Governments Accessing Risk from U.S. Sanctions on Iran

Since the U.S. pulled out of the Joint Comprehensive Plan of Action (JCPOA), not only are the previous sanctions being imposed, but the Trump administration is also going to create additional sanctions that will impact European countries that continue to do business with Iran and within the country. The foreign policy of the U.S. is targeting the Iranian regime, and for companies in Europe, there is the reality of being caught in the crossfire.

The European Union is determined to hold the JCPOA together, assuring Iran that it will not support the sanctions. Yet, these governments do not control the companies within their borders, and many of them are not willing to risk losing access to U.S. markets and financial systems to continue doing business with Iran.

Eni, an Italian company, has actually come out to say that it has no material exposure in Iran and will not be affected by sanctions announced by the U.S. government. Other companies are using the 180 window given by the U.S. to wind down their affairs with Iran. Some companies are simply pulling out of the contracts, before any material investment has been made.

In the case of Eni, the company has already recouped all outstanding payments owed for its previous investments in the country’s infrastructure. Its contract to purchase oil from Iran will expire at the end of the year. French oil major Total announced in May that it might pull out of its investment in Iran’s South Pars gas field. Their decision will be based on whether or not they can get a waiver from the U.S. government. Without that waiver, it is unlikely that they will move forward. Many companies are willing to comply with the sanctions, doing business only where it would not be considered a violation.

The United States has threatened to impose secondary sanctions against European companies doing business in Iran, while the EU is trying to find a way to keep the JCPOA in place and protect the investments of its companies in Iran. For many companies, however, the risk is too great, and they are choosing to withdraw from Iran. The financial implications of these decisions are going to drive the Iranian economy even further down. It had only become to recover slightly since the JCPOA went into effect, but many Iranians blame mass corruption for why the economy did not see greater gains since the lifting of the sanctions with the JCPOA.

In light of these changes that will have an impact financially on the regime, it appears that moving forward, the regime may find its ability to continue spreading its influence in the region could be hampered as a result.

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