up to the Europeans, who committed to find a solution to the problem created by the Americans, to fulfil their promise,” said Foreign Minister Sergei Lavrov, during a joint news conference in Moscow with his Iranian counterpart, Mohammad Zarif.

That will not be easy, because after a year of casting around for ways to enable companies to safely circumvent US sanctions to trade with and invest in Iran, Europe has come up empty. That is unlikely to change in the next 60 days, in which case the 2015 nuclear deal with Iran could be headed for a slow death.

Europe again found itself squeezed between hostile governments in Washington and Tehran on Wednesday, when President Hassan Rouhani threatened to abandon some of the limits to its controversial nuclear fuel programme that Iran agreed to in 2015, in exchange for the lifting of international sanctions.

Rouhani’s ultimatum

Iran’s beef is with the US, which withdrew from the agreement last year. And its likely to continue getting support from Russia and China, which in the past have continued to do business in Iran and buy its oil, despite US sanctions.

But it was to Europe that Rouhani delivered his ultimatum on Wednesday, demanding that it start countering the effects of mounting US sanctions within 60 days, or see Iran start walking away from the deal, too.

“They’re giving the Europeans a last chance,” said Sir Richard Dalton, who served as the United Kingdom’s ambassador in Tehran from 2003 to 2006. So far, Europe has not delivered in a single one of the areas transport, trade, investment, banking where it promised Iran cooperation in 2018, when the US pulled out.

Dalton described Rouhani’s announcement as carefully calibrated, so as not to immediately collapse the 2015 Joint Comprehensive Plan of Action, while at the same time persuading a domestic audience that the government was pushing back against US economic pressure.

Iran’s economy contracted by 3.9 per cent in 2018, and is forecast to shrink by a further 6 per cent this year, according to the International Monetary Fund. The recent US decision to end all waivers of sanctions against countries that buy Iranian oil exports is likely to exacerbate the country’s economic woes further.

Consequences of the withdrawal

France, Germany and Britain on Wednesday all recommitted to the 2015 deal, calling again for the US to return to the agreement, while signalling that any Iranian backtracking would meet a response.

“We and our partners stand by this treaty, without any caveats and we expect Iran to implement the treat in full as well, without caveats,” said German Foreign Minister Heiko Maas. The UK’s junior foreign minister, Mark Field, told Parliament the UK also stood by the deal, but said there would be consequences if Iran stopped meeting its nuclear commitments.

Europe’s thankless position is not new. It has been caught between hawkish policies in the US and Iran ever since international inspectors first confirmed the existence of Iran’s secret nuclear fuel program, in 2003.

Uncomfortable déjà vu

Still bruised from the US decision to invade Iraq just months earlier, France, Germany and Britain took on the task of negotiating a solution with Tehran that the US could accept. Their aim was to avoid a repeat of the Iraq war, and of the deep rifts that it caused within Europe as governments were forced to choose whether to back or oppose US policy. Unlike the US, European nations also had significant economic interests to lose.

Iran’s ultimatum, together with the recent US deployment of an aircraft carrier group and B-52 bombers to the Gulf, suggest those risks are back.

US Secretary of State Michael Pompeo cancelled a meeting with German Chancellor Angela Merkel to visit Baghdad on Tuesday where he told Iraqi leaders the threat from Iran is growing. He told the Daily Telegraph that he had received intelligence that suggested “it was a good time for me to go”.

Secondary sanctions

Europe’s governments are probably in a weaker position to push back against US foreign policy choices than they were in the lead-up to the Iraq war, when France, Germany and a number of others joined with Russia to forcefully oppose the Iraq invasion.

That is in part because Washington has since developed the use of secondary sanctions against non-US companies into a powerful deterrent. The US fined Frances BNP Paribas SA $8.9 billion in 2015, for busting its sanctions on Iran, Cuba and Sudan.

Last month, the German unit of UniCredit SpA agreed to pay $1.3 billion for busting US sanctions on Iran. Companies, and governments, have become cautious.

The EU is setting up a special purpose vehicle to help European companies safely finance the export of goods to Iran. Even this limited vehicle, however, known as the Instrument in Support of Trade Exchanges, has yet to start work. It would in any case do little or nothing to aid investment or trade in the wider Iranian economy.

Mounting troubles

In what could be seen as a veiled threat, Rouhani also talked on Wednesday about the role Iran plays in reducing the flow of drugs and refugees to Europe. Iran hosts about 1 million registered refugees from Afghanistan, and as many as 1.5 million more who are unregistered.

At the same time, the non-financial stakes for Europe in defying the US on Iran may also have risen in recent years. President Donald Trump has made it clear his government sees both support for Europe’s defence in the North Atlantic Treaty Organisation, and trans-Atlantic trade as negotiable in ways that no US president has before.

“The underlying issue...,” said Dalton, “...is whether Europe remains a sovereign force.”

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