US continues to furnish ammunition for Europe’s frustration

Two announcements last week, in Europe and the US respectively – and reactions to them – were testimony to the continuing frustration in Europe with the Trump administration.

In Bucharest on Thursday, foreign ministers from the UK, France and Germany announced the establishment of a new financial mechanism, known as Instex, to circumvent US sanctions against companies trading with Iran after the US repudiation last year of the Iran nuclear deal (JCPOA) and reimposition of sanctions.

The EU, along with most of the international community and the International Atomic Energy Agency, rejects Trump claims that Iran has continued its nuclear weapons research.

While in Washington on Friday, President Donald Trump confirmed to European distress the widely expected US unilateral repudiation, come August, of the 1987 Intermediate-Range Nuclear Forces Treaty (INF). The treaty restricted the siting of short- and medium-range nukes on European soil leading to fears here of a return to a nuclear arms race. Friday was also the day when the massive EU-Japan free trade agreement came into force – the largest bilateral trade relationship in the world, which brings together more than 630 million people and nearly a third of global gross domestic product.

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Commission president Jean-Claude Juncker hailed the deal as a powerful symbol of international trade and co-operation, adding pointedly that it is important for the world to see such a reality at a time when multilateralism is being challenged by the isolationist policies of the US president.

Arms control

The message from the EU on all fronts is that it is not ready to abandon multilateralism, whether in arms control or trade, even at the cost of further damaging relations with the US.

Nato secretary general Jens Stoltenberg was quick to blame alleged Russian breaches of the INF – its development on land of once sea-based missile delivery systems – for the US decision, but European capitals made it clear they preferred trying to make the treaty work to its abandonment.

EU foreign policy chief Federica Mogherini stressed Europe has greatly benefited from the security guaranteed by the INF treaty, and thus has the most to lose. "What we definitely don't want to see is our continent going back to being a battlefield or a place where other superpowers confront each other. This belongs to a faraway history . . . We definitely don't want to even consider the possibility of going backwards along this path."

Former German foreign minister Sigmar Gabriel told daily Tagesspiegel that the end of the INF treaty poses an imminent danger to the EU, which could divide the bloc and undermine its shared foreign and security agenda.

Payment routing

Following the unilateral US repudiation last year of the JCPOA, EU states, angered by US threats of secondary sanctions against companies willing to break its new sanctions regime against Iran, agreed on the need to establish a “special purpose vehicle” to route payments to and from Iran away from the dollar clearing system.

Instex, registered in France, is expected to mainly cater for humanitarian trade deemed essential to the Iranian population, such as pharmaceuticals, medical devices and agri-food goods. It will not be able to help prop up Iranian oil exports, the republic’s economic lifeline, which have plummeted to 1.3 million barrels per day, down from a peak of about 2.8 million last year.

Officials privately acknowledge that establishing Instex is largely a symbolic show of support, because any European companies with US exposure are still unlikely to do business in Iran for fear of falling foul of Washington. The delay in establishing the special purpose vehicle and its location were reported to be related precisely to those concerns about possible US retaliation.

The Trump sanctions have caused the rial to lose more than 50 per cent of its value last year, while year-on-year food prices have increased by about 60 per cent, according to the Central Bank of Iran.