At midnight tonight the US will reimpose sanctions on Iran. US President Trump abrogated the Joint Comprehensive Plan of Action (JCPOA), otherwise known as the Iran nuclear deal, last May. In so doing, the US violated the agreement since it did not claim that Iran had violated the agreement. Rather, the US claimed that the agreement was flawed because it did not cover Iranian relations with Hamas and Hezbollah, which it regards as terrorist organizations, it did not limit Iranian ballistic missile development, and it did not permanently prevent Iran from developing nuclear weapons. None of these three conditions was ever part of the agreement, and the UN has certified that Iran had complied fully with the specified terms of the agreement.
President Trump’s Executive Order is extensive, covering all the legal aspects of imposing sanctions on a state that has not attacked the US. The Fact Sheet produced by the White House is explicit about the scope of the sanctions which will be imposed in two steps–today and 4 November:
- “On August 7, sanctions will be reimposed on:
- The purchase or acquisition of United States bank notes by the Government of Iran.
- Iran’s trade in gold and other precious metals.
- Graphite, aluminum, steel, coal, and software used in industrial processes.
- Transactions related to the Iranian rial.
- Activities relating to Iran’s issuance of sovereign debt
- Iran’s automotive sector.
- “The remaining sanctions will be reimposed on November 5, including sanctions on:
- Iran’s port operators and energy, shipping, and shipbuilding sectors.
- Iran’s petroleum-related transactions.
- Transactions by foreign financial institutions with the Central Bank of Iran.
- “The Administration will also relist hundreds of individuals, entities, vessels, and aircraft that were previously included on sanctions lists.
ENSURING FULL ENFORCEMENT: President Trump will continue to stand up to the Iranian regime’s aggression, and the United States will fully enforce the reimposed sanctions.
- “The Iranian regime has exploited the global financial system to fund its malign activities.
- The regime has used this funding to support terrorism, promote ruthless regimes, destabilize the region, and abuse the human rights of its own people.
- “The Trump Administration intends to fully enforce the sanctions reimposed against Iran, and those who fail to wind down activities with Iran risk severe consequences.”
It is not clear that these sanctions will be effective. The European Commission has passed a “blocking statute” which exempts European firms from the effects of “extra-territorial legislation” which harms their interests. It published its own Fact Sheet on the new legislation which reads:
How does the Blocking Statute work?
The Blocking Statute applies with regard to the extra-territorial legislation mentioned in its Annex (“listed extra-territorial legislation”).
It forbids EU residents and companies (“operators”) from complying with the listed extra-territorial legislation unless they are exceptionally authorised to do so by the Commission; allows EU operators to recover damages arising from such legislation from the persons or entities causing them; and nullifies the effect in the EU of any foreign court rulings based on it.
EU operators should inform the European Commission – within 30 days since they obtain the information – of any events arising from listed extra-territorial legislation that would affect their economic or financial interests.
Why was the Blocking Statute updated?
The update was triggered by the US’ unilateral decision on 8 May 2018 to re-impose sanctions against Iran (after wind-down periods of 90 and 180 days, i.e. after 6 August 2018 and 4 November 2018) simultaneously with its withdrawal from the Joint Comprehensive Plan of Action (JCPOA) agreed in 2015 between Iran on the one hand, and China, France, Germany, the European Union, Russia, the United Kingdom, and the US, on the other. Some of the re-imposed sanctions have extra-territorial effects and could potentially affect EU operators doing legitimate business with Iran.
How is the Blocking Statute amended?
The EU has amended the annex to the Blocking Statute by adding within its scope the list of extra-territorial US sanctions on Iran that the United States is re-imposing.
The amendment is made through a Commission Delegated Regulation, which was adopted by the Commission on 6 June 2018 and to which neither the Council, nor the European Parliament have objected in the 2 months’ scrutiny period that was foreseen for this purpose. The Delegated Regulation will be published and enter into force on 7 August.
What kind of damages can EU operators ask compensation for?
According to the Blocking Statute, EU operators can recover “any damages, including legal costs, caused by the application of the laws specified in its Annex or by actions based thereon or resulting therefrom”.
From whom can EU operators claim compensation for those damages?
According to the Blocking Statute, EU operators can recover damages, namely from “the natural or legal person or any other entity causing the damages or from any person acting on its behalf or intermediary”.
How can EU operators claim compensation?
The action can be brought before the courts of the Member States and the recovery can take the form of seizure and sale of the assets of the person causing the damage, its representatives or intermediaries. As in any litigation for damages, it will be for the judge to assess the merits of the case, or the causal link.
Additionally, it is not at all clear that European states are sympathetic to US interests, given the trade disputes that have emerged over the last few months. Moreover, it is not at all clear what the Europeans would be cooperating with. The sanctions can be reimposed and they were partially responsible for the JCPOA itself. But what is the objective of new sanctions? What would be the criteria of success? What outcome would bring about the end of sanctions?
It is also highly likely that Russia and China, the other partners to the JCPOA, will go along with reimposed sanctions. Russia is already being sanctioned by the US, and I am not sure that President Trump would be willing to add more sanctions on Russia given his reluctance to impose sanctions for Russian interference with the 2016 elections. Moreover, the US needs Russian cooperation in order to come to a settlement in Syria. China has also indicated that it is not willing to stop buying Iranian oil. According to Bloomberg:
“China — the world’s top crude buyer and Iran’s No. 1 customer — has said previously that it opposed unilateral sanctions and lifted monthly oil imports from the country by 26 percent in July. It accounted for 35 percent the Iranian exports last month, according to ship-tracking data compiled by Bloomberg.”
Turkey and India will also continue to trade with Iran–both are adept at disguising trade deals in order to evade penalties from the US sanctions.
Finally, it is not at all clear that the US has any national interest in stopping the purchases of Iranian oil. Iran currently contributes about 2 million barrels a day to the world energy system. Shutting that flow down, particularly just before the November elections is not in Mr. Trump’s interest, since successful sanctions will undoubtedly raise oil prices in the US.
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