EghtesadOnline: US President Donald Trump’s decision to exit the Iran nuclear deal and reinstate sanctions could cost some of Europe’s biggest companies billions.
The US Treasury Department has promised “wind-down” periods of 90 to 180 days to let firms extricate themselves from agreements with Iran and avoid US sanctions. That will do little to assuage the European companies that have billions on the line in recently cut contracts with the country of 80 million people, Qz.com reported.
Energy giants like Total and Royal Dutch Shell have lucrative agreements to work with Iran, while Renault has a joint venture to make 150,000 cars a year, and Franco-German planemaker Airbus has reportedly delivered just three out of 100 jets promised to Iran, in a deal worth billions.
General Electric-affiliates based outside the US since 2017 signed contracts totaling tens of millions of dollars to supply equipment for gas production projects and petrochemical plants, according to a May 1 securities filing, Financial Tribune reported.
Volkswagen announced in 2017 that it resumed selling cars in Iran for the first time in 2017.
French automaker PSA Peugeot Citroen reached an agreement last year to sell cars in Iran and has reported sales increases in the country since resuming. PSA has indicated interest in returning to the US market, a goal that would force it to rethink its Iran plans, AFP reported.
PSA said on Wednesday that it hoped the European Union would adopt a common position on Iran regarding Trump’s decision.
“Like other economic players, we are following the evolution of the matter and are also following the EU’s official position on this topic,” said a spokesman for PSA, adding that PSA hoped the EU’s position regarding Iran would be a “singular” one, Reuters reported.
PSA shares were down 1.5% in early session trading, while rival carmaker Renault, which also has business in Iran, declined by 0.3%, Reuters reported on Wednesday.
British Airways and Lufthansa, which have resumed flights into Tehran, will be faced with a choice of continuing those businesses, or maintaining their international flights to the US.
The same problem faces French hotel chain Accor, which opened a hotel in Iran in 2015, as well as others in the hospitality sector, such as Spain’s Melia Hotels International and UAE’s Rotana Hotels.
Trump’s decision comes after an intense, failed lobbying effort by French President Emmanuel Macron, German Chancellor Angela Merkel and British Foreign Secretary Boris Johnson to keep the US in the international deal.
In a joint statement, the three countries’ leaders expressed “regret and concern” and insisted they will stay in. The statement, which didn’t address how sanctions might hit European firms, highlighted that they consider the Iran deal the “binding international legal framework” for resolving the country’s nuclear program.
“Any European companies with a US arm that agreed a deal with Iran would now be violating US law,” Adam Smith, a lawyer at Gibson Dunn who is a former Treasury sanctions official, said.
Those not active in the US could be hit with a “with-us or against-us sanction”, in which Washington would tell the company that if it wants to keep trading with Iran they can’t trade with America, Smith said.
The only way around the sanctions would be for the Trump administration to grant European companies waivers. Executives at Total already have reportedly met with French officials to push them to lobby the US.
After Nov. 4, “all the US nuclear-related sanctions that had been lifted under the JCPOA will be reimposed and in full effect”, the US Treasury Department said.
That means banks will be prohibited from doing any business in Iranian rials or purchasing and selling Iranian sovereign debt. Manufacturers will be prohibited from selling Iran aluminum, steel, coal and software. The entire Iranian auto industry is sanctioned, as is its petrochemical industry and investments in ports. Even importing Iranian carpets into the US will be prohibited.
In response, European countries could adopt a “blocking regulation”, the EU ambassador to the US explained earlier, which has been used in the past to allow EU entities to ignore US sanctions on Cuba. It could also push for non-US courts to decide any legal conflicts.
France and its European allies will work hard to safeguard the interests of their businesses in Iran, a source in the French presidency said on Wednesday, after the United States said it was reimposing strict sanctions on Tehran.
“We will obviously do everything, in conjunction with our businesses, to protect their interests,” the source was quoted as saying by Reuters.
US Treasury to End Boeing, Airbus Licenses
Licenses for Boeing and Airbus to sell passenger jets to Iran will be revoked, US Treasury Secretary Steven Mnuchin said on Tuesday after the US pullout from the 2015 Iran nuclear agreement, Reuters reported.
Trump said he would reimpose US economic sanctions on Iran, which were lifted under the agreement he had harshly criticized. The pact, worked out by the United States, five other world powers and Iran, lifted sanctions in exchange for Tehran limiting its nuclear program.
Iran Air had ordered 200 passenger aircraft: 100 from Airbus, 80 from Boeing and 20 from Franco-Italian turboprop maker ATR. All the deals are dependent on US licenses because of the heavy use of American parts in commercial planes.
Boeing agreed in December 2016 to sell 80 aircraft, worth $17 billion at list prices, to Iran Air under an agreement between Tehran and major world powers to reopen trade in exchange for curbs on Iran’s nuclear activities.
The US Treasury Department, which controls licensing of exports, said the United States would no longer allow the export of commercial passenger aircraft, parts and services to Iran after a 90-day period.
“The Boeing and (Airbus) licenses will be revoked,” Mnuchin told reporters. “Under the original deal, there were waivers for commercial aircraft, parts and services and the existing licenses will be revoked.”
European planemaker Airbus said on Tuesday before the Mnuchin news conference that it would study Trump’s decision, adding that it would take some time.
Following the 90-day period ending Aug. 6, the US Treasury Department also said it would revoke a license that allowed American companies to negotiate business deals with Iran. The Boeing license had been valid until September 2020, a person involved in the deal said.
“As we have throughout this process, we’ll continue to follow the US government’s lead,” Boeing Spokesman Gordon Johndroe said before Mnuchin’s comments.
Mnuchin said it may be possible for some companies over the next three months to seek waivers from the sanctions or new licenses to do business with Iran, but he did not identify which companies.
“That’s something we’ll consider on a case-by-case basis, but as an overview, I would say that the purpose is to broadly enforce the sanctions,” he said, adding that the administration’s objective was to deny Iran access to the US financial system.
Boeing Chief Executive Dennis Muilenburg said last month the airplane manufacturer had no Iranian deliveries scheduled this year. He said Boeing’s 777 production plan “is not dependent on the Iranian orders”.
The Iran Air order included 15 Boeing 777-300ER long-range jets. Industry sources said Boeing had been tentatively due to send Iran three 777s this year but had reshuffled deliveries with other buyers.
Shares of Boeing closed down $2.06, or 0.6%, at $338.37 on the New York Stock Exchange after Trump’s announcement. Airbus fell 1.1%, although shares in oil group Total, which also does business in Iran, rose 0.7% as oil prices rose following Trump’s announcement.
“Iran Air will announce its standpoint about its massive contracts with Airbus and Boeing in two weeks,” said Farzaneh Sharafbafi, chief executive of the airline, one day after the US left the nuclear deal.
“In accord with the Iranian government’s policies, we would spend the next two weeks studying the current state of our orders from Boeing and Airbus,” Tasnim News Agency quoted her as saying.
Iran Aseman Airline, the other Iranian airline with a firm Boeing contract, told Financial Tribune that the fate of its deal with the American planemaker will be fully in accordance with the Iranian government’s policies.
Lost Business Opportunities for Plane Leasing Firm
The US decision to restore far-reaching sanctions on Iran closed the door for a major aircraft leasing company’s plans to do business in the country, according to its CEO.
“I think, with yesterday, the opportunity to do business for us is ... not there anymore,” Firoz Tarapore, chief executive of Dubai Aerospace Enterprise, told CNBC’s “Capital Connection”.
When the Joint Comprehensive Plan of Action, the formal name of the Iran nuclear deal, was signed in 2015, companies hoped to be able to step in and meet the country’s demand for new planes.
“Iran, in our opinion, needs somewhere between 400 and 500 new aircraft to modernize its fleet,” Tarapore said on Wednesday. “The average age of its fleet today is 20-plus years old and a lot of the opportunities would’ve come through leasing, because leasing allows airlines in Iran to grow very quickly.”
Tarapore explained that Iran’s airline sector faced many obstacles that were already not being addressed. He added that Dubai Aerospace Enterprise does not do any business in Iran at the moment.
Iran Deals Legal, If EU Sanctions Not Reactivated
Germany’s VDMA engineering association said on Tuesday that as long as the European Union does not reactivate sanctions against Iran, German companies can legally do business with Iran and the VDMA will support them in that.
“The political ball is now in Tehran’s court after US President Donald Trump’s announcement,” said VDMA Managing Director Thilo Brodtmann, adding that the best solution would be for the 2015 Iran nuclear deal to be upheld even without the United States on board, Reuters reported.
“As long as the EU doesn’t reactivate its sanctions against Iran, legal business with Iran continues to be possible for German businesses and the VDMA will continue to support its members in doing that,” Brodtmann said.
The president of Germany’s BGA foreign trade association said on Tuesday he regretted Trump’s decision to withdraw the United States from the Iran nuclear deal and feared it would exacerbate uncertainty among German companies.
BGA President Holger Bingmann said US authorities should publish guidelines for dealing with the new situation as soon as possible, but added: “Even that will only be able to limit slightly the chaos we now expect.”